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you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing at the end of this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . you should read “ cautionary note regarding forward-looking statements ” and item 1a . risk factors of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a clinical stage biopharmaceutical company focused on developing and commercializing innovative therapeutics to treat epilepsy and neuropsychiatric disorders . our clinical stage product candidate , ganaxolone , is a positive allosteric modulator of gaba a being developed in three different dose forms : intravenous ( iv ) , capsule and liquid . the multiple dose forms are intended to maximize therapeutic reach to adult and pediatric patient populations in both acute and chronic care settings . ganaxolone acts on a well-characterized synaptic and extrasynaptic gaba a target known for both anti‑seizure and anti‑anxiety activity . our operations to date have consisted primarily of organizing and staffing our company , developing ganaxolone , including conducting preclinical testing and clinical trials , and raising capital . we have funded our operations primarily through sales of equity and debt securities . at december 31 , 2016 , we had cash , cash equivalents and investment balances of $ 30.1 million . we have no products currently available for sale , have incurred operating losses since inception , have not generated any product sales revenue and have not achieved profitable operations . we incurred a net loss of $ 28.6 million for the year ended december 31 , 2016. our accumulated deficit as of december 31 , 2016 was $ 125.8 million , and we expect to continue to incur substantial losses in future periods . we anticipate that our operating expenses will increase substantially as we continue to advance our clinical-stage product candidate , ganaxolone . we anticipate that our expenses will increase substantially as we : conduct later stage clinical trials in targeted indications , which could include post-partum depression ( ppd ) , status epilepticus ( se ) , cdkl5 disorder ( cdkl5 ) , lennox-gastaut syndrome ( lgs ) , pcdh19 pediatric epilepsy ( pcdh19-pe ) , and fragile x syndrome ( fxs ) ; continue the research , development and scale-up manufacturing capabilities to optimize products and dose forms for which we may obtain regulatory approval ; conduct other preclinical and clinical studies to support the filing of new drug applications ( ndas ) with the food and drug administration ( fda ) and other regulatory agencies in other countries ; maintain , expand and protect our global intellectual property portfolio ; hire additional clinical , manufacturing , and scientific personnel ; and · add operational , financial and management information systems and personnel , including personnel to support our drug development and potential future commercialization efforts . we believe that our cash , cash equivalents and investments as of december 31 , 2016 will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2018. however , we will need to secure additional funding in the future , from one or more equity or debt financings , collaborations , or other sources , in order to carry out all of our planned research and development activities with respect to ganaxolone . 60 financial overview research and development expenses our research and development expenses consist primarily of costs incurred for the development of ganaxolone , which include : employee-related expenses , including salaries , benefits , travel and stock-based compensation expense ; expenses incurred under agreements with clinical research organizations ( cros ) and investigative sites that conduct our clinical trials and preclinical studies ; the cost of acquiring , developing and manufacturing clinical trial materials ; facilities , depreciation and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and other supplies ; and costs associated with preclinical activities and regulatory operations . we expense research and development costs when we incur them . we record costs for some development activities , such as clinical trials , based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment , clinical site activations or information our vendors provide to us . we will incur substantial costs beyond our present and planned clinical trials in order to file an nda and supplemental new drug applications ( sndas ) for ganaxolone for various clinical indications , and in each case , the nature , design , size and cost of further studies and trials will depend in large part on the outcome of preceding studies and trials and discussions with regulators . it is difficult to determine with certainty the costs and duration of our current or future clinical trials and preclinical studies , or if , when or to what extent we will generate revenue from the commercialization and sale of ganaxolone if we obtain regulatory approval . we may never succeed in achieving regulatory approval for ganaxolone . the duration , costs and timing of clinical trials and development of ganaxolone will depend on a variety of factors , including the uncertainties of future clinical trials and preclinical studies , uncertainties in clinical trial enrollment rate and significant and changing government regulation . in addition , the probability of success for ganaxolone will depend on numerous factors , including competition , manufacturing capability and commercial viability . see “ risk factors. story_separator_special_tag in december 2014 , february 2015 , october 2015 and april 2016 we entered into four amendments to the lsa ( collectively , the “ amended lsa ” ) with the same financial institution . in connection with the amended lsa , we borrowed an additional $ 5.0 million in december 2014. pursuant to the terms of the amended lsa , we were required to make monthly interest-only payments for all outstanding borrowings at an interest rate equal to the greater of ( a ) prime rate plus 3.25 % or ( b ) 6.5 % until june 2016. commencing in july 2016 and continuing through june 2018 , we are required to make monthly payments of 1/24th of our principal borrowings plus interest . as of december 31 , 2016 , of our outstanding term loan balance of $ 5.3 million , $ 3.5 million will be due within the next twelve months , and is classified as the current portion of notes payable on our balance sheet . interest expense related to the term loans was $ 459 thousand and $ 461 thousand for the years ended december 31 , 2016 and 2015 , respectively . as of december 31 , 2016 , we had accrued interest of $ 31 thousand . there are no financial covenants associated with these term loans . as of december 31 , 2016 , we were in compliance with all non-financial covenants . funding requirements we have not achieved profitability since our inception , and we expect to continue to incur net losses for the foreseeable future . we expect our cash expenditures to increase in the near term as we fund our planned clinical trials for ganaxolone . we believe that our cash , cash equivalents and investments as of december 31 , 2016 , will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2018. however , we will need to raise substantial additional financing in the future to fund our operations . in order to meet these additional cash requirements , 64 we may seek to sell additional equity or convertible debt securities , including securities from our equity distribution agreement with jmp securities , that may result in dilution to our stockholders . if we raise additional funds through the issuance of convertible debt securities , these securities could have rights senior to those of our common stock and could contain covenants that restrict our operations . there can be no assurance that we will be able to obtain additional equity or debt financing on terms acceptable to us , if at all . our failure to obtain sufficient funds on acceptable terms when needed could have a negative impact on our business , results of operations , and financial condition . our future capital requirements will depend on many factors , including : · the results of our preclinical studies and clinical trials ; · the development , formulation and commercialization activities related to ganaxolone ; · the scope , progress , results and costs of researching and developing ganaxolone or any other future product candidates , and conducting preclinical studies and clinical trials ; · the timing of , and the costs involved in , obtaining regulatory approvals for ganaxolone or any other future product candidates ; · the cost of commercialization activities if ganaxolone or any other future product candidates are approved for sale , including marketing , sales and distribution costs ; · the cost of manufacturing ganaxolone or any other future product candidates in preclinical studies , clinical trials and , if approved , in commercial sale ; · our ability to establish and maintain strategic collaborations , licensing or other arrangements and the financial terms of such agreements ; · any product liability , infringement or other lawsuits related to our products ; · the expenses needed to attract and retain skilled personnel ; · the costs associated with being a public company ; · the costs involved in preparing , filing , prosecuting , maintaining , defending and enforcing patent claims , including litigation costs and the outcome of such litigation ; and · the timing , receipt and amount of sales of , or royalties on , future approved products , if any . please see “ risk factors ” for additional risks associated with our substantial capital requirements . significant contractual obligations and commitments the following summarizes our significant contractual obligations as of december 31 , 2016 ( in thousands ) : replace_table_token_5_th ( 1 ) represents commitments for future minimum lease payments . 65 ( 2 ) represents principal and interest payment obligations that will become due in connection with our outstanding loan facility . off-balance sheet arrangements we do not have any off-balance sheet arrangements , as defined by applicable sec regulations . discussion of critical accounting policies and significant judgments and estimates we base this management 's discussion and analysis of our financial condition and results of operations on our financial statements , which we have prepared in accordance with accounting principles generally accepted in the united states ( gaap ) . the preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses and the disclosure of contingent assets and liabilities in our financial statements . we evaluate our estimates and judgments , including those related to warrant liabilities , stock-based compensation and accrued clinical trial expenses on an ongoing basis . we base our estimates on historical experience , known trends and events and various other factors that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . you should consider your evaluation of our financial condition and results of operations with these policies , judgments and estimates in mind .
| results of operations year ended december 31 , 2016 compared to year ended december 31 , 2015 research and development expenses research and development expenses increased $ 3.1 million , to $ 22.0 million , for the year ended december 31 , 2016 , compared to the same period of 2015. the increase was primarily due to an increase of $ 2.7 million associated with preclinical and clinical activities in our iv program , and $ 1.4 million associated with increases in salaries , benefits and noncash stock-based compensation , mostly attributable to increased headcount . this increase was partially offset by a decrease of $ 1.3 million in costs associated with our drug-resistant focal onset seizure program , which discontinued in june 2016. the primary drivers of our research and development expenditures have been in our drug-resistant focal onset seizures and iv programs . we incurred $ 12.8 million and $ 3.3 million in research and development expenses related to our preclinical and clinical activities associated with our drug-resistant focal onset seizures and iv programs , respectively , in the year ended december 31 , 2016 , compared to $ 14.1 million and $ 0.6 million for the year ended december 31 , 2015. general and administrative expenses general and administrative expenses increased $ 0.7 million , to $ 6.2 million , for the year ended december 31 , 2016 , compared to the same period of 2015. the increase in general and administrative expenses was primarily due to an increase in noncash stock-based compensation expense . cash flows operating activities . cash used in operating activities increased to $ 24.8 million for the year ended december 31 , 2016 compared to $ 20.1 million for the same period a year ago . the increase was driven primarily by an increase in our net loss of $ 3.8 million and a net decrease in the change in operating assets and liabilities of $ 1.8
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( 5 ) holders may put their notes to us on february 15 , 2023. conversion rights : holders of our convertible notes may convert their notes under the following circumstances : ( 1 ) if the notes are called for redemption ; ( 2 ) during any calendar quarter if the closing price of our common story_separator_special_tag this discussion should be read in conjunction with the consolidated financial statements and accompanying notes for the year ended august 30 , 2018. all period references are to our fiscal periods unless otherwise indicated . our fiscal year is the 52 or 53-week period ending on the thursday closest to august 31. our fiscal 2018 , 2017 , and 2016 each contain 52 weeks . all production data includes the production of imft and inotera . all tabular dollar amounts are in millions , except per share amounts . for an overview of our business , see `` part i – item 1. business – overview . '' 28 story_separator_special_tag increases in sbu sales volumes for 2018 resulting from strong demand for cloud and enterprise ssd markets more than offset declines in selling prices . sbu sales also include `` non-trade '' products consisting of products manufactured and sold to intel through imft under a long-term supply agreement at prices approximating cost , which included 3d xpoint memory and nand products , aggregating $ 541 million , $ 553 million , and $ 501 million , for 2018 , 2017 , and 2016 , respectively . ebu sales for 2018 increased 29 % as compared to 2017 primarily due to strong demand across ebu 's primary markets including consumer , industrial multimarkets , and automotive . ebu sales were comprised of products incorporating dram , nand , and nor flash in decreasing order of revenue . cnbu sales for 2017 increased 90 % as compared to 2016 due to increases in average selling prices due to strong demand across key markets , growth in the cloud market driven by significant increases in dram content per server , and increases in sales of our gddr5 and gddr5x products into the graphics market driven by strong demand from the gaming industry . mbu sales for 2017 increased 72 % as compared to 2016 primarily due to significant increases in sales volumes , driven by customer qualifications for lpdram and managed nand products , combined with higher memory content in smartphones and growth in sales of emcp products . mbu sales growth in 2017 was partially offset by declines in average selling prices for trade nand products . sbu sales of trade nand products for 2017 increased 41 % as compared to 2016 primarily due to increases in sales volumes from strong demand , particularly for component nand and client and cloud ssd storage products , partially offset by declines in average selling prices . sbu sales of ssd storage products increased by 137 % for 2017 as compared to 2016 primarily as a result of the launch of new ssd products incorporating our tlc 3d nand technology . ebu sales for 2017 increased 39 % as compared to 2016 primarily due to strong demand and higher sales volumes for dram and emcp in consumer markets and dram and emmc products in the automotive markets . 30 operating income ( loss ) by business unit replace_table_token_7_th percentages reflect operating income ( loss ) as a percentage of net sales for each business unit . cnbu operating income for 2018 improved from 2017 primarily due to improved pricing and higher sales volumes resulting from strong demand for our products combined with manufacturing cost reductions . mbu operating income for 2018 improved from 2017 primarily due to increases in pricing and sales volumes for lpdram products , higher sales of high-value managed nand products , and manufacturing cost reductions . sbu operating income for 2018 improved from 2017 primarily due to manufacturing cost reductions enabled by our execution in transitioning to 64-layer tlc 3d nand products and improvements in product mix . sbu operating income for 2018 was adversely impacted by higher costs associated with imft 's production of 3d xpoint memory products at less than full capacity . ebu operating income for 2018 increased as compared to 2017 as a result of increases in average selling prices , manufacturing cost reductions , and increases in sales volumes , partially offset by higher r & d costs . cnbu operating margin for 2017 improved from 2016 primarily due to improved pricing from strong market conditions , manufacturing cost reductions , and product mix . mbu operating income for 2017 improved from 2016 primarily due to manufacturing cost reductions and higher sales volumes , partially offset by higher r & d costs and declines in average selling prices for trade nand products . sbu operating margin for 2017 improved from 2016 primarily due to manufacturing cost reductions , partially offset by declines in average selling prices . ebu operating income for 2017 increased as compared to 2016 as a result of manufacturing cost reductions , which outpaced declines in average selling prices , and increases in sales volumes . operating expenses and other selling , general , and administrative sg & a expenses for 2018 were 9 % higher than 2017 primarily due to increases in legal costs , technical and consulting fees , and employee compensation . sg & a expenses for 2017 were 13 % higher than 2016 primarily due to increases in employee compensation as well as transaction costs related to the inotera acquisition . research and development r & d expenses vary primarily with the number of development wafers processed , the cost of advanced equipment dedicated to new product and process development , and personnel costs . because of the lead times necessary to manufacture our products , we typically begin to process wafers before completion of performance and reliability testing . development of a product is deemed complete when it is qualified through reviews and tests for performance and reliability . story_separator_special_tag beginning in 2019 , our effective tax rate may increase to the low teens percentage depending on the amount and geographic mix of taxable income . income taxes for 2018 , 2017 , and 2016 included tax benefits of $ 1 million , $ 28 million , and $ 58 million , respectively , related to the favorable resolution of certain tax matters , which were previously reserved as uncertain tax positions . during 2018 , we reassessed our capital structure , including our board of directors ' authorization to repurchase up to $ 10 billion of our outstanding common stock beginning in 2019 , the future cash needs of our global operations , and the effects of the tax act . as a result of this reassessment , we deemed a portion of our foreign earnings to be no longer indefinitely reinvested . as a result of the repatriation tax , substantially all of our accumulated foreign earnings prior to december 31 , 2017 32 were subject to u.s. federal taxation . although these earnings have been subject to u.s. federal income tax under the repatriation tax , the repatriation to the united states of all or a portion of these earnings would potentially be subject to foreign withholding and state income tax . as of august 30 , 2018 , we had a deferred tax liability of $ 82 million associated with our undistributed earnings . we operate in a number of tax jurisdictions outside the unites states , including singapore , where we have tax incentive arrangements , which expire in whole or in part at various dates through 2031 , that are conditional , in part , upon meeting certain business operations and employment thresholds . the effect of tax incentive arrangements reduced our tax provision by $ 1.96 billion ( benefiting our diluted earnings per share by $ 1.59 ) for 2018 , by $ 742 million ( $ 0.64 per diluted share ) for 2017 , and were not material in 2016 . ( see `` item 8. financial statements and supplementary data – notes to consolidated financial statements – income taxes . '' ) other net interest expense decreased 60 % for 2018 as compared to 2017 due to decreases in debt obligations and increases in interest income . net interest expense increased 42 % for 2017 as compared to 2016 primarily due to increases in debt obligations , including our borrowings of 80 billion new taiwan dollars in december 2016 in connection with our acquisition of inotera and $ 1.25 billion from the issuance of our 2023 secured notes in april 2016. further discussion of other operating and non-operating income and expenses can be found in the following notes contained in `` item 8. financial statements and supplementary data – notes to consolidated financial statements '' : equity plans research and development other operating income ( expense ) , net other non-operating income ( expense ) , net liquidity and capital resources our primary sources of liquidity are cash generated from operations and financing obtained from capital markets and financial institutions . cash generated from operations is highly dependent on selling prices for our products , which can vary significantly from period to period . we are continuously evaluating alternatives for efficiently funding our capital expenditures and ongoing operations . we expect , from time to time , to engage in a variety of financing transactions for such purposes , including the issuance of securities . we have an undrawn revolving credit facility that expires in july 2023 and provides for borrowings of up to $ 2.00 billion . we expect that our cash and investments , cash flows from operations , and available financing will be sufficient to meet our requirements at least through the next 12 months . to develop new product and process technology , support future growth , achieve operating efficiencies , and maintain product quality , we must continue to invest in manufacturing technologies , facilities and equipment , and r & d . we estimate that capital expenditures in 2019 for property , plant , and equipment , net of partner contributions , to be $ 10.5 billion plus or minus 5 % , focused on technology transitions and product enablement . the actual amounts for 2019 will vary depending on market conditions . as of august 30 , 2018 , we had commitments of approximately $ 1.8 billion for the acquisition of property , plant , and equipment , substantially all of which is expected to be paid within one year . in may 2018 , we announced that our board of directors had authorized the discretionary repurchase of up to $ 10 billion of our outstanding common stock beginning in 2019. we may purchase shares on a discretionary basis through open-market purchases , block trades , privately-negotiated transactions , derivative transactions , and or pursuant to a rule 10b5-1 trading plan , subject to market conditions and our ongoing determination of the best use of available cash . the repurchase authorization does not obligate us to acquire any common stock . from august 31 , 2018 through october 12 , 2018 , we repurchased an aggregate of $ 1.65 billion of our common stock under an accelerated share repurchase ( `` asr '' ) agreement , a rule 10b5-1plan , and through open market repurchases . pursuant to the asr , we entered into an agreement with a financial institution to purchase $ 1.00 billion of our common stock in the first quarter of fiscal 2019. the number of shares ultimately purchased will be calculated by dividing $ 1.00 billion by a volume-weighted average price of our common stock from september 5 , 2018 through as late as november 29 , 2018 ( the 33 `` measurement period '' ) , subject to an agreed-upon discount .
| results of operations consolidated results replace_table_token_5_th total net sales total net sales for 2018 increased 50 % as compared to 2017. higher sales in 2018 for both dram and nand products as compared to 2017 were driven by strong execution in delivering high-value products featuring our 1xnm dram and 64-layer 3d nand technologies combined with strong demand for products across our primary markets . sales of dram products for 2018 increased 64 % from 2017 primarily due to an increase in average selling prices of approximately 35 % and an increase in sales volumes of approximately 20 % as a result of strong market conditions , particularly for cloud , enterprise , mobile , and graphics markets , combined with increased sales into high-value markets . sales of trade nand products for 2018 increased 26 % from 2017 despite declines in average selling prices primarily due to an increase in sales volumes of approximately 40 % driven by increases in sales of high-value ssd and mobile managed nand products enabled by strong demand and our execution in delivering 3d nand products . total net sales for 2017 increased 64 % as compared to 2016 due to strong conditions across our primary markets , particularly for enterprise , mobile , client , and ssd storage . sales of dram products for 2017 increased 80 % from 2016 due to an increase in sales volumes of approximately 50 % and an increase in average selling prices of approximately 20 % as a result of the strong market conditions . sales of trade nand products for 2017 increased approximately 50 % as compared to 2016 due to an increase in sales volumes of approximately 65 % resulting from strong market demand for our 3d nand products , which was partially offset by declines in average selling prices .
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they can be identified by the use of words such as “ outlook , ” “ forecast , ” “ 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 worldwide sales decreased 11 % in 2020 to $ 1.595 billion as compared with $ 1.791 billion in 2019. foreign exchange had an unfavorable impact on sales of $ 16 million or 1 % . consolidated income from operations was $ 187.9 million as compared with $ 208.7 million in the prior year . included in income from operations for 2020 was $ 10.4 million related to litigation expenses associated with the bankruptcy of novinda corp , $ 7.6 million for assets write-downs and severance-related costs , $ 3.1 million of acquisition-related expenses and $ 4.0 million in costs related to system restoration and risk mitigation following a ransomware attack on certain of the company 's information technology systems . included in income from operations in 2019 were restructuring and other items of $ 13.2 million and a $ 10.9 million charge related to litigation expenses associated with the bankruptcy of novinda corp. net income was $ 112.4 million in 2020 , as compared to $ 132.7 million in the prior year . the company reported diluted earnings of $ 3.29 per share in 2020 as compared with $ 3.78 per share in the prior year . in march 2020 , the world health organization categorized the novel coronavirus ( covid-19 ) as a pandemic . we have remained focused on the health and safety of our employees , and deployed rigorous health , safety and wellness protocols for all of our facilities in order to protect our employees . we have also conducted scenario planning and developed contingency plans to ensure we are supporting our customers and adjusting to changing market dynamics . around the world , the company continues to closely adhere to all government regulations as they are issued . applicable governmental directives across the united states and other global locations have typically permitted the continued operation of essential critical infrastructure sectors . as the company supplies products and services to many essential industries , including critical manufacturing and energy sectors , all of our operations had qualified as essential businesses . accordingly , all of the company 's production facilities are currently operational . in a few locations , however , sites were temporarily impacted by the pandemic during 2020 . 32 the economic environment related to the covid-19 pandemic , which slowed business activity in several key end-markets , negatively impacted the company 's results in 2020. the pandemic has affected and may continue to affect the demand for a number of our performance materials segment 's products and services . paper consumption has been and may continue to be impacted . global steel production has been and may continue to be affected by volatility in the market due to the pandemic , which could impact our refractory segment . oil and natural gas prices have been volatile as a result of the pandemic , and this could cause oil and natural gas companies to reduce their capital expenditures and production and exploration activities . the impacts of the covid-19 pandemic may continue to impact our results during 2021. the extent to which our operations will be impacted by the pandemic will depend largely on future developments , including the continued severity of the pandemic and future actions by government authorities to contain it or treat its impact . these conditions are highly uncertain and can not be accurately predicted . we will continue to actively monitor and respond to the evolving situation . in 2020 , the company continued to execute on its growth strategies of geographic expansion and new product innovation . the company delivered sales growth across several product lines and geographies , increased volumes through capacity expansions and a new pcc satellite facility , and capitalized on customer demand for our latest innovative products . long-term debt as of december 31 , 2020 was $ 933.2 million . on june 30 , 2020 , the company issued $ 400 million aggregate principal amount of 5.0 % senior notes due 2028. the net proceeds were used to repay $ 148 million of fixed rate term loans and $ 100 million of outstanding borrowing under its revolving credit facility and the remainder for general corporate purposes . additionally , in 2020 , we repurchased $ 40.7 million of treasury shares . our balance sheet continues to be strong . cash , cash equivalents and short-term investments were $ 371.8 million as of december 31 , 2020. cash flow from operations for 2020 was $ 240.6 million . the company currently has more than $ 650 million of available liquidity , including cash on hand , as well as availability under its revolving credit facility . we believe these factors will allow us to meet our anticipated funding requirements . story_separator_special_tag performance materials segment replace_table_token_9_th 2020 v 2019 net sales in the performance materials segment in 2020 were $ 752.8 million and decreased $ 70.5 million , or 9 percent from 2019. metalcasting 's sales decreased $ 33.1 million or 11 percent , primarily due to covid-19 related weaker foundry demand in north america . household , personal care & specialty products sales increased $ 3.6 million or 1 percent from the prior year , primarily driven by strong demand for consumer-oriented products . environmental products and building materials sales experienced covid-19 related project delays that yielded a decrease in sales from the prior year of $ 28.0 million and $ 13.0 million , respectively . income from operations increased $ 6.5 million to $ 103.6 million in 2020 and represented 13.8 % of net sales as compared to $ 97.1 million and 11.8 % of sales in 2019. pricing actions , cost control and expense reductions more than offset the impact of lower sales versus the prior year . 2019 v 2018 net sales in the performance materials segment in 2019 were $ 823.3 million and decreased $ 4.8 million , or 1 percent from 2018. foreign exchange had an unfavorable impact of $ 13.4 million or 2 % . metalcasting 's sales decreased $ 37.7 million or 11 percent , primarily due to lower market-based pricing and volumes in the specialty sands products , as well as weaker demand in us automotive , heavy truck and agriculture equipment . household , personal care & specialty products sales increased 8 percent , primarily driven by continued strong performance of our global pet care business , as well as increases in our human and animal health businesses . in the third quarter of 2019 , the company combined its basic minerals product line with its household , personal care & specialty products product line . environmental products sales rose 8 percent due to a large international project and higher volumes of our geosynthetic clay liners and specialty liners . building materials sales decreased 2 % due primarily to the difference in magnitude of waterproofing projects as compared with prior year . income from operations decreased $ 19.7 million to $ 97.1 million in 2019 and represented 11.8 % of net sales as compared to $ 116.8 million and 14.1 % of sales in 2018. included in income from operations were $ 7.0 million of restructuring and impairment costs . while pricing actions more than offset higher raw material costs , operating income and margins were impacted by lower metalcasting sales and unfavorable product mix . 37 specialty minerals segment replace_table_token_10_th 2020 v 2019 net sales in the specialty minerals segment decreased 11 percent to $ 510.9 million in 2020 from $ 574.4 million in 2019. worldwide sales of pcc products decreased to $ 377.7 million in 2020 from $ 434.0 million in the prior year largely due to lower paper demand and temporary covid-19 related customer shutdowns . specialty pcc sales remained flat as compared with prior year as automotive and residential construction markets rebounded during 2020 and consumer-oriented markets continue to be strong . sales of processed minerals products decreased 5 percent to $ 133.2 million in 2020 primarily driven by the slowdown in residential construction and automotive markets in the second and third quarters . income from operations decreased $ 15.3 million to $ 67.8 million in 2020 and represented 13.3 % of net sales compared to $ 83.1 million and 14.5 % of sales in the prior year . included in income from operations were $ 7.6 million of restructuring and impairment costs . 2019 v 2018 net sales in the specialty minerals segment decreased 3 percent to $ 574.4 million in 2019 from $ 589.3 million in 2018. worldwide sales of pcc products decreased to $ 434.0 million in 2019 from $ 445.4 million in the prior year largely due to previously announced customer paper machine shutdowns in north america , including the closure of two u.s. paper mills in the first and fourth quarters of 2019. these shutdowns were offset by a 3 percent increase in paper pcc volumes in asia as a result of the ramp up of a new satellite and additional capacity . specialty pcc increased 3 percent primarily due to demand-driven expansions . sales of processed minerals products decreased 2 percent to $ 140.4 million in 2019 primarily driven by a reduction of sales in the automotive and construction markets . income from operations decreased $ 12.3 million to $ 83.1 million in 2019 and represented 14.5 % of net sales compared to $ 95.4 million and 16.2 % of sales in the prior year . this decrease was primarily driven by the paper mill shutdowns in north america and lower volumes in europe , which was partially offset by higher pricing . included in income from operations for 2019 were restructuring and asset write-down charges of $ 2.5 million . 38 refractories segment replace_table_token_11_th 2020 v 2019 net sales in the refractories segment decreased 13 percent to $ 258.1 million in 2020 , as a result of steel mill utilization rates decline in the second quarter in north america and europe , which was followed by a gradual improvement in the second half of the year . income from operations decreased $ 4.3 million to $ 35.5 million and represented 13.8 % of net sales in 2020 compared to $ 39.8 million or 13.4 % of sales in 2019 due to lower refractory volumes globally . 2019 v 2018 net sales in the refractories segment decreased 4 percent to $ 298.1 million in 2019 , driven by lower sales of refractory products globally , partially offset by higher metallurgical products and laser equipment sales . income from operations decreased $ 5.6 million to $ 39.8 million and represented 13.4 % of net sales in 2019 compared to $ 45.4 million or 14.6 % of sales in 2018 due to lower refractory volumes globally .
| results of operations consolidated income statement review replace_table_token_7_th * not meaningful 34 net sales replace_table_token_8_th worldwide net sales in 2020 decreased 11 % from the previous year to $ 1,594.8 million . foreign exchange had an unfavorable impact on sales of approximately $ 16 million or 1 percentage point . net sales in the united states decreased 14.5 % to $ 822.5 million in 2020 and represented 52 % of consolidated net sales . international sales decreased 6.8 % to $ 772.3 million in 2020 and represented 48 % of consolidated net sales . worldwide net sales in 2019 decreased 1 % from the previous year to $ 1,791.0 million . foreign exchange had an unfavorable impact on sales of approximately $ 32.8 million or 2 percentage points . net sales in the united states increased 0.1 % to $ 962.4 million in 2019 and represented 54 % of consolidated net sales . international sales decreased 2.1 % to $ 828.6 million in 2019 and represented 46 % of consolidated net sales . operating costs and expenses consolidated cost of sales was $ 1,189.4 million , $ 1,350.4 million and $ 1,346.2 million in 2020 , 2019 and 2018 , respectively . production margin as a percentage of net sales was 25.4 % in 2020 , 24.6 % in 2019 and 25.5 % in 2018. the increase in production margin in 2020 was primarily due to higher selling prices and cost control . marketing and administrative costs were $ 176.5 million , $ 187.5 million and $ 178.6 million in 2020 , 2019 and 2018 , respectively . marketing and administrative costs as a percentage of net sales were 11.1 % in 2020 , 10.5 % in 2019 and 9.9 % in 2018. included in marketing and administrative costs in 2020 was a $ 4.0 million charge relating to system restoration and risk mitigation following a ransomware attack on certain of the company 's information technology systems .
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overview we are an industrial technology leader that develops and manufactures solutions for both the hydraulics and electronics markets , each of which serves as a reportable segment . we were originally founded in 1970 as sun hydraulics corporation , which designed and manufactured cartridge valves for hydraulics systems . we changed the company 's legal name on june 13 , 2019 , from sun hydraulics corporation to helios technologies , inc. on june 17 , 2019 , shares of helios began trading on the nasdaq under the new ticker symbol “ hlio ” . strategic vision our strategic goals are to achieve $ 1 billion in sales through a combination of organic growth and acquisitions , while remaining a technology leader and delivering superior profitability , with operating margins in excess of 20 % . we are augmenting our strategy with value streams that will help us to execute our goals and potentially accelerate the achievement of our strategic vision . we believe the value streams will deliver growth , diversification and market leading financial performance as we develop into a more sophisticated , globally oriented , customer centric and learning organization . these are : 1. protect the business through customer centricity and drive cash generation through the launch of new products and leveraging existing products ; 2. think and act globally to better leverage our assets , accelerate innovation and diversify end markets by driving intra- and inter-company initiatives and by building in the region for the region ; 3. create greater opportunities for growth while reducing risk and cyclicality by diversifying our markets and sources of revenue by swarming commercial opportunities that leverage our products and technologies ' value in new markets such as defense and commercial food service ; and 4. develop our talent , our most critical resource , through a culture of customer-centricity through the embracement of diversity , engagement of the team , focus on shared , deeply rooted values and promotion of a learning organization . our strategy is underpinned by the execution of acquisitions , which we expect to include bolt-on flywheel type acquisitions ( up to $ 100 million in enterprise value ) and the evaluation of more transformative acquisitions ( $ 100 million to $ 1 billion in enterprise value ) . the objective of our acquisition strategy is to enhance helios by : growing our current product portfolio or adding new technologies and capabilities that complement our current offerings ; expanding geographic presence ; and bringing new customers or markets . to support the execution of our strategy , our financial strategy is oriented on delivering industry leading margins , a strong balance sheet and sufficient financial flexibility to support organic and acquisitive growth . 32 we align our i nternal key performance indicators with our strategy to ensure our short-term actions will deliver long-term expectations . we employ several tactics to execute our strategies , which include capitalizing on our unique and deeply rooted values , structured human capital development and differentiated engineering for both products and processes . continued product development is a key factor to organic and synergistic growth in both the hydraulics and electronics segments , including joint development between the two segments . in the hydraulics segment , we continue to invest in our flex series of electro-hydraulic cartridge valves for the mobile and industrial markets in both high and low pressure applications . we have already released over 25 new flex series valves and will have a significant number of additional introductions to the flex family . these products allow us to compete in parts of the market where we could not before , including complete valve solutions . investments in sustaining engineering and simulation development are delivering performance improvements of our existing valves by reducing manufacturing costs through improved first pass yield . in addition , the sophistication process of coupling solutions and the electrification of these products has now entered the second phase of its development . we have identified new products to be developed and tested with selected customers with the goal of reinforcing the technological advantage we have historically had and so that we can continue to expand in this market . in the electronics segment , we have launched our new line of ace-configurable mcx controllers . built for market flexibility , the mcx controller series empowers original equipment manufacturers ( “ oems ” ) and distribution partners with a machine control hardware and software system solution that can be easily adapted to any application using our intuitive ace configuration software or the widely used codesys platform . ace software allows users to quickly build a solution using our patented drag-and-drop coding blocks and makes it easy to rapidly incorporate sun hydraulics ' components and enovation controls ' customizable displays into a project . mcx hardware and ace software , combined with sun 's xmd drivers and flex series directional valves , provide customers a complete solution for a wide range of electro-hydraulic control applications . enovation controls has also launched a complete family of edge-to-edge connected powerview displays for existing recreational and off-highway customers . with new smaller , higher-resolution screen sizes to fit the needs of customers , this new platform has brought us significant new customer wins . acquisitions our acquisition activity , driven by our strategic vision , has enabled us to diversify our product offerings and the markets we serve and expand our geographic presence . prior to 2016 , we operated primarily in the hydraulics market with a small presence in electronics . since our acquisitions of enovation controls in 2016 and faster and custom fluidpower in 2018 , we have entered into several new markets , including , marine , power generation , recreational vehicles and mining . we have also expanded our presence in the agricultural , construction equipment , general industrial and material handling end markets . story_separator_special_tag we also rely on global government statistics such as gross domestic product and purchasing managers index to understand higher level economic conditions . hydraulics according to the national fluid power association ( the fluid power industry 's trade association in the u.s. ) , the u.s. index of shipments of hydraulic products decreased 17 % in 2020 , after decreasing 7 % in 2019 and increasing 13 % in 2018. in europe , the cema business barometer reports that in february 2021 , the business climate index for the european agricultural machinery industry has risen to a clear boom level after having reached the positive range in october for the first times since mid-2019 . the cece ( committee for european construction equipment ) business climate index continued its recovery in november as future business expectations reached pre-pandemic levels and the climate index hit the neutral line for the first time since march 2020. electronics the federal reserve 's industrial production index , which measures the real output of all relevant establishments located in the u.s. , reports sales of semiconductors and other electronics components improved during the fourth quarter of 2020 , exceeding fourth quarter 2019 levels . the institute of printed circuits association reported that total north american printed circuit board shipments in december 2020 increased 4.5 % compared with the same month last year ; compared with november 2020 , december shipments grew 9.8 % . in our electronics segment , we experienced declining sales in excess of the overall market , due to softer demand in recreational and oil and gas end markets as well as a strategic change we made to our customer base during 2019. in addition , several of our large oem customers had requested to adjust the timing of order request dates into later quarters . for additional information , refer to the discussion of 2020 results of our electronics segment below . 35 2020 results and comparison of years ended january 2 , 2021 and december 28 , 2019 the following table sets forth our consolidated results of operations : replace_table_token_3_th consolidated net sales for the 2020 year totaled $ 523.0 million , down 5.7 % compared with 2019. the company 's acquisition of balboa on november 6 , 2020 added $ 26.1 million in sales for the year . changes in foreign currency exchange rates favorably impacted sales by $ 2.0 million for the year . a large portion of the decline in sales compared with 2019 is attributed to the effects of the covid-19 pandemic on our business , customers and end markets . during the month of april , we experienced a considerable impact on sales due to facility closures , customer shut-downs and regulatory restrictions imposed on shipments . our production capabilities recovered throughout the second quarter , with the third quarter returning to more typical levels while order intake remained soft throughout the year . towards the end of the year , we began to experience some recovery , with fourth quarter sales of our legacy businesses exceeding second and third quarter levels driven primarily by demand in the european agriculture market and the u.s. recreational marine market . from a geographic perspective , excluding the acquisition and foreign currency impacts , our sales to the americas and emea regions were impacted significantly during the year , declining 20.4 % and 9.1 % over 2019 , respectively . increased demand and our recent expansion efforts in the apac region drove sales growth of 4.6 % over 2019. gross profit margin declined 0.8 percentage points during 2020 from 38.3 % to 37.5 % . the impact of amortization of acquisition-related inventory step up costs resulting from the balboa acquisition of $ 1.9 million accounted for 0.4 percentage points of the decline . throughout the year , we implemented multiple cost saving measures to mitigate the effects of the downturn , including decreased use of consultants and contractors , adjustments to our fixed cost labor base by implementing salary reductions , furloughs and layoffs , and reduced travel and other discretionary spending . our cost saving measures have been partially offset as we have incurred costs related to the purchase of safety equipment , personal protective equipment and higher cleaning costs to ensure our employees ' safety during the pandemic . during the first quarter of 2020 , current and expected economic impacts from the covid-19 pandemic led to an impairment charge of $ 31.9 million of goodwill at our faster reporting unit . current year profitability was further impacted by non-recurring costs of $ 2.6 million related to the transition of two of our officers , including our former chief executive officer and $ 6.6 million of transaction costs for our acquisition of balboa . amortization on balboa intangible assets totaled $ 4.0 million during 2020. as a result of these impacts , operating margin for the year declined to 6.8 % . 36 story_separator_special_tag light ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > gross profit contracted by $ 3.1 million , 6.1 % , in 2020 , primarily due to the lower sales volume . gross profit margin declined 4.2 percentage points to 41.3 % compared with 45.5 % in 2019. gross margin was heavily impacted by reduced leverage of our fixed cost base on lower sales throughout the year and the addition of spa and bath product sales which have a different margin profile compared with our historical business resulting in higher cost of goods and lower sea costs . cost management efforts and a $ 0.9 million non-recurring benefit from the release of contractual obligations to customers during the 2020 first quarter helped to mitigate the impacts . 38 sea expenses fell $ 0 .5 million , 1.7 % , to $ 28 .
| segment results hydraulics the following table sets forth the results of operations for the hydraulics segment ( in millions ) : replace_table_token_4_th net sales for the hydraulics segment totaled $ 407.2 million in 2020 , representing a contraction of $ 35.6 million , 8.0 % , over the prior year . changes in foreign currency exchange rates favorably impacted sales for the year by $ 2.0 million . disruptions caused by the pandemic , including our facility closures and regulatory restrictions on shipments experienced during the first and second quarters , as well as ongoing reduced end market demand and related impacts to our customers , led to the diminished sales during the year . the following table presents net sales based on the geographic region of the sale for the hydraulics segment ( in millions ) : replace_table_token_5_th shipments and demand weakened in the americas region during 2020 with sales declining $ 31.8 million , 19.6 % , compared with the prior year . sales to the emea region decreased 9.1 % after consideration of positive impacts from foreign currency fluctuations totaling $ 2.5 million during 2020. sales to the apac region during 2020 were up $ 6.6 million , 4.8 % , over 2019 , due to improved demand in china as well as our recent expansion efforts in the region . after consideration of negative impacts from changes in foreign currency exchange rates of $ 0.6 million , sales to the apac region improved 5.2 % over 2019. hydraulics segment gross profit trended downward in 2020 compared with 2019 , due to lower sales volume . changes in foreign currency exchange rates had a favorable impact on gross profit for the year of $ 0.3 million . gross profit margin improved by 0.5 percentage points in 2020 compared with the prior year .
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furthermore , operating profits for our primary advertising business , trivago , have typically been experienced in the second half of the year , particularly the fourth quarter , as selling and marketing costs offset revenue in the first half of the year story_separator_special_tag overview expedia group 's mission is to power global travel for everyone , everywhere . we believe travel is a force for good . travel is an essential human experience that strengthens connections , broadens horizons and bridges divides . we help reduce the barriers to travel , making it easier , more enjoyable , more attainable and more accessible . we bring the world within reach for customers and partners around the globe . we leverage our supply portfolio , platform and technology capabilities across an extensive portfolio of consumer brands , and provide solutions to our business partners , to orchestrate the movement of people and the delivery of travel experiences on both a local and global basis . we make available , on a stand-alone and package basis , travel services provided by numerous lodging properties , airlines , car rental companies , activities and experiences providers , cruise lines , alternative accommodations property owners and managers , and other travel product and service companies . we also offer travel and non-travel advertisers access to a potential source of incremental traffic and transactions through our various media and advertising offerings on our websites . for additional information about our portfolio of brands , see the disclosure set forth in part i , item 1 , business , under the caption “ management overview. ” this section of this form 10-k generally discusses the years ended december 31 , 2020 and 2019 items and year over year comparisons between 2020 and 2019. discussions of the year ended december 31 , 2018 items and the year over year comparisons between 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 the company 's annual report on form 10-k for the fiscal year ended december 31 , 2019. all percentages within this section are calculated on actual , unrounded numbers . trends the covid-19 pandemic , and measures to contain the virus , including government travel restrictions and quarantine orders , have had a significant negative impact on the travel industry . covid-19 has negatively impacted consumer sentiment and consumer 's ability to travel , and many of our supply partners , particularly airlines and hotels , continue to operate at reduced service levels . as the spread of the virus has been contained to varying degrees in certain countries , some travel restrictions have been lifted and consumers have become more comfortable traveling , particularly to domestic locations . this has led to a moderation of the declines in travel bookings and in cancellation rates compared to the march and april 2020 time period . however , travel booking volume remains significantly below prior year levels and cancellation levels remain elevated compared to pre-covid levels . the degree of containment of the virus , and the recovery in travel , has varied country by country . during the recovery period , there have been instances where cases of covid-19 have started to increase again after a period of decline , which in some cases impacted the recovery of travel in certain countries . while many countries have begun the process of vaccinating their residents against covid-19 , the large scale and challenging logistics of distributing t he vaccines , as well as uncertainty over the efficacy of the vaccine against new variants of the virus , may contribute to delays in economic recovery . covid-19 has also had broader economic impacts , including an increase in unemployment levels and reduction in economic activity , which could lead to recession and further reduction in consumer or business spending on travel activities , which may negatively impact the timing and level of a recovery in travel demand . broader , sustained negative economic impacts could also put strain on our suppliers , business and service partners which increases the risk of credit losses and service level or other disruptions . our financial and operating results for 2020 were significantly impacted due to the decrease in travel demand related to covid-19 . we expect the impact to the overall travel market , and our business , to continue into 2021. the full duration and total impact of covid-19 remains uncertain and it is difficult to predict how the recovery will unfold for the travel industry and , in particular , our business . additionally , further health-related events , political instability , geopolitical conflicts , acts of terrorism , significant fluctuations in currency values , sovereign debt issues , and natural disasters , are examples of other events that could have a negative impact on the travel industry in the future . prior to the onset of covid-19 , we began to execute a cost savings initiative aimed at simplifying the organization and increasing efficiency . following the onset of covid-19 , we accelerated execution on several of these cost savings initiatives and took additional actions to reduce costs to help mitigate the impact to demand from covid-19 and reduce our monthly cash usage . while some cost actions during covid-19 are temporary and intended to minimize cash usage during this disruption , we expect to continue to benefit from the majority of the savings when business conditions return to more normalized levels . overall , we now expect annualized run-rate fixed cost savings of $ 700 to $ 750 million , and we continue to evaluate additional opportunities to increase efficiency and improve operational effectiveness across the company . in addition to the actions to reduce fixed costs , we are executing initiatives to reduce certain variable costs and improve our marketing efficiency . story_separator_special_tag the uncertain environment related to covid-19 , and the potential for a higher degree of discounting activity due to the lower travel demand , could result in continued hotel adr declines for a period of time . similarly , fluctuations in supply and 32 demand for alternative accommodations , could impact adrs for vrbo . in addition , travel restrictions and shift in consumer behavior during covid-19 that impact the mix of our lodging bookings across geographies and types of accommodations could impact total adrs . given these dynamics , it is difficult to predict adr trends in the near-term . as of december 31 , 2020 , our global lodging marketplace had over 2.9 million lodging properties available , including over 2 million online bookable alternative accommodations listings and approximately 880,000 hotels . hotel . we generate the majority of our revenue through the facilitation of hotel reservations ( stand-alone and package bookings ) . after rolling out etp globally over a period of several years , during which time we reduced negotiated economics in certain instances to compensate for hotel supply partners absorbing expenses such as credit card fees and customer service costs , our relationships and overall economics with hotel supply partners have been broadly stable in recent years . as we continue to expand the breadth and depth of our global hotel offering , in some cases we have reduced our economics in various geographies based on local market conditions . these impacts are due to specific initiatives intended to drive greater global size and scale through faster overall room night growth . additionally , increased promotional activities such as growing loyalty programs contribute to declines in revenue per room night and profitability . since our hotel supplier agreements are generally negotiated on a percentage basis , any increase or decrease in adrs has an impact on the revenue we earn per room night . over the course of the last several years , occupancies and adrs in the lodging industry generally increased on a currency-neutral basis in a gradually improving overall travel environment . however , with certain travel restrictions and quarantine orders implemented due to covid-19 , current occupancy rates for hotels in the united states are at significantly reduced levels and adrs could decline for a period of time . in addition , other factors could pressure adr trends , including the continued growth in hotel supply in recent years and the increase in alternative accommodation inventory . further , while the global lodging industry remains very fragmented , there has been consolidation in the hotel space among chains as well as ownership groups . in the meantime , certain hotel chains have been focusing on driving direct bookings on their own websites and mobile applications by advertising lower rates than those available on third-party websites as well as incentives such as loyalty points , increased or exclusive product availability and complimentary wi-fi . alternative accommodations . with our acquisition of vrbo ( previously homeaway ) and all of its brands in december 2015 , we expanded into the fast growing alternative accommodations market . vrbo is a leader in this market and represents an attractive growth opportunity for expedia group . vrbo has transitioned from a listings-based classified advertising model to an online transactional model that optimizes for both travelers and homeowner and property manager partners , with a goal of increasing monetization and driving growth through investments in marketing as well as in product and technology . vrbo offers hosts subscription-based listing or pay-per-booking service models . it also generates revenue from a traveler service fee for bookings . in addition , we have actively moved to integrate vrbo listings into our global retail services , as well as directly add alternative accommodation listings to our offerings , to position our key global brands to offer a full range of lodging options for consumers . air the airline industry has been dramatically impacted by covid-19 . as a result of the significantly reduced air travel demand due to government travel restrictions and the impact on consumer sentiment related to covid-19 , airlines have been operating with less capacity and passenger traffic has declined significantly . during the third and fourth quarter of 2020 , air passenger traffic declines further moderated and remained stable , but continue to lag the recover in lodging bookings . the recovery in air travel remains difficult to predict , and may not correlate with the recovery in lodging demand . according to the transportation security administration ( “ tsa ” ) , air traveler 7-day average throughput declined 95 % in april 2020 compared to prior year levels . the declines moderated to down 73 % in mid-july 2020 and have largely stabilized in the 60 to 65 % range since mid-october . in addition , as of late november , the international air transport association ( “ iata ” ) expected airline passenger traffic to increase approximately 55 % in 2021 compared to 2020 levels , representing a decline of nearly 40 % compared to 2019 levels . in addition , there is significant correlation between airline revenue and fuel prices , and fluctuations in fuel prices generally take time to be reflected in air revenue . given current volatility , it is uncertain how fuel prices could impact airfares . we could encounter pressure on air remuneration as air carriers combine , certain supply agreements renew , and as we continue to add airlines to ensure local coverage in new markets . air ticket volumes increased 5 % in 2018 and 7 % in 2019 , and declined 63 % in 2020. as a percentage of our total worldwide revenue in 2020 , air accounted for 2 % . advertising & media our advertising and media business is principally driven by revenue generated by trivago , a leading hotel metasearch website , and expedia group media solutions , which is responsible for generating advertising revenue on our global online travel brands .
| results of operations revenue replace_table_token_3_th similar to the gross bookings decline , revenue decreased 57 % in 2020 compared to 2019 driven by the covid-19 pandemic across all segments and lodging , air and other travel products . replace_table_token_4_th _ ( 1 ) includes third-party revenue from trivago as well as our transaction-based websites . lodging revenue decreased 52 % in 2020 on a 55 % decrease in room nights stayed , partially offset by a 9 % increase in revenue per room night . revenue per room night in 2020 benefited from an increase in the percentage of room nights contributed by vrbo , which has a higher revenue per room night than the rest of our lodging business , and transaction revenue related to vrbo 's transition to merchant of record . air revenue decreased 88 % in 2020 reflecting a 63 % decline in tickets sold and a 67 % decrease in revenue per ticket . the decline in revenue per ticket was primarily related to a shift in product mix . advertising and media revenue decreased 63 % in 2020 due to declines at trivago and expedia group media solutions . all other revenue , which includes car rental , insurance , destination services , fees related to our corporate travel business and revenue related to bodybuilding.com ( during the period of our ownership of july 2019 to may 2020 ) , decreased by 63 % in 2020 resulting from declines in insurance , driven by the adverse impact of contra-revenue related to customer claims created during covid-19 with third-party insurance , as well as declines in car and corporate travel business revenue .
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comprehensive loss the company is required to report all components of comprehensive loss , including net loss , in the financial statements in the period in which they are recognized . comprehensive loss is defined as a story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with part ii , item 6 , “ selected consolidated financial data ” and our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. this discussion and analysis and other parts of this annual report on form 10-k contain forward-looking statements based upon current beliefs , plans and expectations related to future events and our future financial performance that involve risks , uncertainties and assumptions , such as statements regarding our intentions , plans , objectives , expectations , forecasts and projections . our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors , including those set forth under part i , item 1a , “ risk factors ” and elsewhere in this annual report on form 10-k. overview we are a commercial-stage medical technology company that provides a minimally invasive treatment for patients with severe emphysema , a form of chronic obstructive pulmonary disease ( copd ) . our solution , which is comprised of the zephyr endobronchial valve ( zephyr valve ) , the chartis pulmonary assessment system ( chartis system ) and the stratx lung analysis platform ( stratx platform ) , is designed to treat severe emphysema patients who , despite medical management , are still profoundly symptomatic and either do not want or are ineligible for surgical approaches . we estimate our solution currently addresses approximately 500,000 patients in the united states and 700,000 patients in select international markets , which represents a global market opportunity of approximately $ 12 billion . we have a compelling body of clinical evidence with over 100 scientific articles published regarding the clinical benefits of zephyr valves , including in the new england journal of medicine , the lancet and the american journal of respiratory and critical care medicine . multiple randomized controlled clinical trials have demonstrated that patients selected with the chartis system and successfully treated with zephyr valves have shown statistically and clinically significant improvements in lung function , exercise capacity and quality of life compared to medical management alone . in june 2018 , we received pre-market approval ( pma ) by the u.s. food and drug administration ( fda ) as a result of our breakthrough technology designation . the zephyr valve is now commercially available in more than 25 countries , with over 80,000 valves used to treat more than 20,000 patients through december 31 , 2020. we have established reimbursement in major markets in north america , europe and asia pacific and the zephyr valve has been included in treatment guidelines for copd worldwide . we market and sell our products in the united states through a direct sales organization consisting of 45 sales territory managers as of december 31 , 2020. our sales territory managers are focused on promoting awareness and increasing adoption of our solution primarily among the approximately 800 pulmonologists performing interventional pulmonary procedures and across approximately 500 high volume hospitals in the united states . we are expanding our commercial operations in the united states while continuing to foster our international growth . we employ both direct and distributor-based sales models , with over 90 % of our revenue generated in markets where we sell directly . in the united states , our solution is reimbursed based on established category i current procedural terminology ( cpt ) and icd-10 procedure coding system ( pcs ) codes and associated apc and ms-drg payment groupings . current reimbursement in the united states is believed to cover the hospital costs of the procedure and related inpatient care . commercial payors such as aetna , humana , health care service corporation have issued positive coverage policies for the zephyr valve , and united healthcare no longer considers the procedure unproven or experimental . medicare covers our solution for patients when medically necessary , and other commercial insurers are approving pre-authorization requests on a case-by-case basis . outside the united states , our solution is covered by major health systems across much of europe , australia and south korea . 118 we manufacture all our products at our headquarters located in redwood city , california . this facility supports production and distribution operations , including manufacturing , quality control , raw material and finished goods storage . we have manufactured all our products at this facility for over ten years . we also store finished goods at secondary facilities . we seek to maintain higher levels of inventory to protect ourselves from supply interruptions and have an established distribution system for both u.s. and international customers . to date , we have financed our operations primarily through the sale of equity securities , debt financing arrangements and sales of our products . we have devoted substantially all of our resources to research and development activities related to our solution , including clinical and regulatory initiatives to obtain marketing approval , sales and marketing activities , and investing in general and administrative infrastructure . we generated revenue of $ 32.7 million , with a gross margin of 64.8 % and a net loss of $ 32.2 million , for the year ended december 31 , 2020 compared to revenue of $ 32.6 million and $ 20.0 million , with a gross margin of 68.8 % and 61.4 % and a net loss of $ 20.7 million and $ 18.5 million , for the years ended december 31 , 2019 and december 31 , 2018 , respectively . story_separator_special_tag beginning in may 2020 , we began to see signs of a recovery in our business , and by september 30 , 2020 the total number of zephyr valves sold in the third quarter exceeded the total number of zephyr valves sold during the first quarter of 2020. in november and december 2020 , a resurgence of covid-19 led to a decrease in procedure volumes and our revenues in the fourth quarter of 2020 declined compared to revenues in the third quarter of 2020. the covid-19 driven impact on procedure volumes extended through the first two months of 2021. we have seen initial indicators in march 2021 that the resurgence of covid-19 is diminishing and we anticipate improving sales during 2021 , assuming the efficacy , availability and delivery of vaccines as well as other societal responses to the pandemic . we are encouraged for the longer term , and we believe the following key indicators are contributing to the stabilization of our business : continued opening of new accounts ; strong physician participation in virtual trainings ; 120 a strong patient pipeline evidenced by an increase in stratx report activity near to pre-covid-19 levels , a rebound in patient calls into hospitals inquiring about our procedure , and a resumption of patient calls to our reimbursement support service ; and hospitals and centers beginning to accept patients for elective procedures . despite these signs of recovery of our business , we can not be certain that any recovery will be sustained , or that a further resurgence of covid-19 will not occur in 2021. we believe many of the measures adopted in response to , and challenges resulting , from covid-19 will likely continue for the duration of the pandemic , which is uncertain , and are expected to continue to significantly reduce our revenue and adversely impact our business , financial condition and results of operations for the duration of the pandemic . as a result , we can not assure you that our recent volume of zephyr valves sold are indicative of future results or that we will not experience additional adverse or materially adverse impacts associated with the covid-19 pandemic . in particular , we believe the reduction in the backlog of patients who cancelled or postponed their procedures in the second quarter of 2020 contributed to the number of procedures and zephyr valves sold in the third and fourth quarters of 2020 as hospitals and centers resumed accepting patients for elective procedures . however , the number of zephyr valves sold in the future may decrease as the backlog of patients who have cancelled or postponed their procedures due to the covid-19 pandemic is reduced . further , once the covid-19 pandemic subsides , there may be a substantial backlog of patients seeking appointments with physicians and surgeries to be performed at hospitals relating to a variety of medical conditions , and as a result , patients seeking treatment with zephyr valves may have to navigate limited provider capacity . we believe this limited provider and hospital capacity could have a material adverse effect on our business , financial condition and results of operations once the pandemic subsides and following the end of the pandemic . the extent to which the covid-19 pandemic impacts our business will depend on future developments , which are highly uncertain and can not be predicted , including new information which may emerge concerning the severity and spread of covid-19 and variant strains , governmental and societal response to contain and treat covid-19 and variant strains , and vaccination efforts , among others . our consolidated financial statements reflect judgments and estimates that could change in the future as a result of the covid-19 pandemic . for more information regarding these risks and potential impacts , please refer to part i , item 1a , “ risk factors. ” factors affecting our business and results of operations we believe there are several important factors that have impacted and that we expect will continue to impact our business and results of operations . these factors include : our ability to recruit , train and retain our sales force and its productivity we have made , and intend to continue to make , significant investments in recruiting , training and retaining our direct sales force . this process requires significant education and training for our sales personnel to achieve the level of technical competency with our products that is expected by physicians and to gain experience building demand for our products . upon completion of the training , our sales personnel typically require time in the field to grow their network of accounts and increase their productivity to the levels we expect . successfully recruiting , training and retaining additional sales personnel will be required to achieve growth . in addition , inability to attract qualified sales personnel or the loss of any productive sales personnel would have a negative impact on our ability to grow our business . we have in the past and expect in the future to enter into different compensation arrangements with our sales professionals , which include minimum guaranteed commissions . this has impacted our compensation expenses in the past and we expect it will do so in the future . 121 physician , patient and hospital awareness and acceptance of our solution our goal is to establish our solution as a standard of care for severe emphysema . we intend to continue to promote awareness of our solution through training and educating physicians , pulmonary rehabilitation centers , key opinion leaders and various medical societies on the proven clinical benefits of zephyr valves . in addition , we intend to continue to publish additional clinical data in various industry and scientific journals and online and to present at various industry conferences . we plan to continue building patient awareness through our direct-to-patient marketing initiatives , which include advertising , social media and online education . we also intend to continue helping physicians in their outreach to patients and other healthcare providers .
| summary statement of cash flows the following table sets forth the primary sources and uses of cash and cash equivalents for the period presented below : replace_table_token_8_th cash flows from operating activities net cash used in operating activities was $ 30.6 million for the year ended december 31 , 2020. cash used in operating activities was primarily a result of the net loss of $ 32.2 million , an increase in inventory of $ 5.0 million primarily due to higher inventory levels required to support projected increase in sales , an increase in prepaid and other current assets of $ 1.8 million , a decrease in income taxes payable of $ 0.2 million , a decrease in lease liabilities of $ 0.9 million , and a non-cash credit resulting from the change in the fair value of derivative liabilities of $ 3.2 million due to extinguishment of derivative liability upon ipo partially offset by a decrease in accounts receivable of $ 1.5 million , an increase in accrued liabilities of $ 1.0 million , an increase in accounts payable of $ 0.6 million , stock based compensation expense of $ 3.2 million , write-down of inventory due to obsolescence of $ 0.5 million , depreciation and amortization expense of $ 0.5 million , amortization of debt discount and debt issuance costs of $ 1.0 million , non-cash lease expense of $ 1.5 million and non-cash charges for write-off of deferred offering costs of $ 3.0 million as we withdrew our registration statement for our initial public offering in may 2020. the increase in prepaid expenses , accrued liabilities and accounts payable is primarily due to increases in inventory and expenses related to operating as a public company and timing of payments to our vendors .
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although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . moreover , neither we , nor any other person , assume responsibility for the accuracy and completeness of the forward-looking statements . we are under no obligation to update any of the forward-looking statements after the filing of this annual report to conform such statements to actual results or to changes in our expectations . the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this annual report . readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business , including without limitation the disclosures made in item 1a of part i of this annual report under the caption “ risk factors ” . risk factors that could cause actual results to differ from those contained in the forward-looking statements include but are not limited to risks related to : volatility in our revenues and results of operations ; changing conditions in the financial markets ; our ability to generate sufficient revenues to achieve and maintain profitability ; the short term nature of our engagements ; the accuracy of our estimates and valuations of inventory or assets in “ guarantee ” based engagements ; competition in the asset management business potential losses related to our auction or liquidation engagements ; our dependence on communications , information and other systems and third parties ; potential losses related to purchase transactions in our auction and liquidations business ; the potential loss of financial institution clients ; potential losses from or illiquidity of our proprietary investments ; changing economic and market conditions ; potential liability and harm to our reputation if we were to provide an inaccurate appraisal or valuation ; potential mark-downs in inventory in connection with purchase transactions ; failure to successfully compete in any of our segments ; loss of key personnel ; our ability to borrow under our credit facilities as necessary ; failure to comply with the terms of our credit agreements ; and our ability to meet future capital requirements . except as otherwise required by the context , references in this annual report to “ the “ company , ” “ b . riley , ” “ we , ” “ us ” or “ our ” refer to the combined business of b. riley financial , inc. and all of its subsidiaries . overview we are a leading independent investment bank with offices in los angeles , orange county , san francisco and new york providing corporate finance , research , sales and trading services to corporate , institutional and high net worth clients . we are also a leading provider of asset disposition , valuation and appraisal services to a wide range of retail , wholesale and industrial clients , as well as lenders , capital providers , private equity investors and professional service firms throughout the united states , canada and europe . we now operate our business in three segments : capital markets services , auction and liquidation solutions and valuation and appraisal services . our capital markets services segment provides a full array of investment banking , corporate finance , research , sales and trading services to corporate , institutional and high net worth clients . our corporate finance and investment banking services include merger and acquisitions advisory to public and private companies , initial and secondary public offerings , and institutional private placements . we also provide financial advisory services rendered in connection with client mergers , acquisitions , restructurings , recapitalizations and other strategic transactions as well as market making services to public companies . in addition , we trade equity securities as a principal for the company 's account . our auction and liquidation solutions segment utilizes our significant industry experience network of highly skilled employees and scalable network of independent contractors and industry-specific advisors to tailor our services to the specific needs of a multitude of clients , logistical challenges and distressed circumstances . we have established appraisal and valuation methodologies and practices in a broad array of asset categories which have made us a recognized industry leader . furthermore , our scale and pool of resources allow us to offer our services on a nationwide basis . since 1995 , we have participated in liquidations involving over $ 25 billion in aggregate asset value and auctioned assets with an estimated aggregate value of over $ 6 billion . 32 our valuation and appraisal services segment provides valuation and appraisal services to financial institutions , lenders , private equity investors and other providers of capital . these services primarily include the valuation of assets ( i ) for purposes of determining and monitoring the value of collateral securing financial transactions and loan arrangements and ( ii ) in connection with potential business combinations . our valuation and appraisal services divisions operate through limited liability companies that are majority owned by us . our clients include major financial institutions such as bank of america , credit suisse , ge capital , jpmorgan chase , union bank of california , and wells fargo . our clients also include private equity firms such as apollo management , goldman sachs capital partners , and sun capital partners . historically , revenues from our auction and liquidation segment vary significantly from quarter to quarter and have a significant impact on our operating results from period to period . these revenues have historically comprised a significant amount of our total revenues and operating profits . in addition , revenues from investment banking transactions in our capital markets segment will vary from quarter to quarter in the future and have comprised a significant amount of our total revenues and operating profits . story_separator_special_tag these initiatives resulted in a restructuring charge of $ 2.5 million in the third quarter of 2014. as part of the strategic review , we restructured our uk appraisal business whereby we entered into a joint marketing and strategic alliance with an entity owned and controlled by our former uk appraisal senior management . as a result of the restructuring , we anticipate a shift in our strategic focus from europe which is expected to result in a substantial reduction in revenues from european operations . in october 2014 , we were engaged to liquidate the inventory for the going-out-of-business sale of 56 stores of naartjie kids , a fashionable children clothing retailer , located throughout the united states , . we provided a minimum guarantee of amounts to be realized from the liquidation of inventory . we completed the liquidation sale of inventory in late december 2014 and the amounts realized exceeded the minimum guarantee and we recognized revenue for these services in the fourth quarter of 2014. in november 2014 , we were engaged to participate in a joint venture involving the liquidation of inventory for the going-out-of-business sale of 198 stores of alco stores , a discount retailer serving consumers in smaller communities in the midwest , southeast and southwestern portion of the united states . the joint venture provided alco stores with a minimum guarantee of amounts to be realized from the liquidation of inventory . the liquidation sale of inventory was completed in late february 2015 and the amounts realized from the liquidation of inventory will be finalized in the second quarter of 2015. on january 2 , 2015 , we entered into a purchase agreement to acquire mk capital advisors , llc ( “ mk capital ” ) , a wealth management business with operations primarily in new york . the terms of the purchase agreement required the seller to meet certain pre-closing conditions . on february 2 , 2015 , the closing conditions were satisfied and we completed the purchase of mk capital . upon closing , we paid the shareholders of mk capital $ 2.5 million in cash and issued 333,333 shares of our common stock . the purchase agreement also requires the payment of contingent consideration of $ 1.25 million in cash and 166,667 shares of our common stock on the first anniversary date of the closing ( february 2 , 2016 ) and a final payment of $ 1.25 million in cash and 166,666 of our common stock on the second anniversary date of the closing ( february 2 , 2017 ) . the contingent consideration is payable on the first and second anniversary dates of the closing provided that mk capital generates a minimum amount of gross revenues as defined in the purchase agreement for the twelve months following the first and second anniversary dates of the closing . on january 11 , 2015 , great american group energy equipment , llc ( `` gagee '' ) , a wholly owned subsidiary of the company that was formed for the purpose of acquiring oil rigs in 2008 , filed a voluntary petition with the united states bankruptcy court for the northern district of texas for relief under chapter 7 of title 11 of the united states code ( as amended , the `` bankruptcy code '' ) . at december 31 , 2014 , gagee had total assets of $ 6.5 million and total liabilities of $ 6.6 million . total assets included $ 2.5 million of other receivables included in prepaid and other current assets and $ 4.0 million of goods held for sale which was comprised of five oil rigs ( see note 6 ) . total liabilities include a note payable in the amount of $ 6.6 million that is collateralized by the assets of gagee . under chapter 7 of the bankruptcy code the assets of gagee will be liquidated and the resulting cash proceeds will be used by the bankruptcy trustee to pay creditors . as a result of the bankruptcy filing on january 11 , 2015 , the assets and liabilities of gagee described above will no longer be consolidated in the company 's consolidated financial statements for periods subsequent to the bankruptcy filing . at the present time , management does not expect the bankruptcy of gagee to have a material impact on the consolidated financial position of the company . in february 2015 , we were engaged to participate in a joint venture involving the liquidation of inventory for the going-out-of-business sale of 133 target stores located in canada . the joint venture provided target canada with a minimum guarantee of amounts to be realized from the liquidation of inventory . in connection with our portion of the guarantee , we provided a letter of credit to target canada in the amount of $ 14.0 million in february 2015. the liquidation sale of inventory is expected to be completed in the second quarter of 2015 . 34 in march 2015 , in europe we purchased inventory and intellectual property of schoenenreus from a bankruptcy trustee in the netherlands for $ 3.2 million . schoenenreus is a retailer of men 's , women 's and children 's shoes , clothing and accessories and operates 121 retail locations throughout the netherlands . we started the going-out-of-business sale of all of schoenenreus 's inventory on march 9 , 2015. the liquidation sale of inventory is expected to be completed in the second quarter of 2015. in march 2015 , we were engaged to liquidate the inventory for the going-out-of-business sale of 153 cache retail stores located throughout the united states , puerto rico and virgin islands . we provided a minimum guarantee of amounts to be realized from the liquidation of inventory . we also acquired cache 's intellectual property and lease designation rights for all retail locations which we expect to market to strategic buyers and monetize these assets .
| results of operations the following period to period comparisons of our financial results are not necessarily indicative of future results . year ended december 31 , 2014 compared to year ended december 31 , 2013 consolidated statements of operations ( dollars in thousands ) replace_table_token_4_th 35 revenues the table below and the discussion that follows are based on how we analyze our business . replace_table_token_5_th _ n/m - not applicable or not meaningful . total revenues increased $ 1.0 million to $ 77.1 million during the year ended december 31 , 2014 from $ 76.1 million during the year ended december 31 , 2013. the increase in revenues during the year ended december 31 , 2014 was primarily due to an increase in revenues from services and fees of $ 7.3 million ; offset by a decrease in revenues from the sale of goods of $ 6.3 million . the increase in revenues from services and fees of $ 7.3 million in 2014 was primarily due to an increase in revenues of $ 19.4 million from our capital markets segment which includes the operating results of the operations acquired from brc for the period from june 18 , 2014 , the date of acquisition , through december 31 , 2014 and an increase in revenues of $ 3.1 in our valuation and appraisal segment . these increases were offset by a decrease in revenues from services and fees of $ 15.2 million in the auction and liquidation segment . the decrease in revenues from the sale of goods of $ 6.3 million in 2014 was comprised of a decrease in revenues of $ 0.1 million in the auction and liquidation segment and $ 6.2 million in the uk retail stores segment .
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in certain instances , the credit loss may exceed the total decline in fair value , in which case , the allowance recorded is limited to the difference story_separator_special_tag the following discussion of the financial condition and results of operations of our company should be read in conjunction with the consolidated financial statements and notes thereto included in this annual report on form 10-k for the year ended december 31 , 2020. unless otherwise indicated , the terms “ we , ” “ us , ” “ our , ” or “ our company ” in this report refer to stifel financial corp. and its wholly owned subsidiaries . executive summary we operate as a financial services and bank holding company . we have built a diversified business serving private clients , institutional investors , and investment banking clients located across the country . our principal activities are : ( i ) private client services , including securities transaction and financial planning services ; ( ii ) institutional equity and fixed income sales , trading , and research , and municipal finance ; ( iii ) investment banking services , including mergers and acquisitions , public offerings , and private placements ; and ( iv ) retail and commercial banking , including personal and commercial lending programs . our core philosophy is based upon a tradition of trust , understanding , and studied advice . we attract and retain experienced professionals by fostering a culture of entrepreneurial , long-term thinking . we provide our private , institutional , and corporate clients quality , personalized service , with the theory that if we place clients ' needs first , both our clients and our company will prosper . our unwavering client and associate focus have earned us a reputation as one of the nation 's leading wealth management and investment banking firms . we have grown our business both organically and through opportunistic acquisitions . we plan to maintain our focus on revenue growth with a continued appreciation for the development of quality client relationships . within our private client business , our efforts will be focused on recruiting experienced financial advisors with established client relationships . within our capital markets business , our focus continues to be on providing quality client management and product diversification . in executing our growth strategy , we will continue to seek out opportunities that allow us to take advantage of the consolidation among middle-market firms , whereby allowing us to increase market share in our private client and institutional group businesses . stifel financial corp. , through its wholly owned subsidiaries , is principally engaged in retail brokerage ; securities trading ; investment banking ; investment advisory ; retail , consumer , and commercial banking ; and related financial services . our major geographic area of concentration is throughout the united states , with a growing presence in the united kingdom , europe , and canada . our principal customers are individual investors , corporations , municipalities , and institutions . our ability to attract and retain highly skilled and productive associates is critical to the success of our business . accordingly , compensation and benefits comprise the largest component of our expenses , and our performance is dependent upon our ability to attract , develop , and retain highly skilled associates who are motivated and committed to providing the highest quality of service and guidance to our clients . on may 19 , 2020 , the company completed an underwritten registered public offering of $ 225 million 6.125 % non-cumulative perpetual preferred stock , series c ( “ series c preferred ) , which included the sale of $ 25.0 million of series c preferred pursuant to an over-allotment option . on may 20 , 2020 , we sold in a registered underwritten public offering , $ 400.0 million in aggregate principal amount of 4.00 % senior notes due may 2030. on november 11 , 2020 , our board approved a 50 % stock dividend , in the form of a three-for-two stock split , of our common stock payable on december 16 , 2020 , to shareholders of record as of december 2 , 2020. all share and per share information has been retroactively adjusted to reflect the stock split . covid-19 pandemic in the first quarter of 2020 , the world health organization declared the outbreak of a novel strand of the coronavirus ( “ covid-19 ” ) a pandemic . since that time , authorities have implemented numerous measures attempting to contain the spread and impact of covid-19 , such as travel bans and restrictions , quarantines , shelter-in-place orders , and limitations on business activity , including closures . certain jurisdictions have begun reopening only to return to restrictions in the face of increases in new covid-19 cases . recent developments include the phased reopening of domestic and global markets and other economic activity to varying degrees . these measures have severely restricted global economic activity , which is disrupting global supply chains , lowering asset valuations , significantly increasing unemployment and underemployment levels , decreasing liquidity in markets for certain securities , and causing significant volatility and disruptions in the financial , energy , and commodity markets . recent outbreaks in various states indicate that covid-19 , and related measures to address the pandemic , will continue to impact and disrupt the global and domestic economy and , by extension , our business , well into 2021 . 31 to address the economic impact in the u.s. , in march and april 2020 , the president signed into law various stimulus packages to provide relief to businesses and individuals . story_separator_special_tag upon adoption of the new accounting standard , we recorded a $ 10.4 million , or a 10.7 % increase to the allowance for credit losses . in addition , during the twelve months ended december 31 , 2020 , we recorded additional net credit loss reserves reflecting the impact of changes in our company 's outlook on estimated lifetime expected credit losses under the cecl standard due to the covid-19 pandemic . our overall financial results continue to be highly and directly correlated to the direction and activity levels of the united states equity and fixed income markets . at december 31 , 2020 , the key indicators of the markets ' performance , the nasdaq , the s & p 500 , and dow jones industrial average closed 43.6 % , 16.3 % , and 7.2 % higher than their december 31 , 2019 , closing prices , respectively . as a participant in the financial services industry , we are subject to complicated and extensive regulation of our business . the recent economic and political environment has led to legislative and regulatory initiatives , both enacted and proposed , that could substantially intensify the regulation of the financial services industry and may significantly impact us . story_separator_special_tag primarily attributable to the gain recognized on the sale of ziegler capital management , llc in the first quarter of 2020 and an increase in loan origination fees , partially offset by investment losses . year ended december 31 , 2019 , compared with year ended december 31 , 2018 for the year ended december 31 , 2019 , net revenues increased 10.3 % to $ 3.3 billion from $ 3.0 billion in 2018. the increase is primarily attributable to an increase in investment banking revenues , higher net interest income as a result of an increase in interest-earning assets at stifel bancorp , an increase in brokerage revenues , and the growth in asset management and service fees as a result of increased assets under management . commissions – for the year ended december 31 , 2019 , commission revenues increased 1.5 % to $ 667.5 million from $ 657.7 million in 2018. the increase is primarily attributable to an increase in trading volumes . principal transactions – for the year ended december 31 , 2019 , principal transactions revenues increased 15.2 % to $ 404.8 million from $ 351.4 million in 2018. the increase is primarily attributable to higher institutional fixed income brokerage revenues , as well as the contribution from the first empire acquisition that closed during the first quarter of 2019. investment banking – for the year ended december 31 , 2019 , investment banking revenues increased 15.5 % to $ 817.4 million from $ 707.7 million in 2018. the increase is primarily attributable to the growth of advisory fee revenue and fixed income capital-raising revenues , partially offset by lower equity capital-raising revenues . advisory fees increased 20.6 % to $ 448.0 million for the year ended december 31 , 2019 , from $ 371.5 million in 2018. the increase is primarily attributable to an increase in the number of completed advisory transactions during 2019 , including growth in our fund placement business . capital-raising revenues increased 9.9 % to $ 369.4 million for the year ended december 31 , 2019 , from $ 336.2 million in 2018. for the year ended december 31 , 2019 , equity capital-raising revenues decreased 0.1 % to $ 226.2 million from $ 226.5 million in 2018. for the year ended december 31 , 2019 , fixed income capital-raising revenues increased 30.5 % to $ 143.2 million from $ 109.7 million in 2018. asset management and service fees – for the year ended december 31 , 2019 , asset management and service fee revenues increased 5.2 % to $ 848.0 million from $ 806.2 million in 2018. the increase is primarily a result of an increase in the number and value of fee-based accounts , an increase in fees earned on client cash balances , and an increase of interest rates on fees earned on client cash . see “ asset management and service fees ” in the global wealth management segment discussion for information on the changes in asset management and service fees revenues . other income – for the year ended december 31 , 2019 , other income increased 105.0 % to $ 52.4 million from $ 25.6 million in 2018. the increase is primarily attributable to an increase in loan origination fees and a decline in investment losses from 2018 . 35 net interest income the following tables present average balance data and operating interest revenue and expense data , as well as related interest yields for the periods indicated ( in thousands , except rates ) : replace_table_token_8_th * please refer to distribution of assets , liabilities , and shareholders ' equity ; interest rates and interest rate differential table included in “ results of operations – global wealth management ” for additional information on stifel bancorp 's average balances and interest income and expense . year ended december 31 , 2020 , compared with year ended december 31 , 2019 net interest income – net interest income is the difference between interest earned on interest-earning assets and interest paid on funding sources . net interest income is affected by changes in the volume and mix of these assets and liabilities , as well as by fluctuations in interest rates and portfolio management strategies . for the year ended december 31 , 2020 , net interest income decreased 16.3 % to $ 458.1 million from $ 547.0 million in 2019. decreases in short-term interest rates have had a negative impact on our results , in particular on our net interest income . the federal reserve significantly further lowered interest rates in response to covid-19 pandemic concerns .
| results of operations the following table presents consolidated financial information for the periods indicated ( in thousands , except percentages ) : replace_table_token_6_th 33 net revenues the following table presents consolidated net revenues for the periods indicated ( in thousands , except percentages ) : replace_table_token_7_th year ended december 31 , 2020 , compared with year ended december 31 , 2019 for the year ended december 31 , 2020 , net revenues increased 12.4 % to a record $ 3.8 billion from $ 3.3 billion in 2019. this represents our 25 th consecutive year of record net revenues . the increase was primarily attributable to an increase in brokerage revenues , increased capital-raising revenues , and asset management and service fees , partially offset by lower net interest income and advisory fee revenues . commissions – commission revenues are primarily generated from agency transactions in otc and listed equity securities , insurance products , and options . in addition , commission revenues also include distribution fees for promoting and distributing mutual funds . for the year ended december 31 , 2020 , commission revenues increased 14.0 % to $ 760.6 million from $ 667.5 million in 2019. the increase is primarily attributable to an increase in equities trading and private placement commissions over 2019. the increase in trading volumes during 2020 was primarily due to market volatility caused by the economic uncertainty created by the covid-19 pandemic . principal transactions – principal transaction revenues are gains and losses on secondary trading , principally fixed income brokerage revenues .
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( b ) certain pension costs include only ongoing costs recognized quarterly , which include service and interest costs , expected returns on plan assets , and amortization of prior service costs/credits . catalysts technologies and materials technologies segment operating income and corporate costs do not include any amounts for pension expense . other pension-related costs including annual mark-to-market ( mtm ) adjustments and actuarial gains and losses are excluded from adjusted ebit . these amounts are not used by management to evaluate the performance of grace 's businesses and significantly affect the peer-to-peer and period-to-period comparability of our financial results . mark-to-market adjustments and actuarial gains and losses relate primarily to changes in financial market values and actuarial assumptions and are not directly related to the operation of grace 's businesses . ( c ) “ defined benefit pension expense ” as measured under u.s. gaap includes actuarial gains and losses and actual returns on assets . adjusted ebit includes expected returns on assets but excludes both actuarial gains and losses and actual returns on assets . the table below presents expected and actual returns on plan assets for u.s. and non-u.s. plans for the years ended december 31 , 2019 , 2018 , and 2017 . replace_table_token_10_th ( d ) in june 2019 , we idled our methanol-to-olefins ( “ mto ” ) manufacturing facility in china . 32 toc—financial statements grace overview following is an overview of our financial performance for the years ended december 31 , 2019 , 2018 , and 2017 . discrete items impacting 2019 four discrete items ( the “ discrete items ” ) impacted 2019 full-year results : refining technologies : an fcc catalysts customer 's bankruptcy following a fire resulting in the closure of its refinery ; specialty catalysts : a customer-specific inventory correction in the second half of 2019 ; specialty catalysts : customer-specific temporary reductions in operating rates and catalyst usage due to reduced feedstock supply following an attack in the middle east ; and materials technologies : an equipment failure in one of our silicas manufacturing lines ( operations fully restored by mid-july ) . these discrete items reduced 2019 full-year net sales by approximately $ 36 million . these discrete items also reduced pretax income and adjusted ebit by approximately $ 36 million . the earnings effect includes lost margin on lower sales , the costs of adjusting our manufacturing operations in response to lower demand , costs incurred to serve customers and minimize any impact to their operations , and costs related to the fcc catalysts customer bankruptcy . these effects were partially mitigated by an approximately $ 12 million benefit from cost-reduction activities in response to these events and $ 8 million of business interruption proceeds from the fcc catalyst customer event , resulting in a net reduction to pretax income of approximately $ 16 million . net sales and gross margin sales for 2019 increased 1.3 % overall compared with the prior year , up 3.0 % on constant currency . the increase was driven by improved pricing in both segments and all regions . higher sales volumes in catalysts technologies were driven by specialty catalysts growth in emea and asia pacific and the 2018 second quarter polyolefin catalysts acquisition , partially offset by the discrete items . sales volumes in materials technologies were up driven by growth in the americas , partially offset by a decline in asia pacific and emea . gross margin increased 80 basis points to 40.5 % from 39.7 % for the prior year . adjusted gross margin increased 70 basis points to 41.4 % from 40.7 % for the prior year . improved pricing , higher sales volumes , favorable mix , and lower depreciation were partially offset by higher manufacturing costs , including a 20 basis point impact related to higher raw materials and energy costs . sales for 2018 increased 12.6 % overall compared with the prior year , up 11.4 % on constant currency . higher sales volumes in catalysts technologies were driven by the polyolefin catalysts acquisition and growth across all regions except asia . sales volumes in materials technologies were up driven by growth in europe , north america , and latin america . 33 toc—financial statements gross margin increased 30 basis points to 39.7 % from 39.4 % for the prior year . adjusted gross margin increased 60 basis points to 40.7 % from 40.1 % for the prior year . the increases were primarily due to lower depreciation expense , improved pricing , higher sales volumes , and favorable product and regional mix , partially offset by higher manufacturing costs including a 170 basis point impact related to higher raw materials and energy costs . the following tables identify the year-over-year increase or decrease in sales attributable to changes in sales volume and or mix , product price , and the impact of currency translation . replace_table_token_11_th replace_table_token_12_th grace net income net income attributable to grace was $ 126.3 million for 2019 compared with $ 167.6 million for the prior year . the decrease was primarily due to a loss recorded for the annual pension mark-to-market adjustment and higher costs related to legacy matters , including charges of $ 68.0 million for the estimated costs of construction of a new dam spillway at our former vermiculite mine site and $ 24.0 million related to probable future payments with 34 toc—financial statements respect to our former zai product ( see note 10 to the consolidated financial statements ) , partially offset by lower restructuring and repositioning expenses , higher operating income from our catalysts technologies segment , and a lower provision for income taxes . net income attributable to grace was $ 167.6 million for 2018 compared with $ 11.2 million for the prior year . story_separator_special_tag we are actively working to replace the lost sales volume from the fcc catalysts customer refinery closure , but do not expect to commercialize that volume before late 2020 or 2021. in 2019 , we announced 6 new unipol ® polypropylene process technology licenses totaling approximately 2,500 kilotons of annual resin capacity , which will continue to drive long-term catalysts and donor sales . unfavorable currency translation affected both product groups as the u.s. dollar strengthened , primarily against the euro , compared with the prior-year period . gross profit was $ 641.3 million for 2019 , an increase of 5.1 % compared with the prior year . gross margin was 42.8 % compared with 41.7 % for the prior year . the increases were primarily due to improved pricing , favorable mix , higher sales volumes , and lower depreciation , partially offset by higher manufacturing costs including a 10 basis point impact related to higher raw materials and energy costs and the discrete items . sales were up 14.6 % in 2018 , or up 13.7 % on constant currency , compared with the prior year . the increase on a constant currency basis was due to higher sales volumes and improved pricing . higher sales were driven by the 2018 polyolefin catalysts acquisition and growth across all regions except asia , driven by higher demand from new and existing customers and higher licensing revenues . favorable currency translation affected both product groups as the u.s. dollar weakened against multiple currencies , especially the euro , compared with the prior year . gross profit was $ 610.0 million for 2018 , an increase of 17.0 % compared with the prior year . gross margin was 41.7 % compared with 40.8 % for the prior year . the increases were primarily due to lower depreciation expense , higher sales volumes , improved pricing , and favorable product and regional mix , partially offset by higher manufacturing costs including a 180 basis point impact related to higher raw materials and energy costs . 38 toc—financial statements segment operating income ( soi ) and margin—grace catalysts technologies segment operating income was $ 466.5 million for 2019 , an increase of 5.9 % compared with the prior year , primarily due to higher sales and gross profit , and business interruption insurance recoveries , partially offset by lower income from our art joint venture , higher operating expenses including from the polyolefin catalysts acquisition , unfavorable effects of currency exchange rates , and higher amortization . the art joint venture contributed $ 27.8 million to operating income , a decrease of $ 4.0 million from the prior-year period primarily due to an increase in expenses charged to the joint venture by the partners . segment operating margin for 2019 increased to 31.2 % , an improvement of 110 basis points compared with the prior year . in june 2019 , a catalysts technologies customer experienced a fire resulting in its refinery closure and subsequent bankruptcy . lost earnings from this discrete item in 2019 were approximately $ 14 million . we recognized a benefit of and received $ 8.0 million in payments from our third-party insurer during the 2019 fourth quarter under our business interruption insurance policy for a portion of profits lost in the third and fourth quarters of 2019 as a result of the closure . we expect to receive additional insurance recoveries related to this event in 2020. the policy has a $ 25.0 million limit for this event . segment operating income was $ 440.5 million for 2018 , an increase of 11.4 % compared with the prior year , primarily due to higher gross profit , higher income from our art joint venture , and favorable currency translation . the increase was partially offset by the absence of business interruption insurance recoveries that were included in the prior year and higher operating expenses . the art joint venture contributed $ 31.8 million to operating income , an increase of $ 5.9 million from the prior-year period . segment operating margin for 2018 decreased to 30.1 % , a decline of 90 basis points compared with the prior year , primarily due to the absence of business interruption insurance recoveries . in january 2017 , a catalysts technologies customer experienced a fire resulting in an extended outage . we recognized a benefit of and received $ 25.0 million in payments from our third-party insurer during 2017 under our business interruption insurance policy for a portion of profits lost as a result of the outage . the policy had a $ 25.0 million limit for this event . 39 toc—financial statements segment overview—grace materials technologies following is an overview of the financial performance of materials technologies for the years ended december 31 , 2019 , 2018 , and 2017 . net sales—grace materials technologies sales were down 1.5 % in 2019 , or up 2.2 % on constant currency , compared with the prior year . the increase on a constant currency basis was due to improved pricing and higher sales volumes , partially offset by lower sales volumes from one of the discrete items . pricing improved across all regions , driven by emea and the americas . the increase in sales volumes was primarily driven by higher consumer/pharma sales in all regions , partially offset by lower coatings sales in asia , emea , and north america . the pricing improvement and increased sales volumes were more than offset by unfavorable currency translation as the u.s. dollar strengthened , primarily against the euro , compared with the prior-year period . our materials technologies business segment is particularly sensitive to changes in the euro . gross profit was $ 168.6 million for 2019 , a decrease of 4.7 % compared with the prior year . gross margin was 36.5 % compared with 37.8 % for the prior year .
| performance summary following is a summary of our financial performance for the year ended december 31 , 2019 , compared with the prior year . net sales increased 1.3 % to $ 1,958.1 million . net income attributable to grace shareholders decreased to $ 126.3 million . adjusted ebit 1 increased 3.6 % to $ 473.2 million . diluted earnings per share from continuing operations decreased to $ 1.89 per diluted share . adjusted eps 1 increased 5.8 % to $ 4.38 per diluted share . 1 non-gaap performance measures further discussed below . summary description of business we are engaged in specialty chemicals and specialty materials businesses on a worldwide basis through our two reportable segments , grace catalysts technologies and grace materials technologies . see item 1 ( business—business overview ) of this report for a summary description of our business . 27 toc—financial statements analysis of operations we have set forth in the table below our key operating statistics with percentage changes for the years ended december 31 , 2019 , 2018 , and 2017 . please refer to this analysis of operations when reviewing this management 's discussion and analysis of financial condition and results of operations . in the table we present financial information in accordance with u.s. gaap , as well as the non-gaap financial information described below . we believe that the non-gaap financial information provides useful supplemental information about the performance of our businesses , improves period-to-period comparability and provides clarity on the information our management uses to evaluate the performance of our businesses . in the table , we have provided reconciliations of these non-gaap financial measures to the most directly comparable financial measure calculated and presented in accordance with u.s. gaap . the non-gaap financial measures should not be considered as a substitute for financial measures calculated in accordance with u.s. gaap , and the financial results calculated in accordance with u.s. gaap and reconciliations from those results should be evaluated carefully .
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the four-year initial research term under the juno agreement concluded as scheduled on may 4 , 2019 , and the overall agreement was terminated story_separator_special_tag financial condition and results of operations 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 under item 8 of this annual report on form 10-k. the following discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those expressed or implied in any forward-looking statements as a result of various factors , including those set forth under the caption “ item 1a . risk factors. ” this section of this form 10-k generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this form 10-k can be found in “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of the company 's annual report on form 10-k for the fiscal year ended december 31 , 2018 as filed with the securities and exchange commission on march 5 , 2019. overview we are a clinical-stage biopharmaceutical company dedicated to the development of programmed cellular immunotherapies for cancer and immune disorders . we are developing first-in-class cell therapy product candidates based on a simple notion : we believe that better cell therapies start with better cells . to create better cell therapies , we use a therapeutic approach that we generally refer to as cell programming . for certain of our product candidates , we use pharmacologic modulators , such as small molecules , to enhance the biological properties and therapeutic function of healthy donor-sourced cells ex vivo before our product candidates are administered to a patient . in other cases , we use human induced pluripotent stem cells ( ipscs ) to generate a clonal master ipsc line having preferred biological properties and direct the fate of the clonal master ipsc line to create our cell therapy product candidate . analogous to master cell lines used to manufacture biopharmaceutical drug products such as monoclonal antibodies , we believe clonal master ipsc lines can be used as a renewable source for manufacturing cell therapy products which are well-defined and uniform in composition , can be repeatedly mass produced at significant scale in a cost-effective manner , and can be delivered off-the-shelf to treat many patients . utilizing these therapeutic approaches , we program cells of the blood and immune system , including natural killer ( nk ) cells , t cells and cd34 + cells , and are advancing a pipeline of programmed cellular immunotherapies . we have entered into a research collaboration and license agreement with the regents of the university of minnesota to develop off-the-shelf , engineered nk cell cancer immunotherapies derived from clonal master ipsc lines . additionally , we have entered into a research collaboration and license agreement with memorial sloan kettering cancer center ( memorial sloan kettering ) to develop off-the-shelf , engineered t-cell cancer immunotherapies derived from clonal master ipsc lines . we have entered into a collaboration and option agreement with ono pharmaceutical co. ltd. ( ono ) for the joint development and commercialization of two off-the-shelf ipsc-derived chimeric antigen receptor ( car ) t-cell product candidates . we were incorporated in delaware in 2007 , and are headquartered in san diego , ca . since our inception in 2007 , we have devoted substantially all of our resources to our cell programming approach and the research and development of our product candidates , the creation , licensing and protection of related intellectual property , and the provision of general and administrative support for these activities . to date , we have funded our operations primarily through the public and private sale of common stock , the private placement of preferred stock and convertible notes , commercial bank debt and revenues from collaboration activities and grants . we have never been profitable and have incurred net losses in each year since inception . substantially all of our net losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations . we expect to continue to incur operating losses for at least the foreseeable future . our net losses may fluctuate significantly from quarter to quarter and year to year . we expect our expenses will increase substantially in connection with our ongoing and planned activities as we : conduct our ongoing and planned clinical trials of our product candidates ; conduct gmp production , process and scale-up development and technology transfer activities for the manufacture of our product candidates , including those undergoing clinical investigation and ind-enabling preclinical development ; procure laboratory equipment , materials and supplies for the manufacture of our product candidates and the conduct of our research activities ; conduct preclinical and clinical research to investigate the therapeutic activity of our product candidates ; continue our research , development and manufacturing activities , including under our sponsored research and collaboration agreements with ono , university of minnesota and memorial sloan kettering ; 60 maintain , prosecute , protect , expand and enforce our intellectual property portfolio ; engage with regulatory authorities for the development of , and seek regulatory approvals for , our product candidates ; establish business operations at our new corporate headquarters , including internal gmp production capabilities ; hire additional clinical , manufacturing , regulatory , quality control and technical personnel to advance our product candidates ; hire additional scientific personnel to advance our research and development efforts ; and hire general and administrative personnel to continue operating as a public company and support our operations . story_separator_special_tag we plan to increase our current level of research and development expenses for the foreseeable future as we continue the clinical and preclinical development of our product candidates , research and develop our cell programming technology including our ipsc product platform , and perform our obligations under collaboration agreements including under our agreements with ono , university of minnesota and memorial sloan kettering . our current planned research and development activities over the next twelve months consist primarily of the following : conducting clinical trials of our product candidates ; conducting gmp production , process and scale-up development and technology transfer activities for the manufacture of our product candidates , including those undergoing clinical investigation and ind-enabling preclinical development ; source laboratory equipment , materials and supplies for the manufacture of our product candidates and the conduct of our research activities ; conducting preclinical and clinical research to investigate the therapeutic activity of our product candidates ; and conducting research , development and manufacturing activities , including under our sponsored research and collaboration agreements with ono , university of minnesota and memorial sloan kettering . due to the inherently unpredictable nature of preclinical and clinical development , and given our novel therapeutic approach and the current stage of development of our product candidates , we can not determine and are unable to estimate with certainty the timelines we will require and the costs we will incur for the development of our product candidates . clinical and preclinical development timelines and costs , and the potential of development success , can differ materially from expectations . in addition , we can not forecast which product candidates may be subject to future collaborations , when such arrangements will be secured , if at all , and to what degree such arrangements would affect our development plans and capital requirements . general and administrative expenses general and administrative expenses consist primarily of salaries and employee-related costs , including stock-based compensation , for our employees in executive , operational , finance and human resource functions ; professional fees for accounting , legal and tax services ; costs for obtaining , prosecuting and maintaining our intellectual property ; and other costs and fees , including director and officer insurance premiums , to support our operations as a public company . we anticipate that our general and administrative expenses will increase in the future as we increase our research and development activities , maintain compliance with exchange listing and sec requirements and continue to operate as a public company . 62 other income ( expense ) other income ( expense ) consists primarily of interest income earned on cash and cash equivalents , interest income from investments ( including the amortization of discounts and premiums ) , and interest expense . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations are based on our 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 and judgments that affect the reported amounts of assets , liabilities , revenues , and expenses and the disclosure of contingent assets and liabilities in our financial statements . on an ongoing basis , we evaluate our estimates and judgments , including those related to accrued expenses and stock-based compensation . we base our estimates on historical experience , known trends and events , and various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this annual report , we believe that the following critical accounting policies reflect the more significant procedures , estimates and assumptions used in the preparation of our consolidated financial statements . revenue recognition we recognize revenue in a manner that depicts the transfer of control of a product or a service to a customer and reflects the amount of the consideration we are entitled to receive in exchange for such product or service . in doing so , we follow a five-step approach : ( i ) identify the contract with a customer , ( ii ) identify the performance obligations in the contract , ( iii ) determine the transaction price , ( iv ) allocate the transaction price to the performance obligations , and ( v ) recognize revenue when ( or as ) the customer obtains control of the product or service . we consider the terms of a contract and all relevant facts and circumstances when applying the revenue recognition standard . we apply the revenue recognition standard , including the use of any practical expedients , consistently to contracts with similar characteristics and in similar circumstances . a customer is a party that has entered into a contract with us , where the purpose of the contract is to obtain a product or a service that is an output of our ordinary activities in exchange for consideration . to be considered a contract , ( i ) the contract must be approved ( in writing , orally , or in accordance with other customary business practices ) , ( ii ) each party 's rights regarding the product or the service to be transferred can be identified , ( iii ) the payment terms for the product or the service to be transferred can be identified , ( iv ) the contract must have commercial substance ( that is , the risk , timing or amount of future cash flows is expected to change as a result of the contract ) , and ( v ) it is probable that we will collect substantially all of the consideration to which we are entitled to receive in exchange for the transfer of
| results of operations comparison of years ended december 31 , 2019 and 2018 the following table summarizes the results of our operations for the years ended december 31 , 2019 and 2018 : replace_table_token_2_th revenue . during the years ended december 31 , 2019 and 2018 , we recognized revenue of $ 10.7 million and $ 4.7 million , respectively , under our collaboration agreements with ono and juno . research and development expenses . research and development expenses were $ 87.8 million for the year ended december 31 , 2019 , compared to $ 56.0 million for the year ended december 31 , 2018. the increase in research and development expenses was attributable primarily to the following : $ 14.7 million increase in employee compensation and benefits expense , including employee-stock based compensation expense ; $ 10.3 million increase in expenditures for laboratory materials and supplies relating to the manufacture of our product candidates and the conduct of our research activities , including under our collaboration agreements ; $ 9.3 million increase in third-party professional consultant and service provider expenses relating to the manufacture and clinical development of our product candidates and the conduct of our research activities , including under our collaboration agreements ; $ 2.4 million increase in facility lease expense due to an office and lab expansion in january 2019. these increases were partially offset by an aggregate decrease of $ 6.7 million in licensing expense resulting from the amended and restated exclusive license with msk that occurred in may 2018 and the exclusive license agreement with the j. david gladstone institutes that occurred in september 2018. no such expense was present in fiscal year 2019. see note 2 of the consolidated financial statements for additional detail . general and administrative expenses .
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you can find many of these statements by looking for words such as “ approximates , ” “ believes , ” “ expects , ” “ anticipates , ” “ estimates , ” “ intends , ” “ plans , ” “ would , ” “ may ” or other similar expressions in this annual report on form 10-k. many of the factors that will determine the outcome of these and our other forward-looking statements are beyond our ability to control or predict . for further discussion of factors that could materially affect the outcome of our forward-looking statements , see “ risk factors ” in part i , item 1a , of our annual report on form 10-k for the year ended december 31 , 2015. for these statements , we claim the protection of the safe harbor for forward-looking statements contained in the private securities litigation reform act of 1995. you are cautioned not to place undue reliance on our forward-looking statements , which speak only as of the date of this annual report on form 10-k. all subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section . we do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances occurring after the date of this annual report on form 10-k. the following discussion should be read in conjunction with the consolidated and combined financial statements and notes thereto included in part ii , item 8 of this annual report on form 10-k. overview urban edge properties ( “ ue ” or the “ company ” ) ( nyse : ue ) is a maryland real estate investment trust that owns , manages , acquires , develops , redevelops and operates retail real estate in high barrier-to-entry markets . urban edge properties lp ( “ uelp ” or the “ operating partnership ” ) is a delaware limited partnership formed to serve as the company 's majority-owned partnership subsidiary and to own , through affiliates , all of our real estate properties and other assets . ue and uelp were created to own the majority of vornado realty trust 's ( “ vornado ” ) ( nyse : vno ) former shopping center business . as of december 31 , 2015 , our portfolio consisted of 80 shopping centers , three malls and a warehouse park totaling 14.8 million square feet . prior to the separation , the portfolio is referred to as “ ue businesses ” . unless the context otherwise requires , references to “ we ” , “ us ” and “ our ” refer to urban edge properties after giving effect to the transfer of assets and liabilities from vornado as well as to the ue businesses prior to the date of the separation . prior to its separation on january 15 , 2015 , ue was a wholly owned subsidiary of vornado . pursuant to a separation and distribution agreement between ue and vornado ( the “ separation agreement ” ) , the interests in certain properties held by vornado 's operating partnership , vornado realty l.p. ( “ vrlp ” ) , were contributed or otherwise transferred to ue in exchange for 100 % of our outstanding common shares . following that contribution , vrlp distributed 100 % of our outstanding common shares to vornado and the other common limited partners of vrlp , pro rata with respect to their ownership of common limited partnership units in vrlp . vornado then distributed all of the ue common shares it had received from vrlp to vornado common shareholders on a pro rata basis . as a result , vrlp common limited partners and vornado common shareholders all received common shares of ue in the spin-off at a ratio of one common share of ue to every two vrlp common units and every two common shares of vornado . substantially concurrently with such distribution , the interests in certain properties held by vrlp , including interests in entities holding properties , were contributed or otherwise transferred to uelp in exchange for approximately 5.4 % of uelp 's outstanding common limited partnership interests in the operating partnership ( “ op units ” ) . as part of the separation , vornado capitalized ue with $ 225 million of cash . vornado also paid $ 21.9 million of the transaction costs incurred in connection with the separation , which is reflected within contributions from vornado on the statement of changes in equity included in part ii , item 8 of this annual report on form 10-k. of the $ 21.9 million transaction costs , $ 17.4 million were contingent on the completion of the separation . the remaining $ 4.5 million of transaction costs were allocated to net loss attributable to vornado in the statement of changes in equity included in part ii , item 8 of this annual report on form 10-k. we will elect to be treated as a real estate investment trust ( “ reit ” ) in connection with the filing of our federal income tax return as of and for the year ended december 31 , 2015 , subject to our ability to meet the requirements to be treated as a reit at the time of election , and we intend to maintain this status in future periods . 26 for periods prior to the date of the separation , our historical combined financial results for ue businesses reflect charges for certain corporate costs which we believe are reasonable . these charges were based on either actual costs incurred by vornado or a proportion of costs estimated to be applicable to the ue businesses based on an analysis of key metrics including total revenues , real estate assets , leasable square feet and operating income . such costs do not necessarily reflect what the actual costs would have been if the company were operating as a separate stand-alone public company . story_separator_special_tag in addition , certain information relied upon by management in preparing such estimates includes internally generated financial and operating information , external market information , when available , and when necessary , information obtained from consultations with third party experts . actual results could differ from these estimates . a discussion of possible risks which may affect these estimates is included in “ item 1a . risk factors ” of this report . management considers an accounting estimate to be critical if changes in the estimate could have a material impact on our consolidated and combined results of operations or financial condition . our significant accounting policies are more fully described in note 3 to the consolidated and combined financial statements included in part ii , item 8 of this annual report on form 10-k ; however , the most critical accounting policies , which involve the use of estimates and assumptions as to future uncertainties and , therefore , may result in actual amounts that differ from estimates , are as follows : real estate — the nature of our business as an owner , redeveloper and operator of retail shopping centers means that we invest significant amounts of capital into our properties . depreciation , amortization and maintenance costs relating to our properties constitute substantial costs for us as well as the industry as a whole . real estate is capitalized and depreciated on a straight-line basis in accordance with gaap and consistent with industry standards based on our best estimates of the assets ' physical and economic useful lives which range from 3 to 40 years . we periodically review the estimated lives of our assets and implement changes , as necessary , to these estimates . these assessments have a direct impact on our net income . real estate is carried at cost , net of accumulated depreciation and amortization . expenditures for ordinary maintenance and repairs are expensed to operations as they are incurred . significant renovations and improvements that improve or extend the useful lives of assets are capitalized . real estate undergoing redevelopment activities is also carried at cost but no depreciation is recognized . all property operating expenses directly associated with and attributable to , the redevelopment , including interest , are capitalized to the extent the capitalized costs of the property do not exceed the estimated fair value of the redeveloped property when completed . if the cost of the redeveloped property , including the net book value of the existing property , exceeds the estimated fair value of redeveloped property , the excess is charged to impairment expense . the capitalization period begins when redevelopment activities are underway and ends when the project is substantially complete . generally , a redevelopment is considered substantially completed and ready for its intended use upon completion of tenant improvements , but no later than one year from completion of major construction activity . we make judgments as to the time period over which to capitalize such costs and these assumptions have a direct impact on net income because capitalized costs are not subtracted in calculating net income . upon the acquisition of real estate , we assess the fair value of acquired assets ( including land , buildings and improvements , identified intangibles , such as acquired above and below-market leases , acquired in-place leases and tenant relationships ) and acquired liabilities . we assess fair value based on estimated cash flow projections utilizing appropriate discount and capitalization rates and available market information . estimates of future cash flows are based on a number of factors including historical operating results , known trends , and market/economic conditions . based on these estimates , we allocate the purchase price to the applicable assets and liabilities . in allocating the purchase price to identified intangible assets and liabilities of an acquired property , the value of above-market and below-market leases is estimated based on the present value of the difference between the contractual amounts , including fixed rate below-market renewal options , to be paid pursuant to the in-place leases and our estimate of the market lease rates and other lease provisions for comparable leases measured over a period equal to the estimated remaining term of the lease . tenant 28 related intangibles and improvements are amortized on a straight-line basis over the related lease term , including any bargain renewal options . we amortize identified intangibles that have finite lives over the period they are expected to contribute directly or indirectly to the future cash flows of the property or business acquired . we consider qualitative and quantitative factors in evaluating the likelihood of a tenant exercising a below market renewal option and include such renewal options in the calculation of in-place leases . if the value of below-market lease intangibles includes renewal option periods , we include such renewal periods in the amortization period utilized . if a lease terminates prior to its stated expiration , all unamortized amounts relating to that lease are written off . our properties are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable . an impairment exists when the carrying amount of an asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted basis . an impairment loss is measured based on the excess of the property 's carrying amount over its estimated fair value . impairment analyses are based on our current plans , intended holding periods and available market information at the time the analyses are prepared . if our estimates of the projected future cash flows , anticipated holding periods , or market conditions change , our evaluation of impairment losses may be different and such differences could be material to our consolidated and combined financial statements . the evaluation of anticipated cash flows is subjective and is based , in part , on assumptions regarding future occupancy , rental rates and capital requirements that could differ materially from actual results .
| summary of cash flows our cash flow activities are summarized as follows : replace_table_token_19_th cash and cash equivalents were $ 169.0 million at december 31 , 2015 , compared to $ 2.6 million as of december 31 , 2014 , an increase of $ 166.4 million . this increase resulted primarily from net cash provided by operating activities of $ 138.1 million for 2015 , which was comprised of ( i ) $ 124.0 million increase in cash from operating income and ( ii ) $ 14.1 million net increase in cash due to timing of cash receipts and payments related to changes in operating assets and liabilities . net cash used in investing activities of $ 65.5 million for 2015 was comprised of ( i ) $ 36.3 million of real estate additions , ( ii ) $ 30.1 million of real estate acquisitions partially offset by , ( iii ) $ 0.9 million decrease in restricted cash related to a decrease in escrow deposits . net cash provided by financing activities of $ 93.8 million for 2015 was comprised of ( i ) $ 227.7 million of vornado 's contributions , net , in connection with the spin-off partially offset by , ( ii ) $ 79.2 million of dividends paid to common shareholders , ( iii ) $ 44.7 million for debt repayments , ( iv ) $ 5.2 million of debt issuance costs primarily related to our revolving credit facility , and ( v ) $ 4.9 million of distributions to redeemable noncontrolling interests .
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our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors , including those set forth under `` risk factors '' and elsewhere in this annual report . you should carefully read the `` risk factors '' section of this annual report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements . please also see the section entitled `` cautionary note concerning forward-looking statements . '' all amounts in this report are in u.s. dollars , unless otherwise noted . overview we are a late-stage biopharmaceutical company focused on the discovery and development of non-antibiotic anti-infectives . a significant focus is on targeted immunotherapy using fully human monoclonal antibodies , or mabs , to treat life-threatening infections . mabs represent an innovative treatment approach that harnesses the human immune system to fight infections and are designed to overcome the deficiencies associated with current therapies , such as rise in drug resistance , short duration of response , negative impact on the human microbiome , and lack of differentiation among the treatment alternatives . the majority of our product candidates are derived by employing our differentiated antibody discovery platforms . our proprietary product pipeline is comprised of fully human mabs targeting specific pathogens associated with life-threatening bacterial infections , primarily hospital-acquired pneumonia , or hap , and ventilator-associated pneumonia , or vap . recently we announced the development of a novel antibody discovery and production platform technology called apex tm . this technology complements and further extends the capabilities of mabigx® to quickly screen large number of antibody producing b-cells from patients and generation of high mab producing mammalian production cell line at a speed not previously attainable . as a result , we can significantly reduce time for antibody discovery and manufacturing compared to conventional approaches . our lead product candidate , ar-301 has exhibited promising preclinical data and phase 1/2a clinical data from a phase 1/2a clinical study in patients . ar-301 targets the alpha toxin produced by gram-positive bacteria staphylococcus aureus , or s. aureus , a common pathogen associated with hap and vap . in contrast to other programs targeting s. aureus toxins , we are developing ar-301 as a treatment of pneumonia , rather than prevention of s. aureus colonized patients from progression to pneumonia . in january 2019 , we initiated a phase 3 pivotal trial evaluating ar-301 for the treatment of hap and vap , and expect to report top-line data in the second half of 2021. to complement and diversify our portfolio of targeted monoclonal antibodies , we are developing a broad spectrum small molecule non-antibiotic anti-infective gallium citrate ( ar-501 ) . ar-501 is being developed in collaboration with the cystic fibrosis foundation ( cff ) as a chronic inhaled therapy to treat lung infections in cystic fibrosis . in 2018 , ar-501 was granted orphan drug , fast track and qualified infectious disease product ( qidp ) designations by the fda . during the third quarter of 2019 , the european medicines agency ( ema ) granted the program orphan drug designation . we initiated a phase 1/2a clinical trial in december 2018 of the inhalable formulation of gallium citrate , which is being evaluated for the treatment of chronic lung infections associated with cystic fibrosis . we provisionally expect to report data from the phase 1 portion of the trial into which healthy subjects 102 were enrolled in the first half of 2020 and the phase 2a portion with cystic fibrosis subjects in the second half of 2021. in september 2019 , we reported results for our global phase 2 clinical trial evaluating our product candidate ar-105 , a fully human igg1 monoclonal antibody for the treatment of vap caused by gram-negative pseudomonas aeruginosa ( p. aeruginosa ) . the completed study did not meet its primary endpoint of demonstrating superiority in clinical cure rates on day 21 compared to placebo . furthermore , there was a statistically significant imbalance in all-cause mortality , as well as serious adverse event ( sae ) rates between treatment groups that favored placebo . however , no sae or mortality in the study was deemed to be drug related by the study investigators or the study 's data monitoring committee . while no further development resources will be allocated towards ar-105 , we will continue to analyze the full data set to better understand these top-line results . ar-105 has a different mechanism of action , directed against a different bacteria , and evaluated in a different patient population as compared to ar-301 . to date , we have devoted substantially all of our resources to research and development efforts relating to our therapeutic candidates , including conducting clinical trials and developing manufacturing capabilities , in-licensing related intellectual property , protecting our intellectual property and providing general and administrative support for these operations . we have generated revenue from our payments under our collaboration strategic research and development contracts and federal awards and grants , as well as awards and grants from not-for-profit entities and fee for service to third party entities . since our inception , we have funded our operations primarily through these sources and the issuance of common stock , convertible preferred stock and debt securities . current clinical development activities are focused on ar-301 and ar-501 . our expenses and resulting cash burn during the year ended december 31 , 2019 , were largely due to costs associated with launching the phase 3 study of ar-301 for the treatment of vap caused by the staphylococcus aureus bacteria , the phase 1/2 study of ar-501 for the treatment of chronic lung infections associated with cystic fibrosis , and the phase 1/2 study of ar-501 for the treatment of chronic lung infections associated with cystic fibrosis . these studies ' startup phases , which contain a disproportionately high percentage of total study expenses , have been largely completed . we have incurred losses since our inception . story_separator_special_tag until such time that we can generate meaningful revenue from product sales , if ever , we expect to finance our operating activities through public or private equity or debt financings , government or other third-party funding and other collaborations , strategic alliances and licensing arrangements or a combination of these approaches . if we are unable to obtain funding on a timely basis , we may be required to significantly curtail , delay or discontinue one or more of our research or development programs or the commercialization of any approved therapies or products or be unable to expand our operations or otherwise capitalize on our business opportunities , as desired , which could adversely affect our business , financial condition and results of operations . financial overview reverse stock split on august 3 , 2018 , we effected a 1 for 6.417896 reverse stock split of our common stock . the par value and the number of authorized shares of the common and convertible preferred stock were not adjusted as a result of the reverse stock split . all common stock share and per-share amounts for all periods presented in this annual report on form 10-k have been adjusted retroactively to reflect the reverse stock split . initial public offering on august 13 , 2018 , our registration statement on form s-1 relating to our ipo of our common shares ( the `` ipo '' ) was declared effective by the securities and exchange commission ( `` sec '' ) . the ipo closed on august 16 , 2018 and we issued and sold 2,000,000 common shares at a public offering price of $ 13.00 per share . gross proceeds totaled $ 26.0 million and net proceeds totaled $ 22.8 million after deducting underwriting discounts and commissions of $ 1.8 million and other offering expenses of approximately $ 1.4 million . the underwriters of the ipo partially exercised their over-allotment option , and on august 30 , 2018 , we issued and sold 192,824 common shares at a public offering price of $ 13.00 per share for gross proceeds totaling approximately $ 2.5 million and net proceeds of approximately $ 2.3 million after deducting underwriting discounts and commissions of approximately $ 175,000. in connection with the ipo , the holders of a majority of the series a preferred stock approved the mandatory conversion of the series a preferred stock into one share of common stock for every 6.417896 shares of series a preferred stock which converted immediately prior to the consummation of the ipo . upon conversion , a total of 5,744,586 shares of common stock were issued for the converted series a preferred stock which included the accrued dividends upon conversion . all warrants to purchase series a preferred stock became warrants to purchase common stock , adjusted for the 1 for 6.417896 shares reverse stock split . sibv license agreement in july 2019 , we entered into an option agreement with sibv which granted sibv the option to license multiple programs from us and access our mabigx® platform technology for asset identification and selection . we received an upfront cash payment of $ 5 million upon execution of this option agreement . in connection with the option agreement , sibv made an equity investment whereby we 105 issued 801,820 shares of our restricted common stock in a private placement to sibv for total gross proceeds of $ 10 million . in september 2019 , we entered into a license , development and commercialization agreement ( the `` license agreement '' ) with samr . pursuant to the license agreement , we received upfront payments totaling $ 15 million , of which $ 5 million was received in july 2019 through the option agreement referred to above , and may receive milestone payments and royalty-based payments from samr if certain milestones and sales levels as defined in the license agreement are met . given the equity investment by sibv was negotiated in conjunction with the option agreement , which resulted in the execution of the license agreement , all arrangements were evaluated as a single agreement and amounts were allocated to the elements of the arrangement based on their fair value . we allocated the proceeds received from the sale of the restricted common stock and upfront payment from the license agreement , net of issuance and contract costs , of approximately $ 22.5 million accordingly : we recorded approximately $ 5.0 million , which represented the fair value of the restricted common stock issued of $ 5.4 million , net of $ 441,000 of issuance costs , to stockholders ' equity within our consolidated balance sheet ; we recorded approximately $ 19.6 million to deferred revenue based on the $ 15 million from upfront payments under the license agreement and approximately $ 4.6 million from the equity allocation ; and we capitalized approximately $ 2.1 million to contract costs , which consists of approximately $ 376,000 issuance costs from the equity allocation and approximately $ 1.7 million in other direct costs to obtain the license agreement . in accordance with asc 606 , we determined that no performance obligations were satisfied as of december 31 , 2019 , and therefore , no revenue related to the license agreement was recognized for the year ended december 31 , 2019. 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 we have prepared in accordance with generally accepted accounting principles in the united states , or gaap . the preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our consolidated financial statements , as well as the reported expenses during the reported periods . we evaluate these estimates and judgments on an ongoing basis .
| results of operations 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 ( in thousands ) : replace_table_token_3_th grant revenue . grant revenue decreased by $ 567,000 from $ 1.6 million for the year ended december 31 , 2018 to $ 1.0 million for the year ended december 31 , 2019 primarily due to the completion of milestones and recognition of revenue related to those milestones related to the grant award from the cff during 2018. collaboration revenue . there was no collaboration revenue in 2019. this is a decrease of $ 1.2 million in revenue compared to 2018. all 2018 revenue was from the gsk collaboration and option agreement which was terminated in december 2018. research and development expenses . research and development expenses increased by approximately $ 1.1 million from $ 23.0 million for the year ended december 31 , 2018 to $ 24.1 million for the year ended december 31 , 2019 due primarily to an increase in spending on clinical trial activities and drug manufacturing for our phase 3 pivotal trial of ar-301 , which was initiated in january 2019 , and an increase in spending on the phase 1/2a clinical trial of our ar-501 program , which was initiated in the fourth quarter of 2018. these increases were partially offset by a decrease in spending on clinical trial activities and drug manufacturing for our ar-105 program and a decrease in spending on toxicology studies related to our ar-501 program . 112 general and administrative expenses .
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a more complete description of our business is included in `` item 1. business , '' in part i of this form 10-k. the following discussion and analysis should be read in conjunction with the audited financial statements included in `` item 8. financial statements and supplementary data '' in this form10-k. we based the discussion and analysis that follows on financial data we derived from the financial statements prepared in accordance with us generally accepted accounting principles ( `` gaap '' ) and on certain other financial data that we prepared using non-gaap components . for a reconciliation of these non-gaap components to the most comparable gaap components , see “ non-gaap financial measures ” at the end of this item . discussion of operating results the following table shows a summary of our reporting segments and consolidated financial results for years ended december 31 ( in millions , except per share data ) : replace_table_token_8_th 28 2016 summary net income was $ 257.1 million , or $ 6.29 per diluted share , for 2016 compared to $ 205.3 million , or $ 4.69 per diluted share , for 2015 , and $ 205.0 million , or $ 4.48 per diluted share , for 2014 . results for 2016 include a net benefit of $ 21.2 million from tax adjustments and other items , compared to a net negative impact of $ 29.6 million in 2015 and no impact in 2014 . ( see `` non-gaap financial measures '' at the end of this item for further details ) . at rail north america , asset impairments , lower asset disposition gains , higher depreciation expense , and higher switching , freight and storage expenses were partially offset by higher lease revenue and fee income , resulting in a net decrease in segment profit in 2016. at rail international , segment profit in 2016 declined primarily due to higher maintenance expense and lower remarketing gains , partially offset by higher lease revenue and lower net litigation costs . at asc , segment profit was lower in 2016 , largely due to lower volume and a reduction in higher-margin , long-haul shipments of various commodities , as well as expenses attributable to asbestos-related litigation reserves and lease termination costs . at portfolio management , comparisons of reported results were impacted by the sale of marine investments in 2016 and 2015 , as well as a settlement fee received in 2016 related to a residual value guarantee . segment profit increased in 2016 primarily due to higher residual sharing gains on managed portfolio sales , partially offset by the absence of contributions from sold assets and lower income at our rolls-royce partners finance affiliates . total investment volume was $ 620.7 million in 2016 , compared to $ 714.7 million in 2015 and $ 1,030.5 million in 2014 . 2017 outlook for the second consecutive year , excess railcar supply , muted demand for certain railcar types , and increased railroad efficiency have combined to put pressure on lease rates for most car types . despite these conditions , we believe that we are well positioned to continue to benefit from our north american fleet actions taken over the past few years . by extending average lease terms and optimizing our fleet mix , we have a relatively low number of leases scheduled for expiration in 2017. our focus in 2017 will be to maintain high utilization . we will also focus on shortening lease terms to optimize our ability to reprice these leases when the market recovers . for 2017 , we have already placed a majority of the cars to be delivered from our supply agreements . our strong balance sheet also offers us flexibility to pursue secondary market acquisitions if attractive opportunities arise . we expect rail north america 's segment profit in 2017 to decrease from 2016. we plan to invest in additional railcars during 2017 to add to our existing fleet ; however lease revenue is expected to decline , driven by the impact of lower renewal rates and lower utilization . in addition , maintenance expense is expected to increase overall , as higher costs attributable to cars not renewed will be partially offset by lower scheduled maintenance and an increase in work performed within our own maintenance network . finally , we expect remarketing income to be lower than 2016. we anticipate rail international 's segment profit in 2017 to grow slightly compared to 2016 on a local currency basis . higher lease revenue , resulting from modest fleet growth and continued strong utilization , as well as lower maintenance expenses , will drive this increase . we expect asc 's segment profit in 2017 to be higher than 2016. we anticipate higher revenue , due to similar tonnage carried at more favorable freight rates . in addition , operating expenses are expected to decrease , as we plan to have one fewer vessel in service during 2017 compared to 2016. we believe portfolio management 's segment profit in 2017 will be lower than 2016. we will benefit from the continuation of strong financial results at the rolls-royce partners finance affiliates ; however , this will be offset by substantially lower remarketing income , as the magnitude of residual sharing fees received in 2016 will not be replicated . 29 segment operations segment profit is an internal performance measure used by the chief executive officer to assess the performance of each segment in a given period . segment profit includes all revenues , pretax earnings from affiliates , and net gains on asset dispositions that are attributable to the segments , as well as expenses that management believes are directly associated with the financing , maintenance , and operation of the revenue earning assets . segment profit excludes selling , general and administrative expenses , income taxes , and certain other amounts not allocated to the segments . these amounts are included in other . story_separator_special_tag in 2015 , segment profit was $ 379.5 million , compared to $ 321.0 million in 2014. the increase was driven by higher lease rates , a positive contribution from the full year impact of the boxcar fleet in 2015 , and lower net maintenance expense , partially offset by higher depreciation expense and lower share of affiliates ' earnings . revenues in 2016 , lease revenue increased $ 4.2 million , primarily due to revenue from new cars added to the fleet and higher utilization revenue , partially offset by the impact of fewer cars on lease . other revenue increased $ 7.5 million due to higher lease termination fees . fees in 2016 included approximately $ 10.0 million for a penalty imposed by gatx for allowing a customer to return 200 crude oil railcars prior to the contractual end of an existing lease . the majority of these railcars were subsequently placed with other gatx customers . on occasion , customers may request relief from their lease commitments , particularly when underlying commodity markets turn down . however , our lease agreements do not include provisions for payment , and any such arrangement would be negotiated and dependent on achieving an optimal economic outcome . in 2015 , lease revenue increased $ 66.8 million , primarily due to higher lease rates across the fleet and a full year of revenue in 2015 from the acquired boxcar fleet . other revenue increased $ 12.5 million , primarily due to higher repair revenue , mileage equalization revenue , and lease termination fees . expenses in 2016 , maintenance expense increased $ 2.3 million , primarily due to higher repair costs for the base fleet and lower costs eligible for capitalization for the boxcar fleet , partially offset by lower railroad repairs . depreciation expense increased $ 16.7 million , largely due to new railcar investments and the purchase of railcars previously on operating leases . operating lease expense decreased $ 14.6 million , as a result of purchases of railcars previously on operating leases in both 2016 and 2015. other operating expense increased $ 7.9 million , primarily due to higher switching , storage , and freight costs as a result of more cars being moved into storage . in 2015 , maintenance expense decreased $ 1.3 million , primarily due to lower tank car compliance maintenance , partially offset by higher costs attributable to the boxcar fleet . depreciation expense increased $ 25.1 million , largely due to depreciation on new investments , including the boxcar fleet . operating lease expense decreased $ 21.5 million , resulting from the purchase of railcars previously on operating leases in each year . other operating expense increased $ 4.3 million , primarily due to higher switching , storage , and freight costs . other income ( expense ) in 2016 , net gain on asset dispositions decreased $ 50.6 million largely due to a combination of higher impairments of railcars , primarily railcars in flammable service , and lower disposition gains , as fewer railcars were sold in 2016. see note 23 . '' financial data of business segments `` , item 8 of this form 10-k , for further details of the components of net gains on asset dispositions and note 9 . '' asset impairments and assets held for sale `` , item 8 of this form 10-k , for additional analysis regarding the impairment loss . the timing of disposition gains is dependent on a number of factors and will vary from year to year . net interest expense increased $ 8.0 million , due to a higher average debt balance and a higher average interest rates . other expense decreased $ 1.6 million primarily due to a $ 1.9 million gain from the sale of an investment security in 2016. in 2015 , net gain on asset dispositions decreased $ 5.1 million , primarily due to lower scrapping proceeds , resulting from lower prices for scrap and fewer cars scrapped , as well as lower residual sharing gains , and higher impairments of railcars in 2015. these impacts were partially offset by higher gains on cars sold . net interest expense increased $ 3.7 million , primarily due to higher average debt balances , partially offset by the impact of lower average interest rates . share of affiliates ' earnings decreased $ 7.4 million , primarily due to gains on dispositions of railcars at our southern capital affiliate in the prior year . 34 investment volume during 2016 , investment volume was $ 495.6 million compared to $ 524.5 million in 2015 , and $ 810.6 million in 2014 . we acquired approximately 3,465 railcars in 2016 , compared to 3,790 railcars in 2015 , and 3,570 railcars in 2014 . additionally , investments in 2014 included the purchase of the boxcar fleet of approximately 18,500 boxcars for approximately $ 340 million . north american rail regulatory matters in 2015 , the pipeline and hazardous materials safety administration of the us department of transportation ( “ phmsa ” ) issued regulations that established new design standards for tank cars in flammable liquids service ( the “ phmsa rules ” ) . in addition to setting standards for newly built tank cars , the phmsa regulations established standards for modifying existing tank cars in certain flammable liquids service and deadlines for modifying or removing those cars from service . the deadlines range from january 2018 to may 2029 , depending on the type of car and the type of commodity carried . the regulations were subsequently modified by legislation adopted by congress , and in august 2016 , phmsa adopted final regulations that incorporated the legislative mandates . transport canada ( “ tc ” ) also issued rules establishing revised design standards for tank cars carrying flammable liquids in canada ( the “ canadian rules ” ) . the canadian rules established standards for newly built tank cars , standards for modifying existing cars flammable liquids service , and deadlines for modifying or removing cars from service .
| segment summary in 2016 , lower demand across most commodities , as well as a reduction in higher-margin , long-haul shipments , negatively impacted operating results . asc carried 25.4 million net tons of freight and deployed 11 vessels in 2016 compared to 26.5 million net tons and 13 vessels in 2015 and 30.5 million net tons and 15 vessels in 2014 . 38 the following table shows asc 's segment results for the years ended december 31 ( in millions ) : replace_table_token_16_th \ 39 segment profit in 2016 , segment profit was $ 10.1 million compared to $ 15.1 million in 2015 . the decrease was driven by $ 5.0 million of expense related to an increased accrual for asbestos-related litigation and costs associated with the scheduled return of a leased vessel in 2017. in addition , lower demand across most commodities and fewer higher-margin , long-haul shipments of iron ore negatively impacted segment profit , which was partially offset by lower operating costs as a result of deploying two fewer vessels throughout most of 2016. in 2015 , segment profit was $ 15.1 million compared to $ 27.3 million in 2014. both periods were unfavorably impacted by difficult operating conditions on the great lakes at the start of each sailing season . additionally , results in 2015 were negatively impacted by lower shipments of higher-margin , long-haul iron ore. revenues in 2016 , marine operating revenue decreased $ 16.1 million , primarily due lower shipping volume as a result of decreased demand , as well as fewer long-haul shipments of various commodities . in addition , lower fuel revenue , which is offset in marine operating expense , contributed to the variance . the terms of asc 's contracts provide that a substantial portion of fuel costs is passed on to customers . in 2015 , marine operating revenue decreased $ 56.9 million , largely due to $ 37.6 million lower fuel revenue .
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certain risks , uncertainties and other factors , including but not limited to those set forth under “ cautionary note regarding forward-looking statements , ” “ risk factors ” and elsewhere in this report , may cause actual results to differ materially from those projected in the forward-looking statements . we assume no obligation to update any of these forward-looking statements . overview we are a diversified financial services company headquartered in grand forks , north dakota . through our subsidiary , alerus financial , national association , we provide innovative and comprehensive financial solutions to businesses and consumers through four distinct business lines—banking , retirement and benefit services , wealth management and mortgage . these solutions are delivered through a relationship-oriented primary point of contact along with responsive and client-friendly technology . our primary banking market areas are the states of north dakota , minnesota , specifically , the twin cities msa , and arizona , specifically , the phoenix msa . in addition to our offices located in our banking markets , our retirement and benefit services business administers plans in all 50 states through offices located in michigan , minnesota and colorado . our business model produces strong financial performance and a diversified revenue stream , which has helped us establish a brand and culture yielding both a loyal client base and passionate and dedicated employees . we believe our client-first and advice-based philosophy , diversified business model and history of high performance and growth distinguishes us from other financial service providers . we generate a majority of our overall revenue from noninterest income , which is driven primarily by our retirement and benefit services , wealth management and mortgage business lines . the remainder of our revenue consists of net interest income , which we derive from offering our traditional banking products and services . as of december 31 , 2020 , we had $ 3.0 billion of total assets , $ 2.0 billion of total loans , $ 2.6 billion of total deposits , $ 330.2 million of stockholders ' equity , $ 34.2 billion of aua/aum in our retirement and benefit services segment , and $ 3.3 billion of aua/aum in our wealth management segment . for the year ended december 31 , 2020 , we had $ 1.8 billion of mortgage originations . recent developments impact of covid-19 the progression of the covid-19 pandemic in the united states has not had an adverse impact on our financial condition and results of operations as of and for the year ending december 31 , 2020 , but it is expected to have a complex and significant impact on the economy , the banking industry and our company in future fiscal periods , all subject to a high degree of uncertainty . 62 effects on our market areas . our primary banking market areas are the states of north dakota , minnesota , and arizona . our retirement and benefit services segment serves clients in all 50 states . we offer retirement and benefit services at all of our banking offices located in our three primary market areas . in addition , we operate two retirement and benefits services offices in minnesota , one in michigan and one in colorado . in minnesota , at the start of the pandemic , the governor ordered individuals to stay at home and non-essential businesses to cease all activities , in each case subject to limited exceptions . this order went into effect on march 2 , 2020 , and was in effect until may 18 , 2020. the state has now implemented a four phase stay safe plan to reopen businesses in the area . similarly , in arizona , the governor ordered individuals to stay at home and non-essential businesses to cease all activities , in each case subject to limited exceptions . this order went into effect on march 31 , 2020 , and expired on may 15 , 2020 , and the governor announced new guidance for protecting businesses and their customers as they reopen . the state has implemented a four phase reopening plan that requires benchmarks be met for a certain period of time before transitioning from one phase to another . in north dakota , the governor did not issue an order requiring individuals to stay at home , but placed certain restrictions on bars , restaurants and gyms . these orders have been lifted and north dakota is now working toward a “ smart restart ” program to encourage businesses to open safely and take precautions to slow the spread of covid-19 . in response to these orders , the bank has been serving its customers through its drive-up windows at various branch locations and through online and mobile banking . the bank is also permitting certain visits to its branches on a limited basis and by appointment only . in minnesota and arizona , the bank is offering appointments to clients to meet with safeguards in place that materially comply with the cdc guidance . in north dakota , offices have re-opened for business with safeguards in place that materially comply with cdc guidance . each state experienced a dramatic and sudden increase in unemployment levels as a result of the curtailment of business activities . according to data released by the u.s. department of labor , initial claims for unemployment insurance initially spiked in each of the states in our banking markets . we expect claims for unemployment insurance to remain at elevated levels for the foreseeable future until restrictions are lifted and the pandemic 's effects have subsided . policy and regulatory developments . federal , state and local governments and regulatory authorities have enacted and issued a range of policy responses to the covid-19 pandemic , including the following : ● the federal reserve decreased the range for the federal funds target rate by 0.50 % on march 3 , 2020 , and by another 1.00 % on march 16 , 2020 , reaching a current range of 0.00-0.25 % . ● on march 27 . story_separator_special_tag we have implemented a work from home policy and certain of our offices remain closed . we continue to effectively serve our clients in all markets ; virtually , digitally , via drive-thru and in-person as conditions allow . our work place strategy includes various phases of expanding service to clients , reopening offices , and determining long-term work arrangements for employees . this approach allows us 64 to incrementally expand in-person services to clients and provides flexibility between markets based on local conditions , guidelines , and restrictions . ● we offered payment deferrals and interest only payment options for consumer , small business , and commercial customers for initial terms of up to 90 days . we offered payment extensions for mortgage customers for initial terms of up to 90 days . as of december 31 , 2020 , we had entered into principal and interest deferrals on 577 loans , representing $ 153.6 million in principal balances . of those loans , 18 loans with a total outstanding principal balance of $ 8.4 million have been granted second deferrals , 21 loans with a total outstanding principal balance of $ 3.7 million remain on the first deferral and the remaining loans have been returned to normal payment status . ● the business continuity planning covid-19 response team and alerus leadership team meet regularly to manage the company 's response to the pandemic and the effect on our business . in addition , a cross functional task force team meets regularly to address specific issues such as employee and client communications , facilities , reopening offices , and long-term work arrangements . the risk committee of the board meets regularly with management to receive updates on the company 's response and discuss the effect on our business . ● we participated as a lender in the sba 's ppp . we have assisted 1,632 borrowers receive approval for funding of $ 363.6 million in ppp loans . as of december 31 , 2020 , we had submitted , to the sba , 711 forgiveness applications totaling $ 179.9 million and have received approval and forgiveness on 432 applications totaling $ 84.1 million . net interest income net interest income represents interest income less interest expense . we generate interest income on interest-earning assets , primarily loans and available-for-sale securities . we incur interest expense on interest-bearing liabilities , primarily interest-bearing deposits and borrowings . to evaluate net interest income , we measure and monitor : ( i ) yields on loans , available-for-sale securities and other interest-earning assets ; ( ii ) the costs of deposits and other funding sources ; ( iii ) the rates incurred on borrowings and other interest-bearing liabilities ; and ( iv ) the regulatory risk weighting associated with the assets . interest income is primarily impacted by loan growth and loan repayments , along with changes in interest rates on the loans . interest expense is primarily impacted by changes in deposit balances along with the volume and type of interest-bearing liabilities . net interest income is primarily impacted by changes in market interest rates , the slope of the yield curve , and interest we earn on interest-earning assets or pay on interest-bearing liabilities . noninterest income noninterest income primarily consists of the following : ● our retirement and benefit services business , which includes retirement plan administration , retirement plan investment advisory , hsa , esop , payroll and other benefit services , is our company 's largest source of noninterest income . over half of our retirement and benefit services fees are transaction or participant based fees and are impacted by the number of plans and participants . the remainder of noninterest income is based on the market value of the related aua and aum and impacted by the level of contributions , withdrawals , new business , lost business and fluctuation in market values . ● wealth management includes personal trust , investment and brokerage services . our company earns trust , investment , and ira fees from managing assets , including corporate trusts , personal trusts , and separately managed accounts . trust and investment management fees are primarily based on a tiered scale relative to the market value of the aum . trust and investment management fees are primarily impacted by rates charged and increases and decreases in aum . aum is primarily impacted by opening and closing of client advisory and trust accounts , contributions and withdrawals , and the fluctuation in market values . 65 ● mortgage noninterest income consists of gains on originating and selling mortgages and origination fees . mortgage gains are primarily impacted by the level of originations , amount of loans sold , the type of loans sold and market conditions . ● service charges on deposit accounts are comprised of income generated through deposit account related service charges such as : electronic transfer fees , treasury management fees , bill pay fees , and other banking fees . banking fees are primarily impacted by the level of business activities and cash movement activities of our clients . ● other noninterest income consists of debit card interchange income , income earned on the growth of the cash surrender value of life insurance policies we hold on certain key employees , loan servicing income net of the related amortization , and any other income which does not fit within one of the specific noninterest income lines described above . other noninterest income is generally impacted by business activities and level of transactions . noninterest expense noninterest expense is comprised primarily of the following : ● compensation and employee taxes and benefits—include all forms of personnel related expenses including salary , commissions , incentive compensation , payroll related taxes , stock-based compensation , benefit plans , health insurance , 401 ( k ) plan match costs , esop and other benefit related expenses . compensation and employee benefit costs are primarily impacted by changes in headcount and fluctuations in benefits costs .
| results of operations the following discussion describes the consolidated operations and financial condition of the company and the bank . results of operations for the year ended december 31 , 2020 are compared to the results for the year ended december 31 , 2019 , and the consolidated financial condition of the company as of december 31 , 2020 is compared to december 31 , 2019. results of operations for the year ended december 31 , 2019 compared to results for the year ended december 31 , 2018 , can be found in item 7. management 's discussion and analysis of financial condition and results of operations of the company 's 2019 annual report on form 10-k filed with the sec on march 26 , 2020. summary net income for the year ended december 31 , 2020 was $ 44.7 million , an increase of $ 15.1 million , or 51.2 % , compared to $ 29.5 million for the year ended december 31 , 2019. diluted earnings per common share were $ 2.52 in 2020 , compared to $ 1.91 for 2019. return on average total assets was 1.61 % in 2020 , compared to 1.34 % for 2019. the 71 increase in net income was primarily due to an increase of $ 35.2 million in noninterest income and an increase of $ 9.3 million in net interest income . the increase in noninterest income was primarily driven by an increase in mortgage banking revenue and the increase in net interest income was primarily due to a $ 6.5 million decrease in interest expense along with a $ 2.4 million increase in interest income from investment securities .
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“ 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 leading global supplier of equipment and critical components 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 , lumber and oriented strand board ( osb ) manufacturers , and 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 two reportable operating segments , papermaking systems and wood processing systems , and a separate product line , fiber-based products . 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 fluids , 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 and supply debarkers , stranders , chippers , logging machinery , and related equipment used in the harvesting and production of lumber and osb . through this segment , we also provide refurbishment and repair of pulping equipment for the pulp and paper industry . through our fiber-based products business , we manufacture and sell biodegradable , absorbent granules derived from papermaking by-products for use primarily as carriers for agricultural , home lawn and garden , and professional lawn , turf and ornamental applications , as well as 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 technologies and businesses 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 . certain of our recent acquisitions are described below . 2019 acquisition o n january 2 , 2019 , we acquired syntron material handling group , llc and certain of its affiliates ( smh ) pursuant to an equity purchase agreement dated december 9 , 2018 , for approximately $ 179 million , subject to certain customary adjustments . smh is a leading provider of material handling equipment and systems to various process industries , including mining , aggregates , food processing , packaging , and pulp and paper . this acquisition extends our current product portfolio , and we expect it will strengthen smh 's relationships in the pulp and paper markets . revenues for smh were $ 89.4 million for the twelve months ended october 31 , 2018. we are currently evaluating our segment classification of the smh business . 2017 acquisitions on august 14 , 2017 , we acquired certain assets of unaflex , llc ( unaflex ) for $ 31.3 million in cash , subject to a post-closing adjustment . we anticipate paying additional consideration of $ 0.4 million to the sellers in 2019. unaflex is a leading manufacturer of expansion joints and related products for process industries . this acquisition complemented our existing fluid-handling product line within our papermaking systems segment . on july 5 , 2017 , we acquired the forest products business of nii fpg company ( nii fpg ) pursuant to a stock and asset purchase agreement dated may 24 , 2017 , for $ 170.8 million , net of cash acquired . nii fpg is a global leader in the design and manufacture of equipment used by sawmills , veneer mills , and other manufacturers in the forest products industry . nii fpg also designs and manufactures logging equipment used in harvesting timber from forest plantations . this acquisition extended our presence deeper into the forest products industry and has complemented our existing wood processing systems segment . 23 kadant inc. 2016 acquisition on april 4 , 2016 , we acquired all the outstanding shares of rt holding gmbh , the parent corporation of a group of companies known as the paalgroup ( paal ) , for approximately 49.7 million euros , net of cash acquired , or approximately $ 56.6 million . we paid additional consideration of $ 0.2 million to the sellers in 2017. paal , which has operations in germany , the united kingdom , france and spain , manufactures balers and related equipment used in the processing of recyclable and waste materials . this acquisition , which is included in our papermaking systems segment 's stock-preparation product line , broadened our product portfolio and extended our presence deeper into recycling and waste management . international sales approximately 63 % in 2018 and 65 % in 2017 of our sales were to customers outside the united states , mainly in europe , asia and canada . we generally seek to charge our customers in the same currency in which our operating costs are incurred . story_separator_special_tag determination of taxable income in any jurisdiction requires the interpretation of the related tax laws and regulations and the use of estimates and assumptions regarding significant future events , such as the amount , timing and character of deductions , permissible revenue recognition methods under the tax law and the sources and character of income and available tax credits . changes in tax laws , regulations , agreements and treaties , currency-exchange restrictions or our level of operations or profitability in each taxing jurisdiction could have an impact upon the amount of current and deferred tax balances and our results of operations . 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 $ 9.9 million at year-end 2018 . 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 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 2018 , 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 2018 , 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 2018 , 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 2018 , we recorded $ 0.8 million of net tax expense associated with these foreign earnings that we plan to repatriate in 2019. 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 2018 , we performed a quantitative impairment analysis ( step 1 ) on our goodwill and indefinite-lived intangible assets and determined that the assets were not impaired . 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 2018 . 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 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 . inventories . we value our inventory at the lower of the actual cost ( on a first-in , first-out ; or weighted average basis ) or net realizable value and include materials , labor , and manufacturing overhead .
| results of operations 2018 compared to 2017 revenues the following table presents changes in revenues by segment and product line between 2018 and 2017 , and the changes in revenues by segment and product line between 2018 and 2017 excluding the effect of currency translation and acquisitions . currency translation is calculated by converting 2018 revenues in local currency into u.s. dollars at 2017 exchange rates and then comparing this result to actual revenues in 2018. 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 . replace_table_token_4_th papermaking systems segment revenues from our papermaking systems segment increased $ 62.3 million , or 15 % , to $ 469.9 million in 2018 from $ 407.6 million in 2017 , including $ 12.2 million from the inclusion of revenue from acquisitions and a $ 4.7 million increase from the favorable effect of foreign currency translation . excluding acquisitions and the favorable effect of foreign currency translation , revenues increased $ 45.3 million , or 11 % , as explained in the product line discussions below . revenues from our stock-preparation product line in 2018 increased $ 28.1 million , or 14 % , compared to 2017 , including $ 4.2 million from the favorable effect of foreign currency translation . excluding the favorable effect of foreign currency translation , revenues increased $ 23.9 million , or 12 % , compared to 2017 , primarily due to increased demand for our capital equipment at our chinese and north american operations .
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as a result of the decline in 2016 sales as well as our expectation of limited sales of our military intellitube ® product going forward due to new competition for retrofit products for the story_separator_special_tag operations the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements ( “ financial statements ” ) and related notes thereto , included in item 8 of this annual report . overview energy focus , inc. and its subsidiary engage in the design , development , manufacturing , marketing , and sale of energy-efficient lighting systems . we operate in a single industry segment , developing and selling our energy-efficient light-emitting diode ( “ led ” ) lighting products into the general commercial , industrial and military maritime markets . our goal is to become a trusted leader in the led lighting retrofit market by replacing fluorescent lamps in institutional buildings and high-intensity discharge ( “ hid ” ) lighting in low-bay and high-bay applications with our innovative , high-quality commercial and military tubular led ( “ tled ” ) products . over the past few years we have exited non-core businesses to focus our efforts on tled products , starting with the sale of our pool lighting products business in 2013. during 2015 we exited our turnkey solutions business operated by our subsidiary , energy focus led solutions , llc ( “ efls ” ) , and exited our united kingdom business through the sale of crescent lighting limited ( “ cll ” ) , our wholly-owned subsidiary . as a result , we have reclassified all net sales and expenses associated with both efls and cll from the consolidated statements of operations and have reported the related net income ( loss ) as discontinued operations . please refer to note 4 , “ discontinued operations , ” for more information on our disposition of these businesses . during 2016 , we were impacted by a slowdown in demand from u.s. navy compared to the rapid pace of 2015 when we experienced record high military maritime sales of $ 50.1 million . we experienced a year-over-year decrease in military maritime sales of 67.7 percent from 2015 to 2016 and , as a result we re-evaluated the economics of manufacturing components versus purchasing them and ceased using certain specialized manufacturing equipment and software used in the manufacture of our military intellitube ® product . accordingly , we recorded an impairment loss of $ 0.9 million to adjust the carrying value of the equipment and software to its net realizable value , as of december 31 , 2016. in 2017 , we recorded an additional impairment loss of $ 0.2 million to adjust the carrying value of the equipment and software to the current expected net realizable value . we continue to actively market the equipment and software for sale and expect to complete a sale in the first quarter of 2018. additionally , we had initiated an aggressive inventory procurement plan during 2016 in order to meet expected commercial sales growth , which did not materialize . as a result , our gross inventory levels increased $ 5.0 million as of december 31 , 2016 compared to december 31 , 2015. in accordance with accounting principles generally accepted in the united states ( “ u.s . gaap ” ) , we evaluated our 2016 year-end inventory quantities for excess levels and potential obsolescence after evaluation of historical sales , current economic trends , forecasted sales and product lifecycles and charged $ 3.3 million to cost of sales from continuing operations for excess and obsolete inventories , as compared to $ 1.7 million in 2015. given the decline in our military maritime business , the changing competitive landscape of the u.s. navy sales channel and the timing uncertainty of commercial sales growth , we implemented a restructuring initiative during the first quarter of 2017. the intent of the restructuring strategy was to maximize operating cost reductions without sacrificing either our new product pipeline or potential long-term revenue growth and return the company to profitability . on february 19 , 2017 , the board appointed dr. ted tewksbury to serve as the company 's chairman of the board , chief executive officer and president to lead the company 's restructuring efforts . dr. tewksbury , who holds m.s . and ph.d. degrees in electrical engineering from mit , is a well-seasoned semiconductor industry executive with experience in implementing and managing successful business restructurings . the restructuring initiative included an organizational consolidation of management functions in order to streamline and better align the company into a more focused , efficient , and cost-effective organization . the initiative also included the transition from our historical direct sales model to an agency driven sales channel strategy in order to expand our market presence throughout the u.s. during 2017 we closed our new york , new york , arlington , virginia and rochester , minnesota offices , reduced full-time equivalent headcount by 51 % and significantly decreased operating expenses from 2016 levels ( a net reduction of $ 8.4 million , which includes $ 1.8 million in offsetting restructuring and impairment charges ) . as of december 31 , 2017 , we had effectively transitioned our sales force to an agency driven sales channel , expanding our sales coverage to the entire u.s. through six geographic regions and 30 sales agents . as a result of this transition , we have substantially expanded from a primarily midwest focus to build market presence and awareness in other regions of the u.s. with significant demand potential , including the northeast , southeast and california . 24 while substantial doubt about our ability to continue as a going concern continued to exist at december 31 , 2017 , we had $ 10.8 million in cash and no debt obligations at the end of the year . story_separator_special_tag in addition , the restructuring actions taken in 2017 resulted in a net decrease in operating expenses of $ 8.4 million , including restructuring and asset impairment charges of $ 1.8 million in 2017 and impairment charges of $ 0.9 million in 2016. the intent of the restructuring strategy was to maximize operating cost reductions without sacrificing either our new product pipeline or potential long-term revenue growth . consequently , considering both quantitative and qualitative information , we continue to believe that the combination of our restructuring actions , current financial position , liquid resources , obligations due or anticipated within the next year , executive reorganization , and implementation of our sales channel strategy will return us to profitability in 2018 and effectively mitigates the substantial doubt about our ability to continue as a going concern . other ( expense ) income interest expense we incurred $ 2 thousand in interest expense in 2017. as a result of settling our long term debt obligations during the fourth quarter of 2015 , we incurred no interest expense for the year ended december 31 , 2016 . interest expense for the year ended december 31 , 2015 was $ 0.1 million . other expenses we recognized other expenses of $ 0.1 million in 2017 , compared to other expense of $ 18 thousand in 2016 and other income of $ 0.1 million in 2015 . the expenses in 2017 and 2016 primarily consisted of losses on the disposal of fixed assets partially offset by interest income on our cash balances . the income in 2015 primarily consisted of recognized foreign currency transaction gains partially offset by the non-cash amortization of fees related to our former revolving credit facility . income taxes for the years ended december 31 , 2017 and 2016 , our effective tax rate was 1.02 percent and ( 0.2 ) percent , respectively . in 2017 , our effective tax rate was lower than the statutory rate due to the remeasurement of our deferred tax assets resulting from the tax cuts and jobs act of 2017 ( the “ act ” ) and a decrease in the valuation allowance . in 2016 , our effective tax rate 28 was lower than the statutory tax rate due primarily due to an increase in the valuation allowance as a result of $ 10.6 million of additional net operating loss we recognized for that year . on december 22 , 2017 , the act was signed into law making significant changes to the internal revenue code . changes include , but are not limited to , a corporate tax rate decrease from 35 percent to 21 percent effective for tax years beginning after december 31 , 2017 , repeal of the corporate alternative minimum tax , elimination of certain deductions , and changes to the carryforward period and utilization of net operating losses generated after december 31 , 2017. we have calculated our best estimate of the impact of the act in our year end income tax provision in accordance with our understanding of the act and guidance available as of the date of this filing . as a result of the act , we have recorded $ 0.1 million as additional income tax benefit in the fourth quarter of 2017 , the period in which the legislation was enacted . this amount related to the release of the valuation allowance on our alternative minimum tax credit carry forward , which is expected to be fully refunded by 2021. we remeasured our deferred tax assets and liabilities , based on the rates at which they are expected to reverse in the future . the impact of the remeasurement was $ 5.9 million of additional tax expense , which was offset by a $ 5.9 million valuation allowance reduction resulting in no net impact to the financial statements . the u.s. treasury department , the internal revenue service , and other standard-setting bodies could interpret or issue guidance on how provisions of the act will be applied or otherwise administered that is different from our interpretation . as we complete our analysis of the act , collect and prepare necessary data , and interpret any additional guidance , we may make adjustments to provisional amounts that we have recorded that may materially impact our provision for income taxes in the period in which the adjustments are made . deferred income tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred income tax assets will not be realized . in considering the need for a valuation allowance , we assess all evidence , both positive and negative , available to determine whether all or some portion of the deferred tax assets will not be realized . such evidence includes , but is not limited to , recent earnings history , projections of future income or loss , reversal patterns of existing taxable and deductible temporary differences , and tax planning strategies . we have recorded a full valuation allowance against our deferred tax assets at december 31 , 2017 and 2016 , respectively . we had no net deferred liabilities at december 31 , 2017 or 2016. we will continue to evaluate the need for a valuation allowance on a quarterly basis . at december 31 , 2017 , we had net operating loss carry-forwards of approximately $ 91.8 million for federal , state , and local income tax purposes . however , due to changes in our capital structure , approximately $ 37.3 million of this amount is available after the application of irc section 382 limitations . if not utilized , these carry-forwards will begin to expire in 2021 for federal purposes and have begun to expire for state and local purposes . please refer to note 11 , “ income taxes , ” included in item 8 for further information .
| results of operations the following table sets forth the percentage of net sales represented by certain items reflected on our consolidated statements of operations for the following periods : replace_table_token_3_th 25 net sales a further breakdown of our net sales by product line is as follows ( in thousands ) : replace_table_token_4_th while our net sales of $ 19.8 million in 2017 decreased 36.0 percent compared to 2016 , our commercial sales increased 2.8 percent reflecting our continued efforts to penetrate our targeted vertical markets . overall demand for our military maritime products increased during 2017 compared to 2016 , but our distributor for the u.s. navy had the ability to satisfy that demand with inventory they had purchased during 2016 under an exclusive distribution agreement that ended on march 31 , 2017. as a result , our 2017 military maritime sales decreased 71.4 percent compared 2016 . net sales of $ 31.0 million in 2016 decreased 51.9 percent in comparison to $ 64.4 million in 2015 , primarily due to a $ 33.9 million decrease in military maritime sales . this decrease was the result of high-volume sales to distributors for the u.s. navy during 2015 . commercial sales increased $ 0.7 million , or 4.6 percent , in 2016 compared to 2015 , as we continued our efforts to diversify and expand our commercial market . r & d services decreased by $ 0.1 million , as we completed work on research contracts and grants in 2015 . international sales with the sale of our united kingdom subsidiary cll in 2015 , we no longer generate significant sales from customers outside the united states . international net sales accounted for approximately two percent , four percent , and less than one percent of net sales in 2017 , 2016 , and 2015 , respectively .
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in addition , the story_separator_special_tag executive overview and outlook the national economic environment continues to be a challenge and is characterized by high unemployment levels , an unstable job market and moderate spending in limited categories . compounding that is consumer and business uncertainty regarding the health of the u.s. and global economies . against this backdrop , prospective home buyers have been further challenged by evidence of falling home prices , a significant current and anticipated future inventory of distressed homes for sale , and limited availability of mortgage credit . although home prices and home ownership costs are very low compared to historical levels , and despite the fact that for many consumers it is less expensive to be a home owner than an apartment renter , demand for new homes has been exceptionally weak for several years . 28 throughout the homebuilding recession we have remained disciplined in our approach to the business . among other actions we have : exited numerous markets that we determined were not core to our long-term profitability objectives , including northwest florida this quarter ; reduced overhead expenses by eliminating headcount and centralizing or regionalizing various functional activities ; value-engineered our homes to reduce direct construction costs ; limited our construction of unsold homes to align our inventory with anticipated near-term demand ; and controlled our land and land development spending consistent with our view of market conditions . each of these efforts has been undertaken to allow the company to generate or conserve liquidity while maintaining or growing a substantial homebuilding presence in large markets to participate in the eventual housing recovery . we expect to continue this disciplined approach to managing our business during these uncertain times as we strive toward returning to profitability . during the quarter ending march 31 , 2011 , the company launched a pre-owned homes division which we charged with acquiring , improving and renting out recently built , previously owned homes within select communities in markets in which the company currently operates . by augmenting the sale of newly constructed homes with rental options of previously owned homes , we expect to appeal to a broader range of consumers . the primary source of pre-owned homes ' inventory will be distressed sales , typically foreclosures or short sales , which we anticipate acquiring at a discount to their replacement cost . this division leverages our strengths as a homebuilder and knowledge of our markets , and offers an attractive investment proposition for a portion of the company 's cash reserve . since the formation of this division , we have determined the business opportunity is substantial and that the company is well positioned to significantly increase the scale of operations with rental homes . as such , we are in the process of identifying additional external sources of equity and debt capital to augment the company 's resources . we expect to limit the company 's investment in this division to no more than $ 20 million . pre-owned homes is presented as a reportable segment in the management discussions and analysis that follow . despite our confidence in the eventual growth prospects for our business , we expect to maintain a significant liquidity position . this may limit the speed and scale of our investments , which could in turn result in a slower return to profitability . additionally , from time to time we may take steps to refine our capitalization , which could increase or decrease liquidity . these steps could include the retirement or purchase of our outstanding debt , through cash purchases or exchange offers for other debt or equity instruments , in open market , publically registered or privately negotiated transactions or otherwise . there can be no assurances that we will be able to complete any of these transactions in the future on favorable terms or at all . while our visibility into the economic conditions for fiscal 2012 is limited , we believe that we will benefit from projected population growth and increases in housing starts in the coming years . in the meantime , we are taking the steps necessary to drive improvement in homebuilding revenues , while maintaining an efficient cost structure , looking for new opportunities to generate profits and investing for future growth , all with the intention to accelerate our return to profitability . critical accounting policies some of our critical accounting policies require the use of judgment in their application or require estimates of inherently uncertain matters . although our accounting policies are in compliance with accounting principles generally accepted in the united states of america ( gaap ) , a change in the facts and circumstances of the underlying transactions could significantly change the application of the accounting policies and the resulting financial statement impact . listed below are those policies that we believe are critical and require the use of complex judgment in their application . inventory valuation held for development our homebuilding inventories that are accounted for as held for development include land and home construction assets grouped together as communities . homebuilding inventories held for development are stated at cost ( including direct construction costs , capitalized indirect costs , capitalized interest and real estate taxes ) 29 unless facts and circumstances indicate that the carrying value of the assets may not be recoverable . we assess these assets no less than quarterly for recoverability . generally , upon the commencement of land development activities , it may take three to five years ( depending on , among other things , the size of the community and its sales pace ) to fully develop , sell , construct and close all the homes in a typical community . however , the impact of the recent downturn in our business has significantly lengthened the estimated life of many communities . recoverability of assets is measured by comparing the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset . story_separator_special_tag our assumptions about future home sales prices and absorption rates require significant judgment because the residential homebuilding industry is cyclical and is highly sensitive to changes in economic conditions . because the projected cash flows used to evaluate the fair value of inventory are significantly impacted by changes in market conditions including decreased sales prices , a change in sales prices or changes in absorption estimates based on current market conditions and management 's assumptions relative to future results could lead to additional impairments in certain communities during any given period . market deterioration that exceeds our estimates may lead us to incur additional impairment charges on previously impaired homebuilding assets in addition to homebuilding assets not currently impaired but for which indicators of impairment may arise if the market continues to deteriorate . asset valuation land held for future development for those communities for which construction and development activities are expected to occur in the future or have been idled ( land held for future development ) , all applicable interest and real estate taxes are expensed as incurred and the inventory is stated at cost unless facts and circumstances indicate that the carrying value of the assets may not be recoverable . the future enactment of a development plan or the occurrence of events and circumstances may indicate that the carrying amount of an asset may not be recoverable . we evaluate the potential development plans of each community in land held for future development if changes in facts and circumstances occur which would give rise to a more detailed analysis for a change in the status of a community to active status or held for development . asset valuation land held for sale we record assets held for sale at the lower of the carrying value or fair value less costs to sell . the following criteria are used to determine if land is held for sale : management has the authority and commits to a plan to sell the land ; the land is available for immediate sale in its present condition ; there is an active program to locate a buyer and the plan to sell the property has been initiated ; the sale of the land is probable within one year ; the property is being actively marketed at a reasonable sale price relative to its current fair value ; and it is unlikely that the plan to sell will be withdrawn or that significant changes to the plan will be made . additionally , in certain circumstances , management will re-evaluate the best use of an asset that is currently being accounted for as held for development . in such instances , management will review , among other things , the current and projected competitive circumstances of the community , including the level of supply of new and used inventory , the level of sales absorptions by us and our competition , the level of sales incentives required and the number of owned lots remaining in the community . if , based on this review and the foregoing criteria have been met at the end of the applicable reporting period , we believe that the best use of the asset is the sale of all or a portion of the asset in its current condition , then all or portions of the community are accounted for as held for sale . in determining the fair value of the assets less cost to sell , we consider factors including current sales prices for comparable assets in the area , recent market analysis studies , appraisals , any recent legitimate offers , and listing 31 prices of similar properties . if the estimated fair value less cost to sell of an asset is less than its current carrying value , the asset is written down to its estimated fair value less cost to sell . due to uncertainties in the estimation process , it is reasonably possible that actual results could differ from the estimates used in our historical analyses . our assumptions about land sales prices require significant judgment because the current market is highly sensitive to changes in economic conditions . we calculated the estimated fair values of land held for sale based on current market conditions and assumptions made by management , which may differ materially from actual results and may result in additional impairments if market conditions continue to deteriorate . homebuilding revenues and costs revenue from the sale of a home is generally recognized when the closing has occurred and the risk of ownership is transferred to the buyer . as appropriate , revenue for condominiums under construction is recognized based on the percentage-of-completion method , when certain criteria are met . all associated homebuilding costs are charged to cost of sales in the period when the revenues from home closings are recognized . homebuilding costs include land and land development costs ( based upon an allocation of such costs , including costs to complete the development , or specific lot costs ) , home construction costs ( including an estimate of costs , if any , to complete home construction ) , previously capitalized indirect costs ( principally for construction supervision ) , capitalized interest and estimated warranty costs . sales commissions are recognized as expense when the closing has occurred . all other costs are expensed as incurred . warranty reserves we currently provide a limited warranty ( ranging from one to two years ) covering workmanship and materials per our defined performance quality standards . in addition , we provide a limited warranty ( generally ranging from a minimum of five years up to the period covered by the applicable statute of repose ) covering only certain defined construction defects . we also provide a defined structural warranty with single-family homes and townhomes in certain states .
| results of continuing operations : replace_table_token_10_th 34 items impacting comparability between periods the following items impact the comparability of our results of operations between fiscal 2011 , 2010 and 2009 : inventory impairments and abandonments , certain general and administrative costs , goodwill impairment charges , joint venture impairment charges , and gain on extinguishment of debt . in addition , during fiscal 2011 , we discontinued operations in our northwest florida markets and have reclassified the operating results of this operation for all periods presented to discontinued operations . inventory impairments and abandonments . our gross margins over the past three fiscal years were impacted by non-cash pre-tax inventory impairments and option contract abandonments of $ 32.5 million in fiscal 2011 , $ 50.0 million in fiscal 2010 and $ 93.6 million in fiscal 2009. the projected cash flows used to evaluate the fair value of inventory are significantly impacted by changes in market conditions including decreased sales prices , the change in sales prices and changes in absorption estimates . the impairments recorded on our held for development inventory for the fiscal year ended september 30 , 2009 primarily resulted from the continued decline in the homebuilding environment across our submarkets . during fiscal 2010 and 2011 , although certain markets showed improvement from the prior years , for certain communities we determined it was prudent to reduce sales prices or further increase sales incentives in response to factors including competitive market conditions . in future periods , we may again determine that it is prudent to reduce sales prices , further increase sales incentives or reduce absorption rates which may lead to additional impairments , which could be material . our impairments on land held for sale listed below are as a result of challenging market conditions and our review of recent comparable transactions since land held for sale is recorded at net realizable value , less estimated costs to sell .
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executive overview we are one of the largest global reits and a leading independent owner , operator and developer of multitenant communications real estate . our primary business is the leasing of space on communications sites to wireless service providers , radio and television broadcast companies , wireless data providers , government agencies and municipalities and tenants in a number of other industries . in addition to the communications sites in our portfolio , we manage rooftop and tower sites for property owners under various contractual arrangements . we also hold other telecommunications infrastructure and property interests that we lease to communications service providers and third-party tower operators . we refer to this business as our property operations , which accounted for 99 % of our total revenues for the year ended december 31 , 2016 and includes our u.s. property segment , asia property segment , emea property segment and latin america property segment . we also offer tower-related services , including site acquisition , zoning and permitting and structural analysis services , which primarily support our site leasing business , including the addition of new tenants and equipment on our sites . 26 the following table details the number of communications sites , excluding managed sites , we owned or operated as of december 31 , 2016 : replace_table_token_8_th _ ( 1 ) approximately 97 % of the operated towers are held pursuant to long-term capital leases , including those subject to purchase options . ( 2 ) in argentina , we own or operate urban telecommunications assets , fiber and the rights to utilize certain existing utility infrastructure for future telecommunications equipment installation . in general , our tenant leases with wireless carriers have an initial non-cancellable term of at least ten years , with multiple renewal terms . accordingly , nearly all of the revenue generated by our property operations during the year ended december 31 , 2016 was recurring revenue that we should continue to receive in future periods . based upon foreign currency exchange rates and the tenant leases in place as of december 31 , 2016 , we expect to generate over $ 31 billion of non-cancellable tenant lease revenue over future periods , absent the impact of straight-line lease accounting . most of our tenant leases have provisions that periodically increase the rent due under the lease , typically annually based on a fixed escalation ( averaging approximately 3 % in the united states ) or an inflationary index in our international markets , or a combination of both . in addition , certain of our tenant leases provide for additional revenue to cover costs , such as ground rent or power and fuel costs . the revenues generated by our property operations may be affected by cancellations of existing tenant leases . as discussed above , most of our tenant leases with wireless carriers and broadcasters are multiyear contracts , which typically are non-cancellable ; however , in some instances , a lease may be cancelled upon the payment of a termination fee . revenue lost from either cancellations of leases at the end of their terms or rent negotiations historically has not had a material adverse effect on the revenues generated by our property operations . during the year ended december 31 , 2016 , loss of revenue from tenant lease cancellations or renegotiations represented less than 2 % of our property operations revenues . property operations revenue growth . due to our diversified communications site portfolio , our tenant lease rates vary considerably depending upon numerous factors , including , but not limited to , amount , type and position of tenant equipment on the tower , remaining tower capacity and tower location . we measure the remaining tower capacity by assessing several factors , including tower height , tower type , environmental conditions , existing equipment on the tower and zoning and permitting regulations in effect in the jurisdiction where the tower is located . in many instances , tower capacity can be increased with relatively modest tower augmentation expenditures . the primary factors affecting the revenue growth in our property segments are : 27 growth in tenant billings , including : new revenue attributable to leases in place on day one on sites acquired or constructed since the beginning of the prior-year period ; new revenue attributable to leasing additional space on our sites ( “ colocations ” ) and lease amendments ; and contractual rent escalations on existing tenant leases , net of churn . revenue growth from other items , including additional tenant payments to cover costs , such as ground rent or power and fuel costs ( “ pass-through ” ) included in certain tenant leases , straight-line revenue and decommissioning . we continue to believe that our site leasing revenue is likely to increase due to the growing use of wireless services and our ability to meet the corresponding incremental demand for our wireless real estate . by adding new tenants and new equipment for existing tenants on our sites , we are able to increase these sites ' utilization and profitability . we believe the majority of our site leasing activity will continue to come from wireless service providers . our site portfolio and our established tenant base provide us with new business opportunities , which have historically resulted in consistent and predictable organic revenue growth as wireless carriers seek to increase the coverage and capacity of their existing networks , while also deploying next generation wireless technologies . in addition , we intend to continue to supplement our organic growth by selectively developing or acquiring new sites in our existing and new markets where we can achieve our risk-adjusted return on investment objectives . in our international markets , certain pass-through revenue amounts may fluctuate with changing power and fuel costs . property operations organic revenue growth . consistent with our strategy to increase the utilization and return on investment of our sites , our objective is to add new tenants and new equipment for existing tenants through colocation and lease amendments . story_separator_special_tag in a majority of our asia , emea and latin america markets , the revenue generated from newly acquired or constructed sites resulted in increases in both tenant and pass-through revenues ( such as ground rent or power and fuel costs ) and expenses . we continue to evaluate opportunities to acquire communications real estate portfolios , both domestically and internationally , to determine whether they meet our risk-adjusted hurdle rates and whether we believe we can effectively integrate them into our existing portfolio . replace_table_token_9_th property operations expenses . direct operating expenses incurred by our property segments include direct site level expenses and consist primarily of ground rent and power and fuel costs , some or all of which may be passed through to our tenants , as well as property taxes , repairs and maintenance . these segment direct operating expenses exclude all segment and corporate selling , general , administrative and development expenses , which are aggregated into one line item entitled selling , general , administrative and development expense in our consolidated statements of operations . in general , our property segments ' selling , general , administrative and development expenses do not significantly increase as a result of adding incremental tenants to our sites and typically increase only modestly year-over-year . as a result , leasing additional space to new tenants on our sites provides significant incremental cash flow . we may , however , incur additional segment selling , general , administrative and development expenses as we increase our presence in our existing markets or expand into new markets . our profit margin growth is therefore positively impacted by the addition of new tenants to our sites but can be temporarily diluted by our development activities . 29 services segment revenue growth . as we continue to focus on growing our property operations , we anticipate that our services revenue will continue to represent a small percentage of our total revenues . non-gaap financial measures included in our analysis of our results of operations are discussions regarding earnings before interest , taxes , depreciation , amortization and accretion , as adjusted ( “ adjusted ebitda ” ) , funds from operations , as defined by the national association of real estate investment trusts ( “ nareit ffo ” ) attributable to american tower corporation common stockholders , consolidated adjusted funds from operations ( “ consolidated affo ” ) and affo attributable to american tower corporation common stockholders . we define adjusted ebitda as net income before income ( loss ) from equity method investments ; income tax benefit ( provision ) ; other income ( expense ) ; gain ( loss ) on retirement of long-term obligations ; interest expense ; interest income ; other operating income ( expense ) ; depreciation , amortization and accretion ; and stock-based compensation expense . nareit ffo attributable to american tower corporation common stockholders is defined as net income before gains or losses from the sale or disposal of real estate , real estate related impairment charges , real estate related depreciation , amortization and accretion and dividends on preferred stock , and including adjustments for ( i ) unconsolidated affiliates and ( ii ) noncontrolling interest . in this section , we refer to nareit ffo attributable to american tower corporation common stockholders as “ nareit ffo ( common stockholders ) . ” we define consolidated affo as nareit ffo ( common stockholders ) before ( i ) straight-line revenue and expense ; ( ii ) stock-based compensation expense ; ( iii ) the deferred portion of income tax ; ( iv ) non-real estate related depreciation , amortization and accretion ; ( v ) amortization of deferred financing costs , capitalized interest , debt discounts and premiums and long-term deferred interest charges ; ( vi ) other income ( expense ) ; ( vii ) gain ( loss ) on retirement of long-term obligations ; ( viii ) other operating income ( expense ) ; and adjustments for ( ix ) unconsolidated affiliates and ( x ) noncontrolling interests , less cash payments related to capital improvements and cash payments related to corporate capital expenditures . we define affo attributable to american tower corporation common stockholders for the year ended december 31 , 2016 as consolidated affo , excluding the impact of noncontrolling interests on both nareit ffo ( common stockholders ) as well as the other adjustments included in the calculation of consolidated affo . in this section , we refer to affo attributable to american tower corporation common stockholders as “ affo ( common stockholders ) . ” adjusted ebitda , nareit ffo ( common stockholders ) , consolidated affo and affo ( common stockholders ) are not intended to replace net income or any other performance measures determined in accordance with gaap . none of adjusted ebitda , nareit ffo ( common stockholders ) , consolidated affo or affo ( common stockholders ) represent cash flows from operating activities in accordance with gaap and , therefore , these measures should not be considered indicative of cash flows from operating activities , as a measure of liquidity or a measure of funds available to fund our cash needs , including our ability to make cash distributions . rather , adjusted ebitda , nareit ffo ( common stockholders ) , consolidated affo and affo ( common stockholders ) are presented as we believe each is a useful indicator of our current operating performance .
| results of operations years ended december 31 , 2016 , 2015 and 2014 ( in thousands , except percentages ) revenue replace_table_token_10_th year ended december 31 , 2016 - revenue u.s. property segment revenue growth of $ 212.5 million , or 7 % , was attributable to : tenant billings growth of $ 257.1 million , which was driven by : $ 128.8 million due to colocations and amendments ; $ 91.3 million generated from newly acquired or constructed sites , including sites associated with the verizon transaction ; $ 34.1 million from contractual escalations , net of churn ; and $ 2.9 million from other tenant billings . segment revenue growth was partially offset by a decrease of $ 44.6 million , primarily due to the impact of straight-line accounting . asia property segment revenue growth of $ 585.4 million , or 242 % , was attributable to : tenant billings growth of $ 368.9 million , which was driven by : $ 341.2 million generated from newly acquired sites , primarily due to the viom acquisition ; $ 22.2 million due to colocations and amendments ; $ 8.6 million generated from newly constructed sites ; partially offset by , ▪ a decrease of $ 2.2 million from churn in excess of contractual escalations ; ▪ a decrease of $ 0.9 million from other tenant billings ; pass-through revenue growth of $ 243.6 million , primarily due to the viom acquisition ; and $ 6.3 million of other revenue growth , primarily due to the impact of straight-line accounting . segment revenue growth was partially offset by a decrease of $ 33.4 million attributable to the negative impact of foreign currency translation related to fluctuations in indian rupee ( “ inr ” ) .
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for property damage , directors ' and officers ' liability and certain other exposures , we use third-party insurance plans that may include per occurrence and annual aggregate limits . we believe the story_separator_special_tag the following discussion should be read in conjunction with the other sections of this report , including the consolidated financial statements and related notes contained in item 8 of this annual report on form 10-k. overview we operate in three reportable business segments of the heating , ventilation , air conditioning and refrigeration ( “ hvacr ” ) industry . our reportable segments are residential heating & cooling , commercial heating & cooling , and refrigeration . for more detailed information regarding our reportable segments , see note 19 in the notes to consolidated financial statements . our products and services are sold through a combination of direct sales , distributors and company-owned parts and supplies stores . the demand for our products and services is seasonal and significantly impacted by the weather . warmer than normal summer temperatures generate strong demand for replacement air conditioning and refrigeration products and services and colder than normal winter temperatures have a similar effect on heating products and services . conversely , cooler than normal summers and warmer than normal winters depress the demand for hvacr products and services . in addition to weather , demand for our products and services is influenced by national and regional economic and demographic factors , such as interest rates , the availability of financing , regional population and employment trends , new construction , general economic conditions and consumer spending habits and confidence . a substantial portion of the sales in each of our business segments is attributable to replacement business , with the balance comprised of new construction business . the principal elements of cost of goods sold in our manufacturing operations are components , raw materials , factory overhead , labor and estimated costs of warranty expense . the principal raw materials used in our manufacturing processes are steel , copper and aluminum . in recent years , pricing volatility for these commodities and related components have impacted us and the hvacr industry in general . we seek to mitigate the impact of higher commodity prices through a combination of price increases , commodity contracts , improved production efficiency and cost reduction initiatives . we also partially mitigate volatility in the prices of these commodities by entering into futures contracts and fixed forward contracts . in 2012 , our residential heating & cooling segment led our overall operational improvement with a 9 % increase in net sales and $ 15 million in increased segment profit compared to 2011. the primary growth drivers for this segment can be attributed to industry growth and market share gains in our new construction and replacement businesses during the year . our commercial heating & cooling segment also performed well in 2012 with a 1 % increase in net sales , or 3 % increase when excluding a 2 % 17 unfavorable foreign currency impact , and $ 12 million in increased segment profit compared to 2011. this segment 's profits were up largely due to improved product profit margins that were driven by volume increases , favorable price and mix and productivity initiatives . sales in our refrigeration segment were down 2 % compared to 2011 , or flat when excluding a 2 % unfavorable currency impact . however , this segment 's profit increased $ 4 million compared to 2011 from improved product profit margins that were driven primarily by favorable price and mix . overall , our product profit margins improved due to volume increases , primarily in our residential heating & cooling segment , as well as favorable commodity pricing on raw materials and other material cost savings . we continue to manage our pricing structure by utilizing a combination of commodity hedging practices and controllable cost management practices through manufacturing , sourcing and engineering initiatives designed to reduce our product costs . in september 2012 , the company announced the planned sale of its service experts business . the service experts business had previously been reported within the company 's service experts segment along with a commercial service business called lennox national account services ( nas ) . beginning in the third quarter of 2012 , the service experts business was included in discontinued operations , nas was included in the company 's commercial heating & cooling segment , and the service experts reportable segment was eliminated . results for all periods have been revised to conform with this new presentation . in april 2012 , the company sold its hearth business to comvest investment partners iv in an all cash transaction for $ 10.1 million in net proceeds , which excludes the transaction costs and cash transferred with the business . the loss on sale and the operating results for the hearth business are presented as discontinued operations . company highlights net sales increased approximately $ 109 million , or 4 % , from $ 2,841 million in 2011 to $ 2,949 million in 2012. excluding the impact from unfavorable foreign currency exchange rates , net sales increased 5 % . operational income from continuing operations for 2012 was $ 219 million compared to $ 184 million for 2011. the increase was primarily due to higher volumes , higher margins from material cost savings and a reduction in restructuring costs as cost saving initiatives wind down . net income for 2012 was $ 90 million compared to $ 88 million in 2011. diluted earnings per share from continuing operations were $ 2.63 per share in 2012 compared to $ 2.09 per share in 2011. we generated $ 221 million of cash flow from operating activities in 2012 compared to $ 76 million in 2011. in 2012 , we returned $ 50 million to shareholders through share repurchases and $ 48 million through dividend payments . story_separator_special_tag compared to 2011 , or increased 3 % when excluding the 2 % unfavorable impact from foreign currency exchange rates . story_separator_special_tag income from equity method investments of $ 10 million in 2011 was flat compared to 2010. interest expense , net interest expense , net increased to $ 17 million in 2011 compared to $ 13 million in 2010. the increase in interest expense was primarily attributable to higher debt levels resulting from the kysor/warren acquisition as well as the issuance of $ 200 million in senior unsecured notes in may 2010 with a higher interest rate than our domestic revolving credit facility . income taxes the income tax provision was $ 56 million in 2011 as compared to $ 65 million in 2010. the effective tax rate was 33.4 % for 2011 as compared to 34.0 % for 2010. our effective rates differ from the statutory federal rate of 35 % for certain items , such as state and local taxes , non-deductible expenses , foreign taxes at rates other than 35 % and other permanent tax differences . discontinued operations the loss from discontinued operations relates to the service experts business , which we announced plans to sell in september 2012 , and the hearth business , which we sold in april 2012. the service experts business had a pre-tax loss of $ 11 million in 2011 compared to pre-tax income of $ 3 million in 2010. the pre-tax loss in 2011 included operating losses of $ 7 million and restructuring expenses of $ 4 million . the pre-tax income in 2010 was generated primarily from operations . the hearth business had a pre-tax loss in discontinued operations of $ 26 million in 2011 compared to a pre-tax loss of $ 25 million in 2010. the pre-tax loss in 2011 included $ 12 million of operating losses , and goodwill and long-lived asset impairments of $ 7 million each . the pre-tax loss in 2010 related primarily to operating losses . year ended december 31 , 2011 compared to year ended december 31 , 2010 - results by segment residential heating & cooling the following table details our residential heating & cooling segment 's net sales and profit for 2011 and 2010 ( dollars in millions ) : replace_table_token_12_th net sales declined by 6 % in 2011 compared to 2010. sales volumes were down 5 % and price and mix were down 1 % . this segment 's volumes and mix were negatively affected by consumers moving to lower efficiency unit purchases from high efficiency system replacements , driven by a significant reduction in the federal tax credits in 2011 , the availability of r22 refrigerant outdoor condensing units and overall economic and consumer weakness . segment profit decreased $ 59 million due to $ 31 million in increased commodity costs from both raw materials and components with our component cost commodity increases partially offset by material cost savings , $ 20 million in lower volumes , $ 15 million in higher freight and distribution costs , $ 13 million in unfavorable price and mix and $ 4 million in unfavorable warranty adjustment . a $ 24 million decline in sg & a expenses partially offset the decreases in segment profit . the decline in sg & a expenses was primarily due to lower variable compensation and general cost control . 23 commercial heating & cooling the following table details our commercial heating & cooling segment 's net sales and profit for 2011 and 2010 ( dollars in millions ) : replace_table_token_13_th our commercial heating & cooling business experienced a 12 % increase in net sales in 2011 compared to 2010 primarily due to an increase in our replacement business which resulted in a 7 % increase in sales volume . additionally , our price and mix increased 3 % in 2011 compared to 2010. mix was driven by strength in our high efficiency premier products like strategos® and energence® . changes in foreign currency exchange rates also favorably impacted net sales by 2 % in 2011. segment profit in 2011 increased $ 10 million from 2010 as a result of the impact of higher sales volume by $ 11 million , positive price and mix by $ 11 million , and $ 5 million from productivity initiatives . partially offsetting these increases were $ 17 million in increased material costs from both raw materials and components with our component cost commodity increases partially offset by material cost savings . refrigeration the following table details our refrigeration segment 's net sales and profit for 2011 and 2010 ( dollars in millions ) : replace_table_token_14_th net sales , excluding kysor/warren , increased 7 % due to higher price and mix of 2 % and favorable foreign currency exchange rates of 5 % . they kysor/warren acquisition contributed 39 % to the increase in sales . segment profit increased $ 16 million primarily due to a $ 15 million positive impact from price and mix , $ 2 million in favorable foreign currency exchange rates and a $ 5 million decline in sg & a expenses . partially offsetting these increases were declines of $ 4 million from increased commodity costs from both raw materials and components with our component cost commodity increases more than offset by material cost savings , a $ 3 million decline in volume , and $ 2 million in higher freight and distribution charges . the remaining segment profit increase was related to the kysor/warren acquisition . corporate and other corporate and other expenses were $ 55 million in 2011 , down from $ 66 million in 2010. the decrease was primarily driven by a $ 12 million decline in compensation expense , primarily incentive compensation , for 2011. accounting for futures contracts realized gains and losses on settled futures contracts are a component of segment profit ( loss ) . unrealized gains and losses on open futures contracts are excluded from segment profit ( loss ) as they are subject to changes in fair value until their settlement date .
| results of operations the following table provides a summary of our financial results , including information presented as a percentage of net sales ( dollars in millions ) : replace_table_token_5_th the following table sets forth net sales by geographic market ( dollars in millions ) : 18 replace_table_token_6_th year ended december 31 , 2012 compared to year ended december 31 , 2011 - consolidated results net sales net sales increased 4 % in 2012 compared to 2011 , or increased by 5 % when excluding the 1 % unfavorable impact from changes in foreign currency exchange rates . our sales volume was up 5 % and price and mix were flat from the comparable period . the increase in volume was driven by our residential heating & cooling and commercial heating & cooling segments capturing additional replacement and new construction business . increases in price and mix at our commercial heating & cooling and refrigeration segments were largely offset by a decrease in price and mix at our residential heating & cooling segments . gross profit gross profit margins improved 90 basis points to 24.5 % in 2012 compared to 23.6 % in 2011. improved price and mix contributed 50 basis points to profit margin and improved commodity and non-commodity material costs contributed a collective 90 basis points over 2011. partially offsetting these increases were 50 basis points of higher freight and distribution costs .
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therefore , the company determined that it was not necessary to perform a quantitative goodwill impairment test for the story_separator_special_tag you should read the following discussion in conjunction with the consolidated financial statements and the notes to those statements included elsewhere in this annual report on form 10-k ( “ annual report ” ) . this annual report contains certain statements that are forward-looking within the meaning of the private securities litigation reform act of 1995. certain statements contained in the md & a are forward-looking statements that involve risks and uncertainties . the forward-looking statements are not historical facts , but rather are based on current expectations , estimates , assumptions and projections about our industry , business and future financial results . our actual results could differ materially from the results contemplated by these forward-looking statements due to several factors , including those discussed in other sections of this annual report . see “ risk factors ” and “ forward-looking statements. ” overview teradata corporation is a global leader in analytic data solutions and services . our analytic data solutions comprise software , hardware , and related business consulting and support services . we help customers access and manage data and extract business value and insight from data analytics across their entire enterprise . teradata 's strategy is based around our core belief that analytics and data unleash the potential of great companies allowing them to make better and faster decisions and attain competitive advantage . we empower companies to achieve high-impact business outcomes through analytics at scale on an agile data foundation . through our focus on leading with business outcomes and a consultative approach , our goal is to serve as a trusted advisor to both the business and technical leaders in our customers ' organizations . our business analytics solutions and technologies are ideally suited for the world 's largest companies as they have the largest and most complex analytics challenges , where scale and performance of such solutions matter . these large and complex analytics challenges also provide the largest revenue opportunities for teradata . analytical environments are increasing in complexity . there is more choice around analytic tools and technology than ever before , including commercial and open source solutions , as well as on-premises and cloud subscription-based options . as a result , we introduced new purchasing and deployment options with our teradata everywhere strategy in early 2017 , providing purchasing options for our customers , which includes the ability for customers to purchase teradata software as a subscription-based license across a range of simpler software bundles at different price points for different use cases . customer buying behavior continues to move from predominantly capital purchases to these subscription-based purchasing options . cloud momentum is also driving new buying and consumption expectations , shifts in data importance or significance , and a move toward hybrid architectures . this trend puts pressure on our on-premises business , however , it opens opportunities for growth within our intellicloud offering family , which can be deployed on the teradata cloud and on public clouds ( aws and azure ) . intellicloud is a comprehensive as-a-service offering that is purchased with subscription-based pricing . all subscription-based teradata software licenses enable portability of the software license between cloud and on-premises deployment options , which de-risks customer decisions , particularly for customers with future plans to move to the cloud . near term , the movement to subscription-based transactions will negatively impact our revenue as revenue will be recognized over time versus upfront as was the case with the capital purchase model . over time , the business transition to a subscription-based model is expected to increase our recurring revenue . near term impacts can fluctuate based on the speed of customer adoption , which can be difficult to predict . longer term , we expect the year-over-year mix of revenues to normalize as more customers transition to these new purchasing models . teradata continues to execute the company 's business transformation plan . we have realigned and continue to optimize our business outcome-led go-to-market approach to improve sales effectiveness relating to our top 500 targeted customer opportunities . we will continue to invest in and prioritize initiatives that strengthen our ability to be our customers ' trusted advisor for data and analytics . in 2017 , we reinvested to support our transformation strategy after significantly reducing our cost structure in 2016. we are continuing to invest for teradata 's future , including investments to support our cloud-based initiatives , analytical consulting and solutions , realignment of our go-to-market approach , and modernizing our infrastructure . 27 teradata has introduced additional financial and performance metrics to allow for greater transparency regarding the progress we are making toward achieving our strategic objectives . these metrics will continue to evolve as our business transformation progresses and include the following : tcore - is a metric that tracks a consistent unit of consumption across all of teradata 's products over the wide variety of configuration and deployment options , both on-premises and in the cloud . it is determined from the number of physical central processing unit ( `` cpu '' ) cores in a system and adjusted/reduced by the underlying hardware platform 's input/output ( `` i/o '' ) throughput performance capabilities . annual recurring revenue ( `` arr '' ) - is the annual value at a point in time of all recurring contracts , including subscription licenses , rental , cloud , software upgrade rights , and maintenance and excluding managed services . recurring revenue as a percentage of total revenue - revenue recognized in the period from all recurring contracts , including subscription licenses , rental , cloud , software upgrade rights , and maintenance ( excluding managed services ) divided by total company revenue . bookings mix - subscription bookings divided by the sum of subscription bookings plus perpetual bookings . recurring revenue is intended to depict the over-time revenue recognition model for these revenue streams . story_separator_special_tag the 2016 effective tax rate was impacted by the $ 57 million of goodwill impairment charge recorded in the first quarter of 2016 , all of which was treated as a permanent non-deductible tax item . in addition , a discrete tax charge of $ 22 million was recorded in the third quarter of 2016 for the tax impact of the sale of the marketing applications business , which occurred on july 1 , 2016. in the fourth quarter of 2016 , the company recorded $ 8 million of tax expense associated with the issuance of new u.s. treasury regulations under internal revenue code section 987 on december 7 , 2016 , which clarified how companies calculate foreign currency translation gains and losses for income tax purposes for branches whose accounting records are kept in a currency other than the currency of the company . also in the fourth quarter of 2016 , the company elected to early adopt accounting standards update 2016-09 , improvements to employee share-based payment accounting . as a result , the company incurred a $ 5 31 million discrete tax expense associated with the net shortfall arising from 2016 equity compensation vestings and exercises . the 2015 effective tax rate was impacted by the $ 437 million of goodwill impairment charges recorded for 2015 , of which $ 414 million was treated as a permanent non-deductible tax item . this resulted in full-year income tax expense in 2015 of $ 70 million , on a pre-tax net loss of $ ( 144 ) million , causing a negative tax rate of 48.6 % . revenue and gross profit by operating segment effective july 1 , 2016 , following the sale of the marketing applications business , teradata is managing its business in two operating segments : ( 1 ) americas region ( north america and latin america ) ; and ( 2 ) international region ( europe , middle east , africa , asia pacific and japan ) . for purposes of discussing results by segment , management excludes the impact of certain items , consistent with how management evaluates the performance of each segment . this format is useful to investors because it allows analysis and comparability of operating trends . it also includes the same information that is used by teradata management to make decisions regarding the segments and to assess financial performance . the chief operating decision maker , who is our president and chief executive officer , evaluates the performance of the segments based on revenue and multiple profit measures , including segment gross profit . for management reporting purposes , assets are not allocated to the segments . our segment results are reconciled to total company results reported under gaap in note 11 of notes to consolidated financial statements . prior period segment information has been reclassified to conform to the current period presentation . the following table presents revenue and operating performance by segment for the years ended december 31 : replace_table_token_10_th americas data and analytics : in 2017 , revenue decreased 10 % as compared to 2016. the revenue decline was driven by our customers ' focus on subscription-based contract options like cloud , subscription licenses , rental and usage-based models , which results in revenue being recognized over time instead of upfront . the majority of subscription-based transactions signed in 2017 were in the americas region . segment gross profit as a percentage of revenues was lower , driven by a higher mix of services versus product revenue and a lower services margin rate . service margins were impacted by investments that we are making in our consulting business to drive increased consumption of teradata 's products . in addition , service gross profit was also impacted by a decrease in maintenance margin due to higher support and parts costs . in 2016 , revenue decreased 9 % , driven by customers ' focus on less subscription-based contract options like cloud , subscription licenses , rental and usage-based models . segment gross profits as a percentage of revenue were higher driven by an increase in product rates . the increase in the product rate was driven by favorable deal and product mix . international data and analytics : in 2017 , revenue increased 5 % as compared to 2016. the revenue increase was driven by improved revenues in europe , middle east and africa as well as the asia pacific regions . segment gross profit as a percentage of revenues was down in 2017 driven by investments that we are making in our consulting business to drive increased consumption of teradata 's products . 32 in 2016 , revenue increased by 1 % , which included a 2 % adverse impact from foreign currency fluctuations . the revenue increase was led by growth in western europe and china . gross profits were down due to a higher mix of service revenue , which has a lower margin profile versus product revenue . marketing applications : t he marketing applications business was sold on july 1 , 2016. in 2016 , marketing applications revenue decreased by $ 84 million or 55 % from 2015. the decline in revenue was driven by the divestiture of the marketing applications business on july 1 , 2016. prior to its divestiture , the overall increase in segment gross profit as a percentage of revenue was primarily driven by higher rates on product and professional services . in 2015 , the company made investments to help better position the company to go broader in the market , which resulted in lower service rates in 2015. financial condition , liquidity and capital resources teradata ended 2017 with $ 1,089 million in cash and cash equivalents , a $ 115 million increase from the december 31 , 2016 balance , after using approximately $ 351 million for repurchases of company common stock , and approximately $ 21 million for acquisitions and investment activities which were completed during the year . cash provided by operating activities decreased by $ 122 million to $ 324 million in 2017 .
| 2017 financial overview as more fully discussed in later sections of this md & a , the following are the financial highlights for 2017 : revenue decreased 7 % in 2017 from 2016 to $ 2,156 million . the year-over-year revenue comparison was negatively impacted by the sale of the marketing applications business in 2016 as well as revenue from subscription-based transactions being recognized over time versus upfront as was largely the case for teradata 's transactions in 2016. gross margin was 47.4 % in 2017 , down from 51.2 % in 2016 , which was largely due to investments in our consulting business related to teradata 's transformation and the higher mix of services revenue . operating income was $ 64 million in 2017 , down from $ 232 million in 2016 . the year-over-year decrease was primarily due to less revenue in 2017 as a result of revenue recognized over time from subscription-based transactions and investments related to teradata 's transformation . net loss of $ 67 million in 2017 versus net income of $ 125 million in 2016 . net loss per share was $ 0.53 in 2017 compared to net income per diluted share of $ 0.95 in 2016 . net loss for 2017 included a $ 126 million tax charge due to the enactment of the tax cuts and jobs act of 2017. net income for 2016 included a $ 70 million after-tax impairment loss for goodwill and acquired intangibles , and approximately $ 47 million in after-tax impacts of acquisition-related transaction , integration and reorganization expenses , and amortization of acquired intangible assets .
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the excess of current costs over our carrying value of inventories was approximately $ 19,947,000 and $ 19,177,000 at december 31 , 2018 and 2017 , respectively . the use of the lifo valuation method as compared to the fifo method had a negative impact on our cost of goods sold of approximately $ 770,000 in 2018 , and $ 1,231,000 in 2017 and a positive impact of approximately $ 1,448,000 in 2016. during 2018 and 2016 , there were liquidations of lifo inventory layers . the effect of the liquidations ( included in the preceding lifo impact amounts ) decreased cost of goods sold by immaterial amounts . we believe this information is meaningful to the users of these consolidated financial statements for analyzing the effects of price changes , for better understanding our financial position and for comparing such effects with other companies . note 4 , property and equipment : property and equipment are summarized as follows : replace_table_token_19_th note 5 , credit arrangement : in march 2016 we entered into the first amendment to amended and restated credit agreement ( the `` credit agreement `` ) with a bank . the credit agreement amends our revolving credit facility to increase the aggregate commitments from $ 50.0 million to $ 60.0 million , extend the maturity date to march 31 , 2021 from september 1 , 2016 , lower the commitment fees on unused amounts , reduce the applicable margin for interest rates on borrowings , modify the borrowing base calculation , and change the collateral reporting requirements . we have not had any borrowings under the revolving credit facility since its origination in 2008. f-13 the $ 60.0 million revolving credit facility is secured by inventory , accounts receivable , cash and certain other personal property . our credit agreement includes negative covenants that limit our ability to , among other things ( a ) incur , assume or permit to exist additional indebtedness or guarantees ; ( b ) incur liens and engage in sale leaseback transactions or real estate sales in excess of $ 100.0 million ; ( c ) pay dividends or redeem or repurchase capital stock if availability is less than $ 12.0 million ; ( d ) engage in certain transactions with affiliates ; and ( e ) alter the business that the company conducts . availability fluctuates under a borrowing base calculation and is reduced by outstanding letters of credit . the borrowing base was $ 57.5 million and there were no outstanding letters of credit at december 31 , 2018. amounts available are based on the lesser of the borrowing base or the $ 60.0 million line amount and reduced by $ 6.0 million since a fixed charge coverage ratio test was not met for the immediately preceding twelve months , resulting in a net availability of $ 51.5 million . there were no borrowed amounts outstanding under the credit agreement at december 31 , 2018. note 6 , accrued liabilities and other liabilities : accrued liabilities and other liabilities consist of the following : replace_table_token_20_th note 7 , income taxes : on december 22 , 2017 , the president signed into public law no . 115-97 , commonly referred to as the tax cuts and jobs act ( the “ tax act ” ) . the tax act contains significant changes to corporate taxes , including a permanent reduction of the corporate tax rate from 35 % to 21 % effective january 1 , 2018. the tax act 's other major changes applicable to havertys include the elimination of certain deductions and an enhanced and extended option to claim accelerated depreciation deductions on qualified property . in december 2017 , the securities and exchange commission ( sec ) staff issued staff accounting bulletin no . 118 , income tax accounting implications of the tax cuts and jobs act ( sab 118 ) , which allowed us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date . we remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future , which is generally 25 % . at december 31 , 2017 , we made a reasonable estimate of the effects on our existing deferred tax balances . the total amount recorded related to the remeasurement of our deferred tax balance was an additional expense of $ 5,868,000 . we completed our analysis of the tax act during 2018 and no adjustments were made to expense for this remeasurement of our deferred tax balances . f-14 income tax expense ( benefit ) consists of the following : replace_table_token_21_th the differences between income tax expense story_separator_special_tag overview industry the retail residential furniture industry 's results are influenced by the overall strength of the economy , new and existing housing sales , consumer confidence , spending on large ticket items , interest rates , and availability of credit . these factors remain tempered by rising consumer debt , home inventory constraints , and tight access to home mortgage credit , all of which provide impediments to industry growth . our business we sell home furnishings in our retail stores and via our website and record revenue when the products are delivered to our customer . our products are selected to appeal to a middle to upper-middle income consumer across a variety of styles . our commissioned sales associates receive a high level of product training and are provided a number of tools with which to serve our customers . we also have over 120 in‑home designers serving most of our stores . story_separator_special_tag our in-home designers were part of 21.5 % of our sales and their average ticket was $ 4,466. sales in 2017 declined slightly as the level of our store traffic weakened throughout the year . our average ticket increased 2.1 % allowing our sales results to not moderate at the same pace as traffic . our in-home designers were part of 20.6 % of our sales , with their average ticket twice the overall average . sales in 2016 began slowly as first quarter consumer spending remained at its sluggish end of 2015 pace . throughout 2016 our business became more concentrated around holidays and we adjusted our advertising cadence accordingly . our average ticket increased 2.3 % and our in-home designers were part of 19.7 % of our sales . 2019 outlook we believe as the general economic outlook stabilizes , and consumer spending and the housing market strengthens , our business will benefit . we have an appealing online presence and upgraded stores , and we offer on-trend merchandise , knowledgeable salespeople , and expanded special order capabilities which will be important drivers for our 2019 sales results . we expect our retail square footage to increase 2.0 % in the second half of 2019. gross profit our cost of goods sold consists primarily of the purchase price of the merchandise together with inbound freight , handling within our distribution centers and transportation costs to the local markets we serve . our gross profit is primarily dependent upon vendor pricing , the mix of products sold and promotional pricing activity . substantially all of our occupancy and home delivery costs are included in selling , general and administrative expenses as is a portion of our warehousing expenses . accordingly , our gross profit may not be comparable to those entities that include some of these expenses in cost of goods sold . year-to-year comparisons gross profit as a percentage of net sales was 54.6 % in 2018 compared to 54.3 % in 2017. this improvement was predominately driven by our execution on product mix and pricing . our havertys branded merchandise provides a strong value and fashion statement to consumers . the increasing sales generated by our in‑home designers have boosted higher margin mix opportunities through custom upholstery and accessories sales . the imposition of tariffs of 10 % on products imported in china began in late september . we raised the selling prices on some impacted products and worked with our suppliers to minimize cost increases . 15 gross profit as a percentage of net sales was 54.3 % in 2017 compared to 54.0 % in 2016. the use of the lifo method generated a $ 2.7 million or 33 basis points positive impact in 2017 over 2016 . 2019 outlook our expectations for 2019 are for annual gross profit margins of approximately 54.6 % . this assumes no additional increases in tariffs for goods imported from china . we are shifting some product to other countries and have factored this into our 2019 gross profit margin expectations . the impact of a further increase in tariffs is difficult to quantify given the variables of product cost , replacement merchandise , and changing retail prices . we do not plan to increase the level of our promotional pricing . selling , general and administrative expenses sg & a expenses are comprised of five categories : selling , occupancy , delivery and certain warehousing costs , advertising , and administrative . selling expenses primarily are comprised of compensation of sales associates and sales support staff , and fees paid to credit card and third-party finance companies . occupancy costs include rents , depreciation charges , insurance and property taxes , repairs and maintenance expense and utility costs . delivery costs include personnel , fuel costs , and depreciation and rental charges for rolling stock . warehouse costs include supplies , depreciation , and rental charges for equipment . advertising expenses are primarily media production and space , direct mail costs , market research expenses and agency fees . administrative expenses are comprised of compensation costs for store personnel exclusive of sales associates , information systems , executive , accounting , merchandising , advertising , supply chain , real estate and human resource departments . we classify our sg & a expenses as either variable or fixed and discretionary . our variable expenses include the costs in the selling and delivery categories and certain warehouse expenses as these amounts will generally move in tandem with our level of sales . the remaining categories and expenses are classified as fixed and discretionary because these costs do not fluctuate with sales . the following table outlines our sg & a expenses by classification : replace_table_token_5_th year-to-year comparisons our sg & a as a percent of sales increased 40 basis points to 49.5 % in 2018 from 49.1 % in 2017. our fixed and discretionary expenses increased $ 1.7 million or 0.7 % in 2018 over 2017. this change was primarily due to increases in administrative costs of $ 1.5 million which included a $ 2.0 million increase in group medical expenses . we also had increases in our advertising and marketing expenses , warehouse costs and other occupancy costs totaling $ 1.4 million . these increases were partly offset by $ 0.7 million in lower depreciation expense and rent expense . our variable expenses increased slightly due to higher transportation and delivery costs .
| overview of liquidity our primary cash requirements include working capital needs , contractual obligations , benefit plan contributions , income tax obligations and capital expenditures . we have funded these requirements exclusively through cash generated from operations and have not used our credit facility since 2008. we believe funds generated from our expected results of operations and available cash and cash equivalents will be sufficient to fund our primary obligations and complete projects that we have underway or currently contemplate for the next fiscal and foreseeable future years . at december 31 , 2018 , our cash , cash equivalents and restricted cash equivalents balance was $ 79.8 million , a decrease of $ 7.8 million compared to december 31 , 2017. this change primarily resulted from strong operating results offset by purchases of property and equipment and dividends paid to stockholders , including a special dividend , and repurchases of common stock . additional discussion of our cash flow results , including the comparison of 2018 activity to 2017 , is set forth in the analysis of cash flows section . at december 31 , 2018 , our outstanding indebtedness was $ 50.8 million in lease obligations required to be recorded on our balance sheet . we had no amounts outstanding and $ 51.5 million available under our revolving credit facility . capital expenditures our primary capital requirements have been focused on our stores , distribution centers , and the development of both proprietary and purchased information systems . we have successfully concluded our store remodeling program and in 2018 we completed the expansion of our western distribution center . our capital expenditures were $ 21.5 million in 2018 , $ 3.0 million less than 2017 .
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we do not sell , lease or otherwise market any computer software or hardware , and 100 % of our revenues is derived from the sale of information technology staffing services . our it staffing business combines technical expertise with business process experience to deliver a broad range of services within business intelligence / data warehousing ; web services ; enterprise resource planning & customer resource management ; and e-business solutions . we provide our services across various industry verticals including : automotive ; consumer products ; education ; financial services ; government ; healthcare ; manufacturing ; retail ; telecommunications ; transportation and utilities . we have one operating segment . we do , however , track and evaluate our revenues and gross profits by three distinct sales channels : wholesale ; retail ; and permanent placements / fees . our wholesale channel consists of system integrators and other it staffing firms with a need to supplement their abilities to attract highly-qualified temporary technical computer personnel . our retail channel focuses on clients that are end-users of it staffing services . within the retail channel are end-user clients that have retained a third party to provide vendor management services , commonly known in the industry as managed service providers ( msp ) . permanent placement / fee revenues are incidental revenues derived as by-product opportunities of conducting our core contract staffing business . economic trends and outlook generally , our business outlook is highly correlated to general u.s. economic conditions . during periods of increasing employment and economic expansion , demand for our services tends to increase . conversely , during periods of contracting employment and / or a slowing domestic economy , demand for our services tends to decline . as the economy slowed during the last half of 2007 and recessionary conditions emerged in 2008 and during much of 2009 , we experienced less demand for our staffing services . during the second half of 2009 , we began to see signs of market stabilization and a modest pick-up in activity levels within certain sales channels and technologies . during 2010 , market conditions continued to strengthen over the course of the year and activity levels within most of our sales channels progressively improved . in 2011 and 2012 , activity levels continued to trend up in most technologies and sales channels . during 2013 and 2014 , we continued to see a steady flow of solid activity in our contract staffing business ; however , tightness in the supply side ( skilled it professionals ) of our business in 2014 negatively impacted our new assignment successes . during 2015 , these supply side issues continued to impact our new assignment successes despite solid overall demand for our services . permanent placement activity levels were up in 2015 for the second consecutive year . as we enter 2016 , we view growth in the job market and a modestly expanding domestic economy as positive factors for our industry . however , we also see supply side pressures continuing to pose challenges for us and our industry as a whole . in addition to tracking general u.s. economic conditions , a large portion of our revenues are generated from a limited number of clients ( see item 1a , the risk factor entitled our revenues are highly concentrated and the loss of a significant client would adversely affect our business and revenues ) . accordingly , our trends and outlook are additionally impacted by the prospects and well-being of these specific clients . this account concentration factor may result in our results of operations deviating from the prevailing u.s. economic trends from time to time . within our retail sales channel , many large users of it staffing services are employing msps to manage their contractor spending in an effort to drive down overall costs . should this trend towards utilizing the msp model continue , our gross margins may be pressured in future periods . 20 recent developments on february 29 , 2016 , d. kevin horner resigned as our president and chief executive officer and as a member of our board of directors . on march 1 , 2016 , our board of directors appointed vivek gupta as our president and chief executive officer and as a member of our board of directors . on january 28 , 2016 , we entered into an executive employment agreement with mr. gupta , to be effective on march 1 , 2016 , a description of which is contained in the current report on form 8-k filed by the company with the sec on march 3 , 2016. on march 11 , 2016 , denis d. deet ceased to be vice president of technology and chief information officer of the company . on june 15 , 2015 , the company completed the $ 17 million acquisition of hudson it as more fully described in note 2 business combinations to the consolidated financial statements . hudson it is a domestic it staffing business with offices in chicago , boston , tampa and orlando . in support of this business combination , the company entered into an amendment to its existing loan agreement with pnc bank , n.a . the amended terms included the addition of a $ 9 million term loan and a $ 3 million reduction to the company 's existing credit facility for revolver credit loans and letters of credit . other pertinent terms and conditions are more fully described in note 6 credit facility to the consolidated financial statements . story_separator_special_tag exchange gains in 2015 and 2014 reflected exchange rate variations between the indian rupee and u.s. dollar . income tax expense income tax expense for 2015 was $ 1.7 million and represented an effective tax rate on pre-tax income of 37.8 % compared to $ 2.1 million in 2014 , which represented an effective tax rate on pre-tax income of 37.9 % . a slightly lower aggregate state income tax rate was responsible for the slight improvement in 2015 . story_separator_special_tag our accounts receivable days sales outstanding measurement ( dso ) was 53 days at year-end 2015 compared to 49 days at december 31 , 2014. this four-day increase in dso 's was largely due to finalizing client contract assignments associated with our asset purchase of hudson it which negatively impacted collection efforts . we would expect dso 's to return to more historical levels during the first half of 2016. cash provided by operating activities , our cash and cash equivalent balances on hand at december 31 , 2015 and current availability under our existing credit facility are expected to be adequate to fund our business needs over the next 12-months . below is a tabular presentation of cash flow activities for the periods discussed : replace_table_token_6_th operating activities cash provided by operating activities for the years ended december 31 , 2015 , 2014 and 2013 totaled $ 3.0 million , $ 3.3 million and $ 1.9 million , respectively . factors contributing to cash flows during the 2015 period included net income of $ 2.8 million and non-cash charges of $ 1.0 million , partially offset by an increase in operating working capital of $ 0.8 million . in 2014 , cash flows from operating activities included net income of $ 3.4 million and non-cash charges of $ 0.6 million , partially offset by an increase in operating working capital of $ 0.7 million . in 2013 , cash flows from operating activities included net income of $ 3.3 million and non-cash charges of $ 0.6 million , partially offset by an increase in operating working capital of $ 2.0 million . the increase in operating working capital during the last three years was largely in support of higher activity levels and revenue expansion . the 2015 increase in non-cash charges was largely due to the amortization of acquired intangible assets related to our hudson it acquisition . we would expect operating working capital levels to increase should revenue growth continue in 2016. similar to prior years , such an increase would result in a reduction in cash generated from operating activities . we believe that dso 's will improve somewhat in 2016 , back to our historical range of 50 to 52-days . investing activities cash used in investing activities for the years ended december 31 , 2015 , 2014 and 2013 totaled approximately $ 17.1 million , $ 0.7 million and $ 0.1 million , respectively . in 2015 , the acquisition of hudson it was responsible for $ 17.0 million of cash used in investing activities , with capital expenditures accounting for the balance . in 2014 and 2013 , capital expenditures were the primary uses of cash in investing activities . financing activities in 2015 , cash generated from financing activities totaled $ 12.4 million and included net increases in bank debt of $ 12.5 million and $ 0.1 million of excess tax benefits related to the exercising of stock options and the vesting of performance/restricted shares , partially offset by $ 0.2 million of stock repurchases . in 2014 , cash used in financing activities totaled $ 0.4 million and included $ 0.8 million of share repurchases , partially offset by excess tax benefits related to the exercising of stock options and the vesting of 25 performance/restricted shares . in 2013 , cash used in financing activities totaled $ 4.3 million and included $ 2.1 million of dividend payments and $ 2.6 million of debt repayments , partially offset by stock option activities which generated cash of $ 0.4 million . discontinued operations activities in 2014 , discontinued operations used cash of $ 0.1 million related to the run-out of current liabilities . in 2013 , discontinued operations generated cash of $ 2.3 million related to proceeds from the sale of our healthcare staffing business and the wind-down of retained operating working capital levels . off-balance sheet arrangements we do not have any off-balance sheet arrangements . inflation we do not believe that inflation had a significant impact on our results of operations for the periods presented . on an ongoing basis , we attempt to minimize any effects of inflation on our operating results by controlling operating costs and , whenever possible , seek to ensure that billing rates reflect increases in costs due to inflation . seasonality our operations are generally not affected by seasonal fluctuations . however , our consultants ' billable hours are affected by national holidays and vacation patterns . accordingly , we typically have lower utilization rates and higher benefit costs during the fourth quarter . additionally , assignment completions tend to be higher near the end of the calendar year , which largely impacts our revenue and gross profit performance during the subsequent quarter . critical accounting policies and estimates certain accounting policies are particularly important to the portrayal of our financial position , results of operations and cash flows and require the application of significant judgment by management , and as a result , are subject to an inherent degree of uncertainty . in applying these policies , our management uses judgment to determine the appropriate assumptions to be used in the determination of certain estimates . these estimates are based on our historical experience , terms of existing contracts , observances of industry trends and other available information from outside sources , as appropriate . the following explains our most critical accounting policies . see the notes to the consolidated financial statements , contained in item 8 , of this annual report on form 10-k for a complete description of our significant accounting policies . revenue recognition the company recognizes revenue on time-and-material contracts as services are performed and expenses are incurred . time-and-material contracts typically bill at an agreed upon hourly rate , plus out-of-pocket expense reimbursement . out-of-pocket expense reimbursement amounts vary by assignment , but on average represent approximately 2 % of total revenues . revenue is earned when the company 's consultants are working on projects . revenue recognition is negatively impacted by holidays and consultant vacation and sick days .
| results of continuing operations below is a tabular presentation of revenues and gross profit margins by sales channel for the periods discussed : revenues & gross margin by sales channel ( amounts in millions ) replace_table_token_4_th * permanent placement / fees are generated from clients within both of our sales channels . below is a tabular presentation of operating expenses by sales , operations and general and administrative categories for the periods discussed : selling , general & administrative ( s , g & a ) expense details ( amounts in millions ) replace_table_token_5_th 21 2015 compared to 2014 revenues revenues for the year ended december 31 , 2015 totaled $ 123.5 million , compared to $ 113.5 million for the year ended december 31 , 2014. this 9 % increase in revenues was largely due to a higher average billable consultant-base employed during 2015 compared to one year earlier . additionally , our average hourly bill rate for 2015 was up approximately 1 % to $ 74.68 from $ 74.00 in 2014. the increase in our higher billable consultant-base reflected the june 15 , 2015 acquisition of hudson it . organically , however , revenues declined in 2015 by approximately 5 % . our billable consultant headcount at december 31 , 2015 totaled 846-consultants versus 731-consultants at year-end 2014. excluding the billable consultant base that was acquired as part of the hudson it acquisition , our december 31 , 2015 billable consultant headcount would have been 640-consultants . revenues from our wholesale channel decreased by 6 % in 2015 compared to 2014. lower revenues from our integrator clients ( down 13 % ) were partially offset by revenue increases at our staffing clients ( up 4 % ) . reduced levels of new project assignments from several of our integrator partners in 2015 have negatively impacted our revenue performance . retail channel revenues were up 59 % compared to 2014 and reflected revenues attributable to the hudson it acquisition .
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the forward-looking statements in this report are based upon management 's current expectations and belief , which management believes is reasonable . these statements represent our estimates and assumptions only as of the date of this quarterly report on form 10-q , and we undertake no obligation to publicly release the result of any revisions to these forward-looking statements , which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events . the following discussion relates to the operations of stratus and should be read in conjunction with the notes to financial statements . description of business restorgenex is a specialty biopharmaceutical company initially focused on developing products for dermatology , ophthalmology and women 's health . restorgenex history on march 14 , 2008 , pursuant to an agreement and plan of merger dated august 20 , 2007 between feris international , inc. ( “ feris ” ) and pro sports & entertainment , inc. ( “ psei ” ) , feris issued 49,500,000 shares of its common stock for all issued and outstanding shares of psei , resulting in psei becoming a wholly-owned subsidiary of feris and the surviving entity for accounting purposes ( “ reverse merger ” ) . in july 2008 , feris ' corporate name was changed to stratus media group , inc. ( “ company ” , “ stratus ” , or “ smdi ” ) . psei , a california corporation , was organized on november 23 , 1998. psei acquired the business of stratus white , llc ( “ stratus white ” ) in august 2005 . 39 in june 2011 , the company acquired series a convertible preferred stock of proelite , inc. , a new jersey corporation ( “ proelite ” or “ pei ” ) , that organizes and promotes mixed martial arts ( “ mma ” ) matches . these holdings of series a convertible preferred stock provide the company voting rights on an as-converted basis equivalent to a 95 % ownership in proelite . effective june 30 , 2013 , the company discontinued operations of proelite . effective september 30 , 2013 , the company entered into an agreement and plan of merger ( the “ merger agreement ” ) with canterbury acquisition llc , a wholly owned subsidiary of the company ( “ canterbury merger sub ” ) , hygeia acquisition , inc. , a wholly owned subsidiary of the company ( “ hygeia merger sub ” ) , canterbury laboratories , llc ( “ canterbury ” ) , hygeia therapeutics , inc. ( “ hygeia ” ) and yael schwartz , ph.d. , as holder representative , pursuant to which the company agreed to acquire all of the capital stock of canterbury and hygeia ( the “ mergers ” ) with canterbury and hygeia becoming wholly owned subsidiaries of the company . the consideration for the mergers is the issuance by the company of an aggregate of 1,150,116 restricted shares of the company 's common stock issued to the stakeholders of canterbury and hygeia . effective november 18 , 2013 ( the “ effective date ” ) , the mergers were completed , and canterbury and hygeia became wholly owned subsidiaries of the company . the mergers are subject to rescission if stratus has not raised $ 7.5 million or more in gross financing proceeds by april 30 , 2014. on march 3 , 2013 , the company entered into an agreement and plan of merger with paloma acquisition , inc. , a wholly owned subsidiary of the company , paloma pharmaceuticals , inc. ( “ paloma ” ) and david sherris , ph.d , as founding stockholder and holder representative pursuant to which the company agreed to acquire all of the capital stock of paloma with paloma becoming a wholly owned subsidiary of the company . on march 28 , 2013 , the merger with paloma was closed and the company issued an aggregate of 2,500,000 post-reverse stock split common shares to the holders of paloma common stock and its derivative securities and assumed promissory notes of paloma in the aggregate amount ( principal and interest ) currently of approximately $ 1,130,500 to be paid on the first anniversary of the closing of the paloma merger . the merger with paloma is subject to rescission if the company has not raised gross proceeds of at least $ 7.5 million by may 18 , 2014. also on march 3 , 2014 , the company entered into an agreement and plan of merger with vasculomedics acquisition , inc. , a wholly owned subsidiary of the company , vasculomedics , inc. ( “ vasculomedics ” ) and dr. sherris pursuant to which the company agreed to acquire all of the capital stock of vasculomedics with vasculomedics becoming a wholly owned subsidiary of the company . the vasculomedics merger was concurrently closed with and as a condition to the closing of the paloma merger on march 28 , 2013 , with the company issuing an aggregate of 220,000 post-reverse stock split common shares to the vasculomedics stockholders . on march 7 , 2014 , the company effected a reverse stock split 1 to 100 with respect to its common stock and the company changed its corporate name from stratus media group , inc. to restorgenex corporation , a biopharmaceutical company . all stock numbers herein are post reverse split . proelite history on february 5 , 2009 pei entered into an asset purchase agreement and other related agreements with explosion entertainment , llc ( “ strikeforce ” ) . under the terms of the purchase agreement , strikeforce acquired from pei certain elitexc fighter contracts , a library of televised elitexc events and specified related assets . story_separator_special_tag preparation for manufacturing was completed in the first quarter of 2014 and the first batch of cl-214 started formulation development in february 2014. management believes that the product will be ready for ferndale 's launch following human skin assessment studies in the second quarter of 2015. opthalmology : the company 's ophthalmology business is based upon developing a non - steroidal , synthetic , small molecule drug library through computational design , and synthetic and medicinal chemistry , resulting in a family of agents , called “ palomids. ” the company 's palomids have shown significant activity in in vitro ( “ test tube ” ) and in vivo ( animal ) models of disease . the specific focus is on pathologies showing an aberrant up-regulation of the pi3k/akt/mtor pathway in the area of ophthalmology . the company has completed two human phase i clinical studies with one of its palomids “ p529 ” for age - related macular degeneration , both of which showed preliminary evidence of activity and no toxicity . the company is planning phase ii studies for age-related macular degeneration ( later diabetic macular edema , proliferative vitreoretinopathy and uveitis ) . women 's health : the company also is engaged in the prescription women 's health business . the company has a “ soft ” estrogen compound , hyg-102 , under development for vulvar and vaginal atrophy ( vva ) , a condition affecting peri- and post-menopausal women due to declining levels of estrogen . hyg-102 and hyg-440 target hormonal aging in women which radically affects the mucous membranes , skin and hair of women in menopause due to loss of estrogen which affects how women look and feel , and their sexual activity . · management believes it is an urgent problem for women . as a result , many women are purchasing anti-aging products at a high rate into their seventies , which management believes makes all anti-aging products a fast growing segment . · management believes competitive products are inadequate : currently available prescription hormone therapy comes with risks and many of the current over-the-counter ( “ otc ” ) products are minimally effective because they do not address the root causes of aging skin and hair ; and · management believes that the markets are underserved : products that are available for the urogenital , skin and hair changes that women experience in the menopausal years to senescence are few , ineffective or carry unwanted potential risks to health . · management believes that more women are experiencing the effects of peri- and post-menopause ; there are 64.5 million u.s. women over 45 years of age and this group will grow +5.4 % by 2015. the average age of menopause in the u.s. is approximately 51 years of age . other indications/products : in addition to the potential products and indications described above , the company also has other potential products in its portfolio for a host of other indications that can be developed either internally or through license to other biopharmaceutical companies which may have greater resources than restorgenex . these other indications include the use of our palomids in areas like oncology , cns disorders , cardiovascular medicine and biodefense . the company also may develop orally available small molecular inhibitors . in order to create novel , patentable inhibitors of zinc-finger transcription factors , the company has initially targeted the zinc finger transcription factor , vezf1 ( vascular endothelial zinc finger ) . vezf1 is essential for embryonic blood vessel formation and regulates the synthesis of important growth factors such as il3 , endothelin - 1 and neuropilin - 1. notably , vezf1 is thought to control at least in part the creation of lymphatic vessels , called lymphangiogenesis . lymphatic vessels support cancer metastasis . thus far , the company has undertaken a novel approach to design inhibitors of vezf1/dna binding using homology structural modeling and in silico targeting of small molecules to the vezf1/dna interface . previous modeling work undertaken by the company has identified a first generation series of small molecule antagonists which show activity in in vitro assay of vezf1 , a vezf1 responsive promoter-reporter gene cell-active luciferase assay quantitatively establishing vezf1 transcription activity and in vivo by inhibiting angiogenesis in the murine oxygen-induced retinopathy model . since transcription factors are functionally closer to the ultimate pathological protein ( s ) , specific inhibition of transcription factors may result in a greater degree of disease fighting activity along with reduced level of toxicity . management believes that this may have advantage over conventional small molecule drugs that directly inhibit their target protein through a one-to-one interaction as transcription factor inhibitors will turn off pathological protein manufacturing capability at its source in pathological conditions such as dermatologic diseases , cancer and retinal diseases of neovasculature . 42 description of our revenues , costs and expenses revenues our most recent past revenues were from television licensing for mma events . future revenues will be derived from sales and licensing revenue from our dermatology , opthamology and women 's health products and intellectual property . gross profit ( loss ) our gross profit represents revenues less the cost of sales . there was no cost of sales associated with the licensing revenues received in 2013. operating expenses our selling , general and administrative expenses include personnel , rent , travel , office and other costs for selling and promoting events and running the administrative functions of the company . legal and professional services are paid to outside attorneys , auditors and consultants are broken out separately given the size of these expenses relative to selling , general and administrative expenses . operating expenses also include expenses for impairment of goodwill , fair value expenses for issuing common stock for consideration less than the number of shares issued valued at market closing price on the day of issuance , and black-scholes expenses for options and warrants . interest expense our interest expense results from accruing interest on loans payable and notes payable .
| summary of contractual obligations set forth below is information concerning our known contractual obligations as of december 31 , 2012 that are fixed and determinable by year . replace_table_token_5_th 49 financing activities during 2013 , we received net cash proceeds of $ 700,000 from the issuance of promissory notes and $ 427,501 from sales of common stock . during 2012 , we received net cash proceeds of $ 143,829 and $ 870,000 from sales of common and preferred stock , respectively , and $ 3,483,103 in net proceeds from promissory notes . off balance sheet arrangements we have no off balance sheet
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see forward-looking statements and industry data. business overview the following discussion and analysis is intended to provide an investor with a narrative of our financial results and an evaluation of our financial condition and results of operations . the discussion should be read in conjunction with our consolidated financial statements and notes thereto for the year ended december 31 , 2015 , both appearing elsewhere in this annual report . ceva is a leading licensor of signal processing ip for a smarter , connected world . we partner with semiconductor companies and oems worldwide to create power-efficient , intelligent and connected devices for a range of end markets , including mobile , consumer , automotive , industrial and iot . our ultra-low-power ips for vision , audio , communications and connectivity include comprehensive dsp-based platforms for lte/lte-a/5g baseband processing in handsets , infrastructure and machine-to-machine devices , computer vision and computational photography for any camera-enabled devices , as well as audio/voice/speech and ultra-low power always-on/sensing applications for multiple iot markets . for connectivity , we offer the industry 's most widely adopted ips for bluetooth ( smart and smart ready ) , wi-fi ( 802.11 b/g/n/ac up to 4x4 ) and serial storage ( sata and sas ) . our technologies are widely licensed and power many of the world 's leading semiconductor and original equipment manufacturer ( oem ) companies . one in three handsets sold worldwide is powered by ceva . to date , more than 7 billion ceva-powered devices have shipped , illustrating the strong market deployment of our technology . our dsps power many of leading handset oems in the world today , including , coolpad , htc , huawei , intex , karbonn , lava , lenovo , lg , meizu , micromax , samsung , xiaomi and zte , as well as hundreds of local handset manufacturers in china and india . based on internal data and strategy analytics ' provisional worldwide shipment data , ceva 's worldwide market share of handset baseband chips that incorporate our technologies was approximately 33 % of the worldwide shipment volume in the third quarter of 2015. in july 2014 , we acquired rivierawaves sas ( rivierawaves ) , a privately-held , french company and a leading provider of wireless connectivity intellectual property for wi-fi and bluetooth technologies . we agreed to pay an aggregate of $ 18,378,000 to acquire rivierawaves with $ 14,678,000 paid at the closing of the acquisition and the remaining amount of $ 3,700,000 is payable upon the satisfaction of certain milestones ( the contingent consideration ) . during 2015 , we fully paid the contingent consideration . in addition , in connection with the acquisition , we established an employee retention plan for rivierawaves ' employees at an expense of approximately $ 3,400,000 , payable on a semi-annual basis for a period of two years after the closing of the acquisition . as of december 31 , 2015 , we paid $ 971,000 of the employee retention plan expenses . we believe the adoption of our signal processing ip cores and software for smart , connected devices continues to progress . devices for such markets include smartphones , tablets , smart home appliances , wearables , surveillance , connected car , drones , industrial and medical . during the fourth quarter of 2015 , we concluded thirteen licensing deals , five of which were for our imaging and vision dsp , five for our connectivity ips and three for our other dsp cores , platforms and software . these customers will incorporate our technology into smartphones , drones , surveillance systems , macro base stations , audio devices and connectivity for internet of things . 30 we believe the following key elements represent significant growth drivers for the company : ceva is firmly established in the largest space in the semiconductor industrybaseband for mobile handsets . in particular , our presence in the 3g & lte smartphone markets continue to grow as our customers targeting those markets are gaining market share at the expense of the incumbents . as a testament to this , our customers shipped seventy million lte chipsets in 2015 , up 541 % over 2014. we anticipate our market share will continue to grow . the royalty we derive from smartphones is higher on average than that of feature phones , so we are set to benefit as handset markets around the world continue to transition and shift away from feature phones to smartphones . our competitive edge in software-defined radio technology for next generation lte and wi-fi technologies in base stations , and the inherent low cost and power performance balance of our technologies , put us in a strong position to simultaneously capitalize on mass market adoption of such technologies and address multiple market sectors , including small cells , macrocells , routers and machine-to-machine . together with our presence in the baseband market , our acquisition of rivierawaves allows us to expand further into internet-of-things applications . this acquisition substantially increased our overall addressable market to cover all categories of bluetooth and wi-fi connected devices . our addressable market size is expected to be 35 billion devices by 2020 , per recent data from abi research . already , shipments of products incorporating our bluetooth ip are starting to become sizeable , with more than 121 million bluetooth chips shipped in 2015 by our customers , up 206 % year-over-year . we anticipate this growth in bluetooth ip to continue . the market potential for intelligent audio processing required for iot applications , including mobile , automotive and consumer devices , offers an additional growth segment for the company . our proven track record in audio/voice , with more than 5 billion audio chips shipped to date , puts us in a strong position to power audio roadmaps across this new range of addressable end markets . the market potential for vision processing in automotive , mobile , consumer and iot applications offers another growth segment for the company . story_separator_special_tag to the extent there are material differences between these estimates , judgments or assumptions and actual results , our financial statements will be affected . the significant accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following : revenue recognition ; business combinations and valuation of goodwill and other acquired intangible assets ; income taxes ; equity-based compensation ; and impairment of marketable securities ; 32 in many cases , the accounting treatment of a particular transaction is specifically dictated by u.s. gaap and does not require management 's judgment in its application . there are also areas in which management 's judgment in selecting among available alternatives would not produce a materially different result . revenue recognition significant management judgments and estimates must be made and used in connection with the recognition of revenue in any accounting period . material differences in the amount of revenue in any given period may result if these judgments or estimates prove to be incorrect or if management 's estimates change on the basis of development of business or market conditions . management 's judgments and estimates have been applied consistently and have been reliable historically . we generate our revenues from ( 1 ) licensing intellectual property , which in certain circumstances is modified for customer-specific requirements , ( 2 ) royalty revenues and ( 3 ) other revenues , which include revenues from support , training and sale of development systems . we license our ip to semiconductor companies throughout the world . these semiconductor companies then manufacture , market and sell custom-designed chipsets to oems of a variety of consumer electronics products . we also license our technology directly to oems , which are considered end users . we account for our ip license revenues and related services in accordance with financial accounting standards board ( fasb ) accounting standards codification ( asc ) no . 985-605 , software revenue recognition. revenues are recognized when persuasive evidence of an arrangement exists and no further obligation exists , delivery has occurred , the license fee is fixed or determinable , and collection is reasonably assured . a license may be perpetual or time limited in its application . revenue earned on licensing arrangements involving multiple elements are allocated to each element based on the residual method when vendor specific objective evidence ( vsoe ) of fair value exists for all undelivered elements and vsoe does not exist for one of the delivered elements . vsoe of fair value of the undelivered elements is determined based on the substantive renewal rate as stated in the agreement . extended payment terms in a licensing arrangement may indicate that the license fees are not deemed to be fixed or determinable . if the fee is not fixed or determinable , revenue is recognized as payments become due from the customer unless collection is not considered reasonably assured , then revenue is recognized as payments are collected from the customer , provided all other revenue recognition criteria have been met . revenues from license fees that involve significant customization of our ip to customer-specific specifications are recognized in accordance with the principles set out in fasb asc no . 605-35-25 , construction-type and production-type contracts recognition , using contract accounting on a percentage of completion method . the amount of revenue recognized is based on the total license fees under the agreement and the percentage of completion achieved . the percentage of completion is measured by the actual time incurred to date on the project compared to the total estimated project requirements , which correspond to the costs related to earned revenues . provisions for estimated losses on uncompleted contracts are made during the period in which such losses are first determined , in the amount of the estimated loss on the entire contract . revenues that are derived from the sale of a licensee 's products that incorporate our ip are classified as royalty revenues . royalty revenues are recognized during the quarter in which we receive a report from the licensee detailing the shipment of products that incorporate our ip , which receipt is in the quarter following the licensee 's sale of such products to its customers . royalties are calculated either as a percentage of the revenues received by our licensees on sales of products incorporating our ip or on a per unit basis , as specified in the agreements with the licensees . non-refundable payments on account of future royalties ( prepaid royalties ) are included within our licensing and related revenue line on the consolidated statements of operations . we may engage a third party to perform royalty audits of our licensees , and if these audits indicate any over- or under-reported royalties , we account for the results when the audits are resolved . 33 in addition to license fees , contracts with customers generally contain an agreement to provide for post contract support and training , which consists of telephone or e-mail support , correction of errors ( bug fixing ) and unspecified updates and upgrades . fees for post contract support , which takes place after delivery to the customer , are specified in the contract and are generally mandatory for the first year . after the mandatory period , the customer may extend the support agreement on similar terms on an annual basis . we recognize revenue for post contract support on a straight-line basis over the period for which technical support is contractually agreed to be provided to the licensee , typically 12 months . revenues from training are recognized as the training is performed . revenues from the sale of development systems are recognized when title to the product passes to the customer and all other revenue recognition criteria have been met . we usually do not provide rights of return . when rights of return are included in the license agreements , revenue is deferred until rights of return expire .
| results of operations the following table presents line items from our consolidated statements of operations as percentages of our total revenues for the periods indicated : replace_table_token_9_th discussion and analysis below we provide information on the significant line items in our consolidated statements of operations for each of the past three fiscal years , including the percentage changes year-on-year , as well as an analysis of the principal drivers of change in these line items from year-to-year . 37 revenues total revenues replace_table_token_10_th the increase in total revenues from 2014 to 2015 reflected higher overall revenues . the increase in total revenues from 2013 to 2014 reflected higher licensing and related revenues , offset by lower royalty revenues . we generate royalty revenues from our customers which ship units of chips incorporating our technologies . the royalties are invoiced and recognized on a quarterly basis in arrears as we receive quarterly shipment reports from our licensees . the royalty rate is based either on a certain percent of the chipset price or a fixed amount per chipset based on volume discounts . we derive a significant amount of revenues from a limited number of customers . sales to spreadtrum represented 31 % , 25 % and 28 % of our total revenues for 2015 , 2014 and 2013 , respectively . due to our limited number of customers , the shift away from feature phones by intel and the exiting of the handset baseband market by broadcom and stmicroelectronics in 2014 negatively impacted our annual 2014 royalty revenues .
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f-8 citrix systems , inc. notes to consolidated financial statements 1. background and organization citrix systems , inc. ( `` citrix `` or the `` company `` ) , is a delaware corporation incorporated on april 17 , 1989. citrix is an enterprise software company focused on helping organizations deliver a consistent and secure work experience no matter where work needs to get done - in the office , at home , or in the field . citrix does this by delivering a digital workspace solution that gives each employee the resources and space they need to do their best work . citrix markets and licenses its solutions through multiple channels worldwide , including selling through resellers , story_separator_special_tag our operating results and financial condition have varied in the past and could in the future vary significantly depending on a number of factors . the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . see `` note regarding forward-looking statements '' and part i , item 1a `` risk factors '' in this annual report on form 10-k for a discussion of certain risks and uncertainties that may cause these differences . overview citrix is an enterprise software company focused on helping organizations deliver a consistent and secure work experience no matter where work needs to get done — in the office , at home , or in the field . we do this by delivering a digital workspace solution that gives each employee the resources and space they need to do their best work . our app delivery and security ( formerly networking ) solutions , which can be consumed via hardware or software , complement our workspace solutions by delivering the applications and data employees need across any network with security , reliability and speed . story_separator_special_tag roman ' , sans-serif ; font-size:10pt ; font-style : italic ; font-weight:400 ; line-height:120 % '' > impact of the covid-19 pandemic on our results to provide a flexible solution to help our customers manage through this period , in the first quarter of 2020 , we created a short-term on-premises term subscription license at discounted prices . this limited-use license program was intended to help our customers manage through the shock to the system created by the pandemic . we phased out this short-term license program at the end of april 2020. the contribution from this limited-use license program was not material for the remaining three quarters of 2020. impact of the covid-19 pandemic on our outlook and liquidity with respect to 2021 , the broader toll the covid-19 pandemic may take on the global economy and the slope of the economic recovery is unknown . we believe that our solutions and our business model are resilient . l onger term , we believe this global health crisis will cause companies and their employees to change the way they think about remote work . we expect business continuity and risk mitigation to rise as areas of importance in boardroom discussions and on it priority lists . we believe a greater number of employees will expect to continue to be able to work remotely , at least some of the time , even as social distancing restrictions abate . cash from operations , accounts receivable and revenues could also be affected by various risks and uncertainties , including , but not limited to , the effects of the covid-19 pandemic and other risks detailed in part i , item 1a titled “ risk factors ” of this annual report on form 10-k. however , based on our current revenue outlook , we believe that existing cash balances , together with funds generated from operations and amounts available under our revolving credit facility , will be sufficient to finance our operations and meet our foreseeable cash requirements through at least the next twelve months . we have availed ourselves of certain tax deferrals allowed pursuant to the coronavirus aid , relief & economic security ( `` cares '' ) act in the united states and certain tax deferrals in switzerland , and may continue to do so in the future . we are evaluating the impact of global covid-19-related laws and proposed laws , and while there is an impact on the timing of cash flow , no material impact to our financial results is expected as a result of legislation enacted to date . in addition , while the pandemic has not materially impacted our liquidity and capital resources to date , it has led to increased disruption and volatility in capital markets and credit markets which could adversely affect our liquidity and capital resources in the future . 35 other impacts of the covid-19 pandemic in march 2020 , we directed our global workforce to work from home and severely limited all international and domestic travel . we have extended our paid time-off and sick leave benefits for employees directly impacted by the covid-19 pandemic or caring for children or a member of their household impacted by the covid-19 pandemic . we provided $ 1,000 per employee below the vice president level to cover expenses related to transitioning to a work from home environment , helping support local restaurants and small businesses or charities , or lessening any other potential hardship . we also offer local employee assistance program resources if needed . certain of our offices have re-opened and we continue to monitor developments at the local level and follow mandates as required by law . for offices that have re-opened , we have implemented new protocols to ensure the safety of our employees , including face coverings , temperature checks , social distancing and capacity limits . in response to the covid-19 pandemic , we held our largest customer and partner event , synergy , as a series of virtual events , and we may deem it advisable to similarly alter , postpone or cancel additional customer , employee or industry events in the future . story_separator_special_tag for the majority of our software licenses and hardware , csp and on-premise subscription software licenses , we use the observable price in transactions with multiple performance obligations . for the majority of our support and services , and cloud-hosted subscription offerings , we use the observable price when we sell that support and service and cloud-hosted subscription separately to similar customers . if the standalone selling price for a performance obligation is not directly observable , we estimate it . we estimate the standalone selling price by taking into consideration market conditions , economics of the offering and customers ' behavior . we maximize the use of observable inputs and apply estimation methods consistently in similar circumstances . we allocate the transaction price to each distinct performance obligation on a relative standalone selling price basis . revenues are recognized when control of the promised products or services are transferred to customers , in an amount that reflects the consideration that we expect to receive in exchange for those products or services . see note 2 and note 3 to our consolidated financial statements included in this annual report on form 10-k for the year ended december 31 , 2020 for further information on our revenue recognition . valuation and classification of investments the authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date ( an exit price ) . our available-for-sale debt investments are measured to fair value on a recurring basis . in addition , we hold direct investments in privately-held companies which are accounted for at cost , less impairment plus or minus adjustments resulting from observable price changes in orderly transactions for an identical or a similar investment of the same issuer . these investments are periodically reviewed for impairment and when indicators of impairment exist , are measured to fair value as appropriate on a non-recurring basis . we also hold equity interests in certain private equity funds which are accounted for under the net asset value practical expedient . the net asset value of these investments is determined using quarterly capital statements from the funds which are based on our contributions to the funds , allocation of profit and loss and changes in fair value of the underlying fund investments . in determining the fair value of our investments , we are sometimes required to use various alternative valuation techniques . the authoritative guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available . the authoritative guidance establishes a three-tier fair value hierarchy , which prioritizes the inputs used in measuring fair value as follows : level 1 , observable inputs such as quoted prices in active markets for identical assets or liabilities , level 2 , 37 inputs , other than quoted prices in active markets , that are observable either directly or indirectly , and level 3 , unobservable inputs in which there is little or no market data , which requires us to develop our own assumptions . observable inputs are those that market participants would use in pricing the asset or liability that are based on market data obtained from independent sources , such as market quoted prices . when level 1 observable inputs for our investments are not available to determine their fair value , we must then use other inputs which may include indicative pricing for securities from the same issuer with similar terms , yield curve information , benchmark data , prepayment speeds and credit quality or unobservable inputs that reflect our estimates of the assumptions market participants would use in pricing the investments based on the best information available in the circumstances . when valuation techniques , other than those described as level 1 are utilized , management must make estimations and judgments in determining the fair value for its investments . the degree to which management 's estimation and judgment is required is generally dependent upon the market pricing available for the investments , the availability of observable inputs , the frequency of trading in the investments and the investment 's complexity . if we make different judgments regarding unobservable inputs , we could potentially reach different conclusions regarding the fair value of our investments . effective january 1 , 2020 , we adopted the new credit losses standard which changed the impairment model for available-for-sale debt securities , eliminating the concept of other than temporary impairment and requiring credit losses to be recorded through an allowance for credit losses . the allowance for credit losses on our investments in available-for-sale debt securities is determined using a quantitative discounted cash flow analysis if impairment triggers exist after a qualitative screen is completed . impairment on available-for-sale debt securities is determined on an individual security basis and the security is subject to impairment when its fair value declines below its amortized cost basis . if the fair value is less than the amortized cost basis , management must then determine whether it intends to sell the security or whether it is more likely than not that it will be required to sell the security before it recovers its value . if we intend to sell the security or will more-likely-than-not be required to sell the impaired security before it recovers its value , a credit loss is recorded to other income ( expense ) , net in the accompanying consolidated statements of income . if we do not intend to sell the security , nor will we more-likely-than-not be required to sell the security before the security recovers its value , we must then determine whether the loss is due to credit loss or other factors . for impairment indicators due to credit loss factors , we establish an allowance for credit losses with a charge to other income ( expense ) , net .
| executive summary our 2020 results reflect continued execution against our strategy – including strong demand for the citrix workspace and an acceleration of our customers adopting our cloud offerings to manage their workspace environments . we believe that the covid-19 pandemic has accelerated the trends driving distributed teams and hybrid-work , emphasizing the importance of an organization 's ability to securely deliver all of the work resources employees need in one unified experience . as we previously announced , we discontinued broad availability of perpetual licenses for citrix workspace beginning on october 1 , 2020. going forward , customers will have the option of acquiring new citrix workspace seats in the form of saas or on-premises subscription offerings . however , we will continue to support and renew existing maintenance contracts for the foreseeable future . through the first half of 2020 , many customers focused on near-term business critical needs as their workforces adapted to remote work precipitated by the pandemic . as such , these customers have often chosen on-premises subscriptions rather than immediately migrating their citrix workspace deployments directly to the cloud . primarily as a result of this near-term focus of customers on business critical needs and other cloud migration challenges , the transition of customers from on-premise to our cloud offerings did not progress during the first half of 2020 at the rate we had anticipated at the beginning of the year . to address the challenges in transitioning our customers to the cloud , we continue to invest in innovation and feature development , simplified cloud migration , and performance and reliability , as well as other cloud customer success initiatives . as we exited 2020 , the transition of our customers to our cloud offerings had regained momentum .
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see “ cautionary note regarding forward-looking statements ” . you should review the “ risk factors ” section of this annual report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a mobile health ( mhealth ) company developing and commercializing patented technology providing consumers with laboratory-testing capabilities using smart phones and other mobile devices . we were formed on august 11 , 2011 as a delaware corporation . our principal operating subsidiary , labstyle innovation ltd. , is an israeli company with its headquarters in caesarea , israel . our initial product is dario , a mobile , cloud-based , diabetes management solution which includes novel software applications combined with a stylish , “ all-in-one ” , pocket-sized , blood glucose monitoring device ( which we call our dario smart meter ) that will compete in the estimated $ 12 billion dollar worldwide market for patient self-monitoring of blood glucose ( or smbg ) products . dario is a comprehensive system incorporating patented technology that combines a cutting edge software application and cloud-based data services with a novel all-in-one dario smart meter consisting of a lancet ( to obtain a blood sample ) , a device-specific disposable test strip cartridge and a smartphone-driven glucose reader adaptor . on september 23 , 2013 , we announced our receipt of ce mark certification to market dario . the receipt of the ce mark allows dario to be marketed and sold in 32 countries across europe as well as in certain other countries worldwide . on march 5 , 2014 , mdss , our european authorized representative , completed the registration of the dario smart meter with the german authority as required by article 10 of directive 98/79/ec on in vitro diagnostic medical devices . we are currently pursing regulatory clearance for dario in the united states , and we expect to receive clearance from the u.s. food and drug administration on our 510 ( k ) application during 2015 and to subsequently launch dario in the united states . in december 2013 , we began offering free downloads of the dario software application in selected jurisdictions , and in march 2014 , we commenced our global multi-market soft launch of the dario smart meter in selected jurisdictions . the first shipments were sent to distributers in late march 2014. in april 2014 , we announced the receipt of reimbursement coverage for the use of the dario smart meter in italy , making 600,000 italians eligible for reimbursement coverage . we are pursuing reimbursement coverage in other jurisdictions . 54 in june 2014 , we were granted ( effective september 1 , 2014 ) reimbursement status in england , wales , scotland and northern ireland for strips and lancets to be utilized together with the dario smart meter . we are actively pursuing reimbursement coverage in other jurisdictions . in july 2014 , we received approval from israel 's ministry of health to sell the dario smart meter for diabetes in israel as well as released the dario diabetes management app for android smartphone users . the mobile application will have the same user interface and features as the ios dario application and will be available in select soft launch markets , including the united kingdom and new zealand . in december 2014 , we were granted reimbursement status for the dario test strips in australia . in january 2015 , we entered into an agreement with israel 's leading healthcare hmo , maccabi healthcare , to implement a comprehensive dario digital suite for patients and professionals . the agreement with moma ( maccabi telecare unit ) represents an additional channel of revenue stream for dario . this channel for revenues indicates the huge potential available which is based on software licensing and added value services with hmos and other strategic partners worldwide . the dario application for moma is a proprietary customized diabetes management solution that enables remote treatment for diabetes which aims to improve overall outcomes for patients leveraging mhealth technology for effective engagement of health care professionals . in addition , since 2013 , we have worked to secure distribution partnerships in a number of jurisdictions , including the united kingdom , italy , australia , new zealand , the netherlands and canada . these partnerships , along with our own online marketing programs , will be key to our sales and distributions efforts for dario . we are presently pursuing patent applications in multiple jurisdictions covering the specific processes related to blood glucose level measurement as well as more general methods of rapid tests of body fluids using mobile devices and cloud-based services . on august 5 , 2014 , we were issued a u.s. patent ( no . 8,797,180 ) relating to how the dario blood glucose monitor draws power from and transmits data to a smart phone via the audio jack port . we believe this represents a critical intellectual property recognition and a significant initial validation of our intellectual property efforts . critical accounting policies our consolidated financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the united states ( or us gaap ) . our fiscal year ends december 31. this management 's discussion and analysis of financial condition and results of operations discuss our consolidated financial statements , which have been prepared in accordance with us gaap . the preparation of these consolidated financial statements requires making estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements , as well as the reported revenues and expenses for the reporting periods . on an ongoing basis , we evaluate such estimates and judgments . story_separator_special_tag we are required to make subjective assessments as to the useful lives of our production lines for purposes of determining the amount of depreciation to record on an annual basis with respect to our construction of the production lines . these assessments have a direct impact on our net income ( loss ) . production lines are usually depreciated on a straight-line basis over a period of up to five years , except any renovations and betterments which are depreciated over the remaining life of the production lines . impairment of production lines . we are required to review our production lines for impairment in accordance with asc no . 360 , `` property , plant and equipment , '' whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets . if such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets . during the year ended december 31 , 2013 , no impairment losses have been recorded . during the year ended december 31 , 2014 , we entered into an initial work order arrangement with a new manufacturer to build a new production line . work commenced under this arrangement in the first quarter of 2014 , with the goals of ( i ) producing the initial smart meters , ( ii ) reducing the costs of producing the smart meter ( iii ) running the first formal batch of smart meters . these efforts have yielded positive results and manufacturing cost savings which led to our decision to cease operations with our initial manufacturer and thus , we performed a recoverability test for such old facility . in conjunction with this analysis , we recorded a non-cash charge with respect to impairment of our production equipment of $ 489 . 57 extended transition period for “ emerging growth companies. ” we have elected to use the extended transition period for complying with new or revised accounting standards under section 102 ( b ) ( 1 ) of the jobs act . this election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies . as a result of this election , our financial statements may not be comparable to companies that comply with public company effective dates . consequently , our financial statements may not be comparable to companies that comply with public company effective dates . because our financial statements may not be comparable to companies that comply with public company effective dates , investors may have difficulty evaluating or comparing our business , performance or prospects in comparison to other public companies , which may have a negative impact on the value and liquidity of our common stock . story_separator_special_tag loss carryforwards expire principally beginning in 2031 through 2034 . 59 our israeli subsidiary has accumulated net operating losses for israeli income tax purposes as of december 31 , 2014 in the amount of approximately $ 13,076. the net operating losses may be carried forward and offset against taxable income in the future for an indefinite period . in accordance with gaap , it is required that a deferred tax asset be reduced by a valuation allowance if , based on the weight of available evidence it is more likely than not ( a likelihood of more than 50 percent ) that some portion or all of the deferred tax assets will not be realized . the valuation allowance should be sufficient to reduce the deferred tax asset to the amount which is more likely than not to be realized . as a result , we recorded a valuation allowance with respect to our deferred tax asset . under section 382 and 383 of the internal revenue code , if an ownership change occurs with respect to a “ loss corporation ” ( as defined in the internal revenue code ) , there are annual limitations on the amount of the net operating loss and other deductions which are available to us . plan of operation we commenced a commercial launch of the free dario application in selected jurisdictions in late 2013 and commenced an initial soft launch of the full dario solution ( including the app and the smart meter ) in selected jurisdictions in march 2014 with the goal of collecting customer feedback to refine our longer-term roll-out strategy . over time , we expect to add additional features and functionality in making dario the new standard of care in diabetes data management . through our israeli subsidiary , labstyle innovation ltd. , our plan of operations is to continue the development of our software and hardware offerings and related technology . for the remainder of 2015 , we expect to continue with the soft launch of dario , expanding the soft launch to other jurisdictions , and to prepare for our longer-term roll-out of dario . in support of these goals , we will utilize our funds for the following activities : ● ramp up of mass production , marketing and distribution and sales efforts related to dario application , smart meters and test strips ; ● continued product development and related activities ( including costs associated with application development and data storage capabilities as well as any necessary design modifications to the various elements of the dario solution ) ; ● continued work on registration of our patents worldwide ; ● regulatory matters ( including work on the regulatory approval of dario in the u.s. ) ; ● professional fees associated with being a publicly reporting company ; and ● general and administrative matters .
| results of operations year ended december 31 , 2014 compared to year ended december 31 , 2013 ( in thousands ) revenues revenues for the year ended december 31 , 2014 amounted to $ 51 , compared to none during the year ended december 31 , 2013. revenues generated during the year ended december 31 , 2014 were derived from the sales of dario 's components , including the smart meter itself , through distributers . we recognize revenues on a cash basis , when all revenue recognition criteria 's are met , until we are able to determine the ability of the distributer to honor his commitment to complete payment . cost of revenues during the year ended december 31 , 2014 , we recorded costs related to revenues in the amount of $ 2,274 out of which $ 1,046 was recorded to cover inventories write-downs due to net realized value which was lower than original cost . in addition , we recorded an amount of $ 489 in a separate line due to impairment of one of our production lines which we decided to cease its operation . no cost of revenues was recorded during the year ended december 31 , 2013. the increase is due to the commencement of our initial commercial sales during 2014. cost of revenues expenses consist mainly of cost of device production , employees ' salaries and related overhead costs , depreciation of production line and related cost of equipment used in production , shipping and handling costs and inventory write-downs .
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replace_table_token_4_th ( 1 ) “ audit fees ” represent fees for professional services provided in connection with the audit of our annual financial statements , review of financial statements included in our quarterly reports , review of our registration statement on forms s-1 , and related services normally provided in connection with statutory and regulatory filings and engagements . ( 2 ) “ all other fees ” represent fees for professional services provided in connection with tax returns . - 38 - item 15. exhibits , financial statement schedules . ( a ) documents filed . the following documents are filed as part of this report : ( 1 ) financial statements . the following reports of eisneramper llp and financial statements : · report of eisneramper llp , independent registered public accounting firm · consolidated balance sheets as of december 31 , 2012 and 2011 · consolidated statements of operations for the years ended december 31 , 2012 and 2011 and from inception through december 31 , 2012 · consolidated statements of stockholders ' equity ( deficit ) and comprehensive loss from inception through december 31 , 2012 · consolidated statements of cash flows for the years ended december 31 , 2012 and 2011 and from inception through december 31 , 2012 · notes to consolidated financial statements ( 2 ) financial statement schedules . see subsection ( c ) below . ( 3 ) exhibits . see subsection ( b ) below . ( b ) exhibits . the exhibits filed or furnished with this report are set forth on the exhibit index immediately following the signature page of this report , which exhibit index is incorporated herein by reference . ( c ) financial statement schedules . all schedules are omitted because they are not applicable , the amounts involved are not significant or the required information is shown in the financial statements or notes thereto . - 39 - signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized : date : march 19 , 2013 innovus pharmaceuticals , inc. by : bassam damaj bassam damaj president and chief executive officer ( principal executive officer and principal financial and accounting officer ) know all persons by these presents , that each person whose signature appears below constitutes and appoints bassam damaj , as his/her true and lawful attorney-in-fact and agent , with full power to act alone , with full powers of substitution and resubstitution , for him/her and in his/her name , place and stead , in any and all capacities , to sign any and all amendments to this annual report on form 10-k , and to file the same , with all exhibits thereto and other documents in connection therewith , with the securities and exchange commission , granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith , as fully for all intents and purposes as he/she might or could do in person , hereby ratifying and confirming all that said attorney-in-fact and agent , or his substitute or resubstitute , may lawfully do or cause to be done by virtue hereof . pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . signature title date henry esber chairman of the board march 19 , 2013 henry esber , ph.d. bassam damaj director , president and chief executive officer ( principal executive march 19 , 2013 bassam damaj , ph.d. officer and principal financial and accounting officer ) ziad mirza director march 19 , 2013 ziad mirza , m.d . vivian liu director march 19 , 2013 vivian liu - 40 - index to exhibits exhibit no . description 2.1 merger agreement and plan of merger , dated as of july 13 , 2011 , by and among fastrack , inc. , a delaware corporation , north horizon , inc. , a nevada corporation and north first general , inc. , a utah corporation , a wholly owned subsidiary of north horizon , inc. ( incorporated by reference to exhibit 10.1 to the registrant 's current report on form 8-k , filed with the sec on july 20 , 2011 ( sec file no . 000-52991- 11977637 ) ) . 3.1 articles of incorporation of the registrant as filed with the office of the secretary of state of the state of nevada on july 23 , 2007 ( incorporated by reference to exhibit 3.1 to the registrant 's general form for small business issuer on form 10-sb12g/a , filed on december 28 , 2007 ( sec file no . 000-52991- 071330026 ) ) . 3.2 bylaws of the registrant ( incorporated by reference to exhibit 3.2 to the registrant 's general form for small business issuer on form 10-sb12g/a , filed on december 28 , 2007 ( sec file no . 000-52991- 071330026 ) ) . 3.3 certificate of merger as filed with the office secretary of state of the state of delaware on october 13 , 2011 , which merges north first general , inc. , a utah corporation , with and into and under the name of fastrack pharmaceuticals , inc. , a delaware corporation ( incorporated by reference to exhibit 3.4 story_separator_special_tag the following information should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. story_separator_special_tag - 24 - overview we are an emerging pharmaceutical company engaged in the commercialization , licensing , and development of prescription and non-prescription pharmaceutical products with a unique packaging and presentation . our products are focused in the respiratory , dermatology and autoimmune therapeutic categories and will be marketed to primary care physicians , pediatricians , dermatologists and rheumatologists . our business model leverages our ability to acquire and in-license commercial products , ongoing product development , business development and established physician relationships , to drive strong growth in demand for our core products . our future success is very dependent on these ongoing efforts . our corporate strategy focuses on two primary objectives : · developing a diversified product portfolio of exclusive branded products through : o acquisition of approved or late stage drug candidates awaiting approval from the u.s. food and drug administration , or fda ; o acquisition of proven brands ; o packaging our products in a kit format designed for better patient compliance and results ; o introduction of line extensions , reformulations ; and o strategic development of our own products . · building an innovative , global sales and marketing model through commercial partnerships with established complimentary partners that : o generate revenue ; and o lower costs compared to traditional pharmaceutical companies . our strategy is underway , but we are a development stage company , and we have not yet generated revenue from any of our products . we have signed two binding term sheets to acquire presecription and non-prescription products . see “ part i. business—pharmaceutical products. ” we have limited assets and operations and we are dependent on our president and chief executive officer for operating capital through the end of 2013. additional capital will be required to maintain our corporate operations and we will need to seek additional funding for our product selection and development . financial transactions reverse merger in december 2011 , our company , then known as north horizon , inc. , entered into a business combination transaction with fastrack pharmaceuticals , inc. pursuant to which fastrack became a wholly owned subsidiary of north horizon . fastrack was a specialty pharmaceutical company with a development pipeline of one prescription and one otc product . the transaction closed on december 7 , 2011. the transaction has been accounted for as a reverse merger , whereby north horizon is the legal acquirer and fastrack is the legal acquiree and the accounting acquirer . immediately before the closing of the transaction , north horizon 's issued and outstanding shares of common stock ( an aggregate of 13,251,250 ) were subject to a reverse split on the basis of ten shares into one share ( 10:1 ) the reverse split was effective on december 6 , 2011 . - 25 - in connection with the transaction , we changed our name from north horizon , inc. to innovus pharmaceuticals , inc. in connection with the transaction , we issued to the former fastrack stockholders an aggregate of 15,238,938 shares of our common stock . immediately following the closing of the transaction , the former fastrack stockholders held in the aggregate 92 % of our common stock on a fully diluted basis . upon the completion of this transaction , we issued warrants to purchase approximately 380,973 shares of our common stock with a term of seven years and an exercise price of $ 0.10 per share to designees of the placement agent . we also issued a promissory note , bearing interest at 8 % per annum , to the placement agent in the original principal amount of $ 50,000. such note was due and payable on december 6 , 2012 , and in january 2013 , we paid $ 54,548 to fully discharge such note . questions arose as to whether we complied with federal and applicable state securities laws in connection with the issuance of shares of our common stock to the fastrack stockholders in connection with the transaction . in february 2012 , we made a rescission offer and provided detailed information to the fastrack stockholders . the offer expired and no fastrack stockholder accepted the offer . the rescission offer may not have been effective to extinguish liabilities we may have to the former fastrack stockholders under federal or applicable state securities laws . accordingly , liability may not lapse until all applicable statutes of limitation run . the former fastrack stockholders reside in different jurisdictions and the statutes of limitation in those jurisdictions have different terms , the longest being four years . in some cases , claims may not be extinguished at the expiration of such limitation periods . we are unable to predict if any former fastrack stockholder will make a claim or if pursued what the outcome may be . any successful claim , or even the possibility of such claims , could have a material adverse effect on our financial condition and ability to raise capital . the potential amount payable to the former fastrack stockholders in respect of the rescission offer was presented as a liability in the accompanying consolidated balance sheet as of december 31 , 2011. management concluded that the potential liability after the rescission offer is neither probable nor reasonably estimable , and accordingly , upon expiration of the rescission offer , the amount of such liabilitiy was reclassified to stockholders ' deficit , and no liability is recorded for this contingency in the accompanying consolidated balance sheet as of december 31 , 2012. story_separator_special_tag margin : 0pt 0 ; text-align : justify ; text-indent : 0.5in '' > in february 2013 we signed two binding term sheet for the acquisition of portfolios of products . the initial purchase price for these portfolios will be in the form of our common stock , with subsequent milestone and or royalty payments in cash . - 27 - management anticipates that we will continue to incur significant losses
| results of operations for the years ended december 31 , 2012 and 2011 overview for the years ended december 31 , 2012 and 2011 , we had no revenues , and consequently , no cost of sales or gross profits . during 2012 , we had little resources available to develop or acquire products . operating expenses operating expenses for the years ended december 31 , 2012 and 2011 totaled $ 219,484 and $ 2,188,535 , respectively , a $ 1,969,051 ( 90 % ) decrease year-over-year . 2011 expenses include the fair value of warrants issued to a placement agent for services valued at $ 1,904,865. we did not issue any warrants for services in 2012. research and development expenses decreased from $ 58,960 in 2011 to $ 2,000 in 2012 , a difference of $ 56,960 , as a result of not conducting any proof of concept formulation studies in 2012. the reduction in research and development expenses also contributed to the overall decrease in operating expenses . other income we recognized interest expense of $ 17,031 and $ 67,717 for the years ended december 31 , 2012 and 2011 , respectively , a decrease of $ 50,686 year-over-year . this decrease was primarily the result of a decrease in the amount of debt during 2012 compared to 2011 and a $ 48,920 discount recorded in 2011 relating to the conversion of convertible notes . - 26 - net loss we recognized a net loss in the amount of $ 236,515 and $ 2,256,252 for the years ended december 31 , 2012 and 2011 , respectively . the decrease in net loss results primarily from the decrease in operating expenses . liquidity and capital resources at december 31 , 2012 , we had $ 18,445 in cash . at december 31 , 2012 , we had no other sources of liquidity . since december 31 , 2012 , we have received additional debt financing .
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mr. tarpey 's offer letter pursuant to the terms of the offer letter dated january 26 , 2021 between the company and mr. tarpey , he became our chief financial officer on february 1 , 2021. mr. tarpey 's employment is on an at-will basis and can be terminated by mr. tarpey upon 30 days ' advance written notice , except in the case of termination for “ cause ” . mr. tarpey is currently entitled to the following compensation : ● an annual base salary of $ 290,000 ; ● annual bonus of up to 40 % story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the information contained in our consolidated financial statements and the notes thereto . the following discussion and analysis includes forward-looking statements that involve certain risks and uncertainties , including , but not limited to , those described in item 1a . risk factors . our actual results may differ materially from those discussed below . see “ special note regarding forward-looking statements ” and item 1a . risk factors . overview purpose built for the cloud , cyren was an early pioneer and leading innovator of cloud delivered software-as-a-service ( saas ) cybersecurity solutions that protect businesses , their employees , and customers against threats from email , files , and the web . cyren 's cloud-based approach to cybersecurity sets us apart from other vendors in the market . our security solutions are architected around the fundamental belief that cybersecurity is a race against time – and the cloud best enables the speed , sophistication and advanced automation needed to detect and block threats as they emerge on the internet around the globe . as more and more businesses move their data and applications to the cloud , they need a security provider that is able to keep pace . security threats are more prevalent and stealthier than ever . as cybercrime has become more sophisticated , every malware , phishing and ransomware variant is unique , making it more difficult to detect attacks . while organizations have traditionally protected their users with gateway security appliances at their network perimeter , more frequent and evasive attacks combined with a more distributed workforce are reducing the effectiveness of this approach . traditional appliances lack the real-time threat intelligence and processing power to detect emerging threats , and the growth of mobile devices and an increasingly distributed workforce mean that more and more business is conducted outside of the traditional network perimeter . as a result , when new attacks appear in a matter of seconds , legacy cybersecurity products can leave companies vulnerable for hours , days or even weeks . cyren 's cloud security products and services fall into three categories : ● cyren threat detection services – these services detect a variety of threats in email and from the web , and are embedded into products from the world 's leading technology and security vendors . cyren threat detection services include our email security detection engine , malware detection engine , web security engine , and threat analysis service . ● cyren threat intelligence data – cyren 's threat intelligence data provide valuable threat intelligence data that can be used by enterprise or oem customers to support threat detection , threat hunting and incident response . cyren 's threat intelligence data offerings include ip reputation intelligence , phishing intelligence , malware intelligence and zombie intelligence . ● cyren enterprise email security products – these include cloud-based solutions designed for enterprise customers , and are sold either directly or through channel partners . cyren enterprise email security products include cyren email security , a cloud-based secure email gateway and cyren inbox security , an anti-phishing product for office 365. key opportunities and challenges threat landscape the last several years have possibly experienced the greatest amount of dramatic global incidents directly related to malware and cyber threats since the advent of the internet . from election hacks to global ransomware attacks , malware threats are at an all-time high . phishing attacks have become increasingly common , and no company , large or small seems immune to these threats . hackers have become more successful at monetizing these attacks , and as long as these activities prove lucrative , we expect these incidents to continue . 38 cloud and mobility businesses are going through a massive change in their it strategies as they look to drive more business value , agility , and better customer experiences , while cloud and mobility are becoming increasingly important , as evidenced by the following trends : ● business internet traffic continues to increase every year ; ● data and applications are increasingly moving to the cloud ; ● more and more users are working remotely ; ● buyers continue to move away from traditional on-premise solutions ; ● mature and legacy on premise deployments are reaching end of life and are increasingly being replaced by cloud and saas alternatives ; ● it security staffing shortages ; ● increasingly fast , sophisticated , expensive , and high-profile attacks target organizations of all sizes ; ● compliance and regulatory mandates ; ● heightened cybercrime activity among commercial enterprises and nation states ; ● automation is increasingly considered critical to accelerating detection and protection ; ● the need to simplify operations through vendor consolidation . these are some of the reasons why we believe cyren 's vision for 100 % cloud security is compelling to it security teams looking to protect their businesses in today 's cloud-centric mobile-first world . investments in operations , research and development and sales and marketing our cost of revenues , research and development expenses , and sales and marketing expenses are all significant contributing factors to our operating losses . over time , we expect that our utilization of our cloud infrastructure will increase and provide the opportunity for improved gross margins . our investments in research and development are required in order to enhance and improve our solutions . story_separator_special_tag deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled . these temporary differences result in deferred tax assets and liabilities , which are included net as applicable within our balance sheets . for most of our recent years , we have incurred operating losses in israel and the u.s. , where we have recorded a full valuation allowance against our deferred tax assets in those jurisdictions . story_separator_special_tag style= '' font-family : times new roman , times , serif ; font-size : 10pt '' > financial expense , net . financial expenses , net , for 2020 of $ 1.6 million increased by $ 0.9 million , compared to $ 0.7 million in 2019 . 42 financial expense , net is primarily made up of interest associated with the convertible debentures issued in march 2020 and the convertible notes issued in december 2018. for additional information , please refer to note 9 of the consolidated financial statements included elsewhere in this annual report . interest expense associated with the convertible notes and debentures increased by $ 0.6 million in 2020 due to the convertible debentures issued in march 2020. interest capitalized as a part of r & d capitalization , and is an offset to interest expense , decreased by $ 0.1 million in 2020 due to fewer projects capitalized in 2020. the impact of foreign exchange fluctuation increased expense in 2020 by $ 0.2 million . effective corporate tax rates corporate tax rates and real capital gains tax in israel were 23 % in 2020 and 2019. there has been no change to date in 2021. the company 's german subsidiary is subject to german tax at a consolidated rate of approximately 30 % . other non-israeli subsidiaries are taxed according to the tax laws in their respective countries of residence . we do not provide deferred tax liabilities when we intend to reinvest earnings of foreign subsidiaries indefinitely . as of december 31 , 2020 , there are no undistributed earnings of foreign subsidiaries . we may currently qualify as an “ industrial company ” within the definition of the law for the encouragement of industry ( taxation ) , as such , we may be eligible for certain tax benefits , including , inter alia , special depreciation rates for machinery , equipment and buildings , amortization of patents , certain other intangible property rights and deduction of share issuance expenses . net operating loss carry-forwards as of december 31 , 2020 , cyren ltd. 's net operating loss carryforwards for tax purposes amounted to $ 108.6 million and capital loss carryforwards of $ 17.8 million which may be carried forward and offset against taxable income in the future , for an indefinite period . as of december 31 , 2020 , the u.s. subsidiary had net operating loss carryforwards of $ 40.7 million for federal tax purposes and $ 10.6 million for state tax purposes . these losses may offset any future u.s. taxable income of the u.s. subsidiary and will expire in the years 2021 through 2040. management currently believes that based upon its estimations for future taxable income , it is more likely than not that the deferred tax assets regarding the loss carryforwards will not be utilized in the foreseeable future . thus , a valuation allowance was provided to reduce deferred tax assets to their realizable value . liquidity and capital resources the company intends to finance operating costs over the next twelve months through a combination of existing cash on hand , reducing operating spend , potentially divesting non-core assets and future issuances of equity and or debt securities . as of december 31 , 2020 , we had an accumulated deficit of $ 248.7 million , cash and cash equivalents of $ 9.3 million , and generated a net loss of $ 17.3 million . we have incurred losses since inception and expect to continue to incur losses for the foreseeable future . current assets amounted to approximately $ 12.0 million with current liabilities of approximately $ 24.9 million , resulting in negative working capital ( defined as current assets minus current liabilities ) of approximately $ 12.9 million . the current cash balance and historical trend of cash used in operations along with the maturity of the convertible notes in december 2021 , which we are currently trying to restructure , and lack of certainty regarding a future capital raise and our ability to renegotiate the term of the convertible notes , raise substantial doubt about our ability to continue as a going concern for the next twelve months from the date of issuance of these financial statements . we do not anticipate that we will have sufficient funds to pay the principal of the convertible notes on their maturity date . the inability to restructure or borrow sufficient funds to refinance the convertible notes on commercially reasonable terms , or at all , would have serious consequences to our financial condition and results of operations . our future capital requirements will depend on many factors , including , but not limited to our growth , market acceptance of our offerings , the timing and extent of spending to support our efforts to develop our platform and the expansion of sales and marketing activities . we may be required to seek additional equity or debt financing . in the event that additional financing is required from outside sources , we may not be able to raise it on terms acceptable to us or at all . if we issue additional equity securities in order to raise additional funds , further dilution to existing stockholders may occur . if we are unable to raise additional capital when desired , our business , financial condition and results of operations could be adversely affected . please see the financings section below for more details on the company 's recent efforts to fund operating activities .
| results of operations the following table sets forth financial data for the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_1_th 41 comparison of years ended december 31 , 2020 and 2019 revenues . 2020 revenues of $ 36.4 million decreased by $ 2.0 million from $ 38.4 million in 2019 , which represents a 5 % year-over-year decrease . revenues for the fourth quarter included a one-time reduction of $ 0.7 million as a result of a multi-year customer contract that was restructured . additionally , the decrease was driven by renewals of customer contracts at lower values , expiration of a small number of customer contracts in the threat intelligence business , and the end of life of several legacy enterprise products during 2020. in the second half of 2020 , the company released the newest enterprise products , cyren inbox security ( launched in april 2020 ) and threat indepth ( launched in june 2020 ) . since the product launch , the company has signed several new customer contracts representing over $ 0.8 million of revenue , but due to the timing and ratable nature of the contracts , there was not a material amount recognized in 2020. cost of revenues . cost of revenues for 2020 totaling $ 14.8 million decreased by $ 0.8 million from $ 15.6 million in 2019 , which represents an 5 % decrease year-over-year . datacenter costs increased by $ 0.3 million and associated fixed asset depreciation increased by $ 0.4 million during 2020 compared to 2019. these increases are required as a foundation for the continued growth of the business . headcount associated with cost of revenues throughout the year decreased from 39 to 36 employees during 2020. payroll and related expenses decreased by $ 0.3 million driven by lower salaries and costs associated with employee benefits .
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total includes 586,720 shares of common stock held by mr. kamin , 123,400 shares held by the peter h. kamin children 's trust , 175,233 shares held by the peter h. kamin profit sharing plan , 30,700 shares held by the peter h. kamin family foundation and 56,601 shares held by 3k limited partnership . ( 6 ) ownership information is provided as of march 16 , 2000 based upon schedule 13d amendment filed april 3 , 2000 . ( 7 ) mr. olivier 's total includes 193,200 shares held in the company 's 401 ( k ) plan , of which mr. olivier is a trustee with voting power . mr. olivier disclaims any beneficial ownership in these shares in excess of his pecuniary interest 13,246 shares . 39 equity compensation plan information the following table sets forth certain information about shares of the company 's common story_separator_special_tag the following discussion of our results of operations and financial condition should be read together with our audited consolidated financial statements for fiscal 2014 and fiscal 2013 , including the notes thereto , which appear elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements , which as previously identified are subject to the safe harbors created under the securities act and exchange act . overview fiscal 2014 was a record year for ari , with revenues of over $ 33 million . total revenue increased 9.7 % or $ 2,917,000 during fiscal 2014 , over the same period last year . recurring revenue increased 14.4 % in fiscal 2014 , compared to the same period last year , and constituted over 9 0 % of our total revenue for fiscal 2014 . the growth in revenue is largely attributable to revenue from the 50 below acquisition in november 2012. o ur o perating income increased 276.2 % or $ 558,000 from a loss of $ 202,000 during fiscal 2013 to income of $ 356,000 fiscal 2014. operating expenses increased 11.1 % or $ 2,617,000 during fiscal 2014 , compared to the same period last year , primarily due to the additional costs of the 50 below operation , an increase in our sales and marketing resources , and termination benefits incurred in connection with a workforce reduction in january 2014. during january 2014 , the company implemented a 14 % reduction in workforce , primarily in the catalog conversion and website implementation and support areas , as a result of consolidating operations and other operational efficiencies achieved as we have continued to integrate the 50 below operation , thereby eliminating duplicate efforts . the company expensed approximately $ 300,000 fiscal 2014 in severance and related costs as a result of this workforce reduction . the company had a net loss of $ 102,000 or $ 0.01 per share during fiscal 2014 , compared to a net loss of $ 753,000 or $ 0.08 per share during fiscal 2013. the de crease in net loss is primarily due to ( i ) the increase in operating income ; ( ii ) a loss on debt extinguishment and higher interest expense in fiscal 2013 ; offset in part by ( iii ) an increase in income tax expense , primarily as a result of a benefit related to a change in valuation allowance against deferred tax assets recorded in fiscal 2013. cash flow from operations was $ 2 , 383 ,000 during fiscal 2014 , compared to $ 2,404,000 during fiscal 2013. we expect an increase in cash from operations in fiscal 2015 due to the cost savings from the operational efficiency improvements made in the second quarter of fiscal 2014 and an increase in cash receipts as a result of rr growth . subsequent event on september 30 , 2014 , we completed the acquisition of tcs , a leading provider of software , websites and marketing services designed exclusively for the automotive tire and wheel vertical . we believe the tcs business will allow us to consolidate our leadership position and provide additional solution offerings in the automotive tire and wheel industry . see note 15 subsequent events for a description of the tcs acquisition and the related transactions . revenue the following table summarizes our revenue by product and by rr and non-recurring revenue : replace_table_token_2_th total revenue increased 9 . 7 % or $ 2,917 ,000 during fiscal 2014 , compared to the same period last year . recurring revenue increased 14 . 4 % or $ 3,880 ,000 during fiscal 2014 , compared to fiscal 2013. rr represented 9 3 . 6 % of total revenues during fiscal 2014 versus 8 9 . 7 % during fiscal 2013 . 17 website revenue our website solutions generate revenue from one-time set-up and customization fee s to develop new dealer website s , which is recognized ratably over the term of the contract , monthly recurring subscription fees and variable transaction fees . our website solutions are typically sold as one year , renewable contracts with monthly payment terms . we estimate that we currently host and maintain more than 6,1 00 websites for dealers in all of our vertical markets . websites have become ari 's largest source of revenue and accounted for 51 % of total revenue during fiscal 2014. website revenue increased 28.1 % to $ 16,826,000 in fiscal 2014 , compared to $ 13,140,000 during fiscal 2013. the growth in website revenue was largely the result of our acquisition of 50 below in november 2012. since the acquisition , we have integrated our sales , support and implementation teams related to our website products . as part of the 50 below acquisition , the company assumed a significant recurring revenue service obligation and has had a high success rate in renewing those contracts . we anticipate that our web platforms will continue to be the company 's largest source of growth , much of this growth coming in the atw and hme markets , both of which are new to ari . story_separator_special_tag total non-recurring revenue declined 31.2 % from $ 3,086,000 during fiscal 2013 to $ 2,123,000 during fiscal 2014. the decrease in non-recurring revenue was primarily due to the change in our lead generation business model and a decline in professional services revenue . our goal is to maintain non-recurring revenues of less than 10 % of total revenues , as the margins on these revenues tend to be lower than our rr products . furthermore , these revenues must be resold each year . we expect non-recurring revenues to be less than 10 % of total revenues during fiscal 2015 . cost of revenue and gross margin we classify as cost of revenue those costs directly attributable to the provision of services . these costs include ( i ) software amortization , which represents the periodic amortization of costs for internally developed or purchased software sold to customers ; ( ii ) direct labor for the provision of catalog production , product implementations and professional services revenue ; and ( iii ) other direct costs , which represent amounts paid to third party vendors for data royalties , as well as data conversion and replication fees directly attributable to the services we provide our customers . the table below breaks out cost of revenue into each of these three categories : replace_table_token_3_th gross profit was $ 2 6 ,6 41 ,000 or 80 . 7 % of revenue in fiscal 2014 , compared to $ 23 , 466 ,000 or 7 8 . 0 % of revenue for the same period last year . the gross profit margin improvement was due to several factors story_separator_special_tag inline ; background-color : yellow ; '' > replace_table_token_5_th * does not include outside vendor costs or capitalized interest costs total software development and technical support costs decreased 6.1 % or $ 416 ,000 during fiscal 2014 versus fiscal 2013 . the decrease was primarily a result of the workforce reduction in janua ry 2014. during fiscal 2014 , we capitalized $ 1 , 501 ,000 of software development labor and overhead , versus $ 1 , 7 31,000 during the same period last year . in addition to internal capitalized software costs , we had outsourced development costs of $ 284,000 during fiscal 2014 and $ 0 during fiscal 2013. during fiscal 2014 , we have devoted resources to several enhancements of our newly acquired website product , including integration with our lead management and lead optimization tools . in addition to this , we added a new online application update process to partsmart , which expands the scalability and international capabilities of the product . during fiscal 2013 , we devoted resources to upgrading the 50 below product with new functionality and design similar to ari 's product suite . direct labor classified as cost of sales declined 10.6 % or $ 255,000 during fiscal 2014 versus fiscal 2013 due to the decline in professional service revenue and the workforce reduction , which was a result of efficiencies implemented in the catalog conversion and customer implementation and support areas . we expect fluctuations in the percentage of software development and technical support costs classified as operating expenses from period to period , based on the mix of research and prototype work versus capitalized software development and professional services activities . loss on impairment of long lived assets during fiscal 2014 , we recorded a loss of $ 35 ,000 on the impairment of long-lived assets primarily as a result of the closing of the virginia beach office . during fiscal 2013 , we recorded a loss of $ 420,000 on the impairment of long-lived assets related to the development of an internal erp system . 21 other income and expense the table below summarizes the components of other income and expenses for fiscal 2014 and fiscal 2013 . replace_table_token_6_th interest expense interest expense is composed of both interest paid on the company 's debt financing arrangements and amortization of non-cash interest charges related to deferred finance costs . interest expense decreased 54.3 % or $ 340 ,000 during fiscal 2014 , compared to fiscal 2013 . the decrease in interest expense is a result of the april 2013 restructuring of debt . loss on debt extinguishment in april , 2013 , we refinanced our debt under more favorable interest and payment terms . as a result of the early extinguishment of debt , we recorded a loss of $ 682,000 related to unamortized debt discount for stock issued as a cost of acquiring the debt and unamortized deferred loan fees . gain ( loss ) on change in fair value of stock warrants in march 2013 , we executed a private placement with certain institutional and accredited investors . as part of the transaction , the company issued warrants to purchase an aggregate of 1,130,667 shares of common stock at an exercise price of $ 2.00 per share . the warrants contain ed a down-round protection feature which reduce d the strike price of the warrants from $ 2.00 to $ 1.50 if there wa s a private placement for less than the $ 2.00 strike price . this feature resulted in the warrants being treated as a derivative instrument . accordingly , the warrants we re recorded as a liability on the balance sheet at fair market value and changes in the fair market value we re recorded to gain or loss on change in fair market value of stock warrants on the statement of operations . w e incurred a non-cash loss of $ 28,000 in fiscal 2014 and $ 635,000 in fiscal 2013 related to the warrants , primarily as a result of changes in the market value of the company 's common stock . we have 214,000 warrants outstanding at july 31 , 2014 , which were reclassified to equity i n june 2014 , due to the expiration of the down-round protection feature .
| resulting from our strategy to focus on recurring saas and daas services , which have a much higher gross margin than our non-recurring services : ( i ) we made a change to our lead generation service business model , eliminating the pass-through cost of purchased ad words from search engine providers on behalf of our customers ; ( ii ) we had a reduction in direct labor costs as a result of the decline in professional service revenue ; and ( iii ) we had a decrease in direct labor costs associated with the reduction of workforce in january 2014. the company expects fluctuations in gross margin from quarter to quarter and year over year based on the mix of products sold . 19 operating expenses we categorize net operating expenses as follows : · sales and marketing expenses consist primarily of personnel and related costs , including commissions for our sales and marketing employees , and the cost of marketing programs and trade show attendance ; · customer operations and support expenses are composed of our computer hosting operations , software maintenance agreements for our core network , and personnel and related costs for operations and support employees ; · software development and technical support expenses are composed primarily of personnel and related costs ; we capitalize certain of these costs in accordance with gaap , which is discussed below , while the remaining costs are primarily related to technical support and research and development ; · general and administrative expenses primarily consist of personnel and related costs for executive , finance , human resources and administrative personnel , legal and other professional fees and other corporate expenses and overhead ; · depreciation and amortization expenses consist of depreciation on fixed assets , which are composed of leasehold improvements and information technology assets , and the amortization of acquisition-related intangible assets .
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overview amerisafe is a holding company that markets and underwrites workers ' compensation insurance through its insurance subsidiaries . workers ' compensation insurance covers statutorily prescribed benefits that employers are obligated to provide to their employees who are injured in the course and scope of their employment . our business strategy is focused on providing this coverage to small to mid-sized employers engaged in hazardous industries , principally construction , trucking , manufacturing , agriculture and oil and gas . employers engaged in hazardous industries pay substantially higher than average rates for workers ' compensation insurance compared to employers in other industries , as measured per payroll dollar . the higher premium rates are due to the nature of the work performed and the inherent workplace danger of our target employers . hazardous industry employers also tend to have less frequent but more severe claims as compared to employers in other industries due to the nature of their businesses . we provide proactive safety reviews of employers ' workplaces . these safety reviews are a vital component of our underwriting process and also 39 promote safer workplaces . we utilize intensive claims management practices that we believe permit us to reduce the overall cost of our claims . in addition , our audit services ensure that our policyholders pay the appropriate premiums required under the terms of their policies and enable us to monitor payroll patterns that cause underwriting , safety or fraud concerns . we believe that the higher premiums typically paid by our policyholders , together with our disciplined underwriting and safety , claims and audit services , provide us with the opportunity to earn attractive returns for our shareholders . we actively market our insurance in 27 states through independent agencies , as well as through our wholly owned insurance agency subsidiary . we are also licensed in an additional 20 states , the district of columbia and the u.s. virgin islands . two of the key financial measures that we use to evaluate our performance are return on average equity and growth in book value per share adjusted for dividends paid to shareholders . we calculate return on average equity by dividing annual net income by the average of annual shareholders ' equity . our return on average equity was 15.6 % in 2015 , 12.4 % in 2014 and 10.9 % in 2013. we calculate book value per share by dividing ending shareholders ' equity by the number of common shares outstanding . our book value per share was $ 23.73 at december 31 , 2015 , $ 23.65 at december 31 , 2014 and $ 22.41 at december 31 , 2013. we paid cash dividends of $ 3.60 per share in 2015 , $ 1.98 per share in 2014 and $ 0.32 per share in 2013. investment income is an important element of our net income . because the period of time between our receipt of premiums and the ultimate settlement of claims is often several years or longer , we are able to invest cash from premiums for significant periods of time . as a result , we are able to generate more investment income from our premiums as compared to insurance companies that operate in other lines of business that pay claims more quickly . from december 31 , 2010 to december 31 , 2015 , our investment portfolio , including cash and cash equivalents , increased from $ 826.5 million to $ 1.1 billion and produced net investment income of $ 27.9 million in 2015 , $ 27.2 million in 2014 and $ 27.0 million in 2013. the use of reinsurance is an important component of our business strategy . we purchase reinsurance to protect us from the impact of large losses . our reinsurance program for 2016 includes 19 reinsurers that provide coverage to us in excess of a certain specified loss amount , or retention level . our 2016 reinsurance program provides us with reinsurance coverage for each loss occurrence up to $ 70.0 million , subject to limitations , applicable deductibles , retentions and aggregate limits . however , for any loss occurrence involving only one claimant , our reinsurance coverage is limited to $ 10.0 million for any single claimant , subject to applicable deductibles , retentions and aggregate limits . in 2014 , we raised our retention from $ 1.0 million to $ 2.0 million for each loss occurrence . losses in the layer between $ 2.0 million and $ 10.0 million are ceded to a multi-year reinsurance cover with an aggregate annual deductible of approximately $ 5.7 million and an aggregate limit of coverage of approximately $ 30.5 million for 2016. as losses are incurred and recorded , we record amounts recoverable from reinsurers for the portion of the losses ceded to our reinsurers . our most significant balance sheet liability is our reserve for loss and loss adjustment expenses . we record reserves for estimated losses under insurance policies that we write and for loss adjustment expenses related to the investigation and settlement of claims . our reserves for loss and loss adjustment expenses represent the estimated cost of all reported and unreported loss and loss adjustment expenses incurred and unpaid at any given point in time based on known facts and circumstances . reserves are based on estimates of the most likely ultimate cost of individual claims . these estimates are inherently uncertain . in addition , there are no policy limits on the liability for workers ' compensation claims as there are for other forms of insurance . therefore , estimating reserves for workers ' compensation claims may be more uncertain than estimating reserves for other types of insurance claims with shorter or more definite periods between occurrence of the claim and final determination of the loss and with policy limits on liability for claim amounts . our focus on providing workers ' compensation insurance to employers engaged in hazardous industries results in our receiving relatively fewer but more severe claims than many other workers ' compensation insurance companies . story_separator_special_tag premiums are earned on a daily pro rata basis over the term of the policy . at the end of each reporting period , premiums written that are not earned are classified as unearned premiums and are earned in subsequent periods over the remaining term of the policy . our insurance policies typically have a term of one year . thus , for a one-year policy written on july 1 , 2015 for an employer with constant payroll during the term of the policy , we would earn half of the premiums in 2015 and the other half in 2016. on a monthly basis , we also recognize net premiums earned from mandatory pooling arrangements . we estimate the annual premiums to be paid by our policyholders when we issue the policies and record those amounts on our balance sheet as premiums receivable . we conduct premium audits on all of our voluntary business policyholders annually , upon the expiration of each policy , including when the policy is renewed . the purpose of these audits is to verify that policyholders have accurately reported their payroll expenses and employee job classifications , and therefore have paid us the premium required under the terms of the policies . the difference between the estimated premium and the ultimate premium is referred to as earned but unbilled premium , or ebub premium . ebub premium can be higher or lower than the estimated premium . ebub premium is subject to significant variability and can either increase or decrease earned premium based upon several factors , including changes in premium growth , industry mix and economic conditions . due to the timing of audits and other adjustments , the ultimate premium earned is generally not determined for several months after the expiration of the policy . we review the estimate of ebub premiums on a quarterly basis using historical data and applying various assumptions based on the current market , and we record an adjustment to premium , related losses , and expenses as warranted . net investment income and net realized gains and losses on investments . we invest our statutory surplus funds and the funds supporting our insurance liabilities in fixed maturity , equity securities and alternative investments . in addition , a portion of these funds are held in cash and cash equivalents to pay current claims . our net investment income includes interest and dividends earned on our invested assets , amortization of premiums and discounts on our fixed-maturity securities and returns on our other investments . we assess the performance of our investment portfolio using a standard tax equivalent yield metric . investment income that is tax-exempt is increased by our marginal federal tax rate of 35 % to express yield on tax-exempt securities on the same basis as taxable securities . net realized gains and losses on our investments are reported separately from our net investment income . net realized gains occur when our investment securities are sold for more than their costs or amortized costs , as applicable . net realized losses occur when our investment securities are sold for less than their costs or amortized costs , as applicable , or are written down as a result of other-than-temporary impairment . we classify the majority of our fixed maturity securities as held-to-maturity . the remainder of our fixed-maturity securities are classified as available-for-sale , as are our equity securities and other investments . net unrealized gains or losses on our securities classified as available-for-sale are reported separately within accumulated other comprehensive income on our balance sheet . 42 fee and other income . we recognize commission income earned on policies issued by other carriers that are sold by our wholly owned insurance agency subsidiary as the related services are performed . we also recognize a small portion of interest income from mandatory pooling arrangements in which we participate . our expenses consist primarily of the following : loss and loss adjustment expenses incurred . loss and loss adjustment expenses incurred represents our largest expense item and , for any given reporting period , includes estimates of future claim payments , changes in those estimates from prior reporting periods and costs associated with investigating , defending , and administering claims . these expenses fluctuate based on the amount and types of risks we insure . we record loss and loss adjustment expenses related to estimates of future claim payments based on case-by-case valuations and statistical analyses . we seek to establish all reserves at the most likely ultimate exposure based on our historical claims experience . it is typical for our more serious claims to take several years to settle and we revise our estimates as we receive additional information about the condition of the injured employees . our ability to estimate loss and loss adjustment expenses accurately at the time of pricing our insurance policies is a critical factor in our profitability . additional information regarding our reserves for loss and loss adjustment expenses and the actuarial methods and other factors used in establishing these reserves can be found under the caption businessloss reserves in item 1 of this report . underwriting and certain other operating costs . underwriting and certain other operating costs are those expenses that we incur to underwrite and maintain the insurance policies we issue . these expenses include state and local premium taxes and fees and other operating costs , offset by commissions we receive from reinsurers under our reinsurance treaty programs . we pay state and local taxes , licenses and fees , assessments , and contributions to state workers ' compensation security funds based on premiums . in addition , other operating costs include general and administrative expenses , excluding commissions and salaries and benefits , incurred at both the insurance company and corporate level . commissions . we pay commissions to our subsidiary insurance agency and to the independent agencies that sell our insurance based on premiums collected from policyholders . salaries and benefits . we pay salaries and provide benefits to our employees .
| overview of operating results year ended december 31 , 2015 compared to year ended december 31 , 2014 gross premiums written . gross premiums written for 2015 were $ 386.5 million , compared to $ 393.8 million for 2014 , a decrease of 1.9 % . the decrease was attributable to a $ 4.6 million decrease in premiums resulting from payroll audits and related premium adjustments , a $ 2.5 million decrease in annual premiums on voluntary policies written during the period , a $ 0.4 million decrease in direct assigned risk premiums , offset by a $ 0.3 million increase in premiums from mandatory pooling arrangements . related premium adjustments in 2015 include a $ 2.4 million increase in earned but unbilled , or ebub , premium . net premiums written . net premiums written for 2015 were $ 375.3 million , compared to $ 380.0 million for 2014 , a decrease of 1.2 % . the decrease was primarily attributable to the decrease in gross premiums written . as a percentage of gross premiums earned , ceded premiums were 2.9 % for 2015 compared to 3.5 % for 2014. net premiums earned . net premiums earned for 2015 were $ 375.9 million , compared to $ 375.7 million for 2014 , an immaterial increase . net investment income . net investment income in 2015 was $ 27.9 million , an increase of 2.5 % from the $ 27.2 million reported in 2014. the pre-tax investment yield on our investment portfolio was 2.5 % per annum for 2015 and 2.6 % for 2014. the tax-equivalent yield on our investment portfolio was 3.5 % per annum for 2015 , compared to 3.5 % per annum for 2014. the tax-equivalent yield is calculated using the effective interest rate and a 35 % marginal tax rate .
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forward-looking statements are typically identified by use of terms such as “ may , ” “ believe , ” “ expect , ” “ anticipate , ” “ intend , ” “ estimate , ” “ project , ” “ target , ” “ goal , ” “ plan , ” “ should , ” “ will , ” “ predict , ” “ potential ” and similar expressions that convey the uncertainty of future events or outcomes . such statements involve known and unknown risks , uncertainties , and other factors which may cause the actual results , performance , or achievements of apple reit ten , inc. ( the “ company ” ) to be materially different from future results , performance or achievements expressed or implied by such forward-looking statements . such factors include , but are not limited to , the ability of the company to implement its acquisition strategy and operating strategy ; the company 's ability to manage planned growth ; the ability of the company to provide liquidity opportunities for its shareholders ; changes in general political , economic and competitive conditions and specific market conditions ; adverse changes in the real estate and real estate capital markets ; financing risks ; future litigation ; regulatory proceedings or inquiries ; and changes in laws or regulations or interpretations of current laws and regulations that impact the company 's business , assets or classification as a real estate investment trust . although the company believes that the assumptions underlying the forward-looking statements contained herein are reasonable , any of the assumptions could be inaccurate , and therefore there can be no assurance that such statements included in this annual 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 the company or any other person that the results or conditions described in such statements or the objectives and plans of the company will be achieved . in addition , the company 's qualification as a real estate investment trust involves the application of highly technical and complex provisions of the internal revenue code . readers should carefully review the risk factors described in the company 's filings with the securities and exchange commission ( “ sec ” ) , including but not limited to those discussed in the section titled “ risk factors ” in item 1a in this annual report . any forward-looking statement that the company makes speaks only as of the date of this annual report . the company undertakes no obligation to publicly update or revise any forward-looking statements or cautionary factors , as a result of new information , future events , or otherwise , except as required by law . the following discussion and analysis should be read in conjunction with item 8 , the consolidated financial statements and notes thereto , appearing elsewhere in this annual report on form 10-k. story_separator_special_tag in evaluating financial condition and operating performance , the most important indicators on which the company focuses are revenue measurements , such as average occupancy , average daily rate ( “ adr ” ) and revenue per available room ( “ revpar ” ) , and expenses , such as hotel operating expenses , general and administrative expenses and other expenses as described below . the following is a summary of the results from operations of the 55 hotels owned as of december 31 , 2015 for their respective periods of ownership by the company and earnings from the company 's energy investment prior to redemption , as discussed below : replace_table_token_10_th 33 index results of operations for years 2015 and 2014 as of december 31 , 2015 , the company owned 55 hotels ( of which four were acquired during 2015 ) with 7,056 rooms as compared to 51 hotels ( of which four were acquired during 2014 ) , with a total of 6,468 rooms , as of december 31 , 2014. hotel performance is impacted by many factors including the economic conditions in the united states as well as each locality . economic indicators in the united states have been favorable , which continues to overall positively impact the lodging industry . as a result , the company 's revenue and operating income for comparable hotels improved during 2015 as compared to 2014 and the company expects continued improvement in revenue and operating income in 2016 as compared to 2015. revenues the company 's principal source of revenue is hotel revenue , consisting of room and other related revenue . for the years ended december 31 , 2015 and 2014 , the company had total revenue of approximately $ 262.1 million and $ 219.6 million . this revenue reflects hotel operations for the 55 hotels acquired through december 31 , 2015 for their respective periods of ownership by the company . for the years ended december 31 , 2015 and 2014 , the hotels achieved combined average occupancy of approximately 75.8 % and 73.6 % , adr of $ 127.71 and $ 120.91 and revpar of $ 96.77 and $ 88.97. adr is calculated as room revenue divided by the number of rooms sold , and revpar is calculated as occupancy multiplied by adr . for the 47 comparable hotels ( hotels owned since january 1 , 2014 ) , occupancy , adr and revpar increased 2 % , 5 % and 7 % respectively for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. the company 's hotels in general have shown results consistent with industry and brand averages for the period of ownership . although certain markets will vary based on local supply/demand dynamics and local market economic conditions , with continued overall demand and room rate improvement for comparable hotels and the company 's geographically diverse portfolio , the company and industry are forecasting a low to mid-single digit percentage increase in revenue for 2016 as compared to 2015 for comparable hotels . story_separator_special_tag interest expense increased in 2015 due to the assumption or origination of three new mortgage loans in the amount of $ 88.4 million during the second and third quarters of 2015. this increase was partially offset by a lower average outstanding principal balance on the company 's credit facility in 2015 as compared to 2014 and the repayment of one mortgage loan in the fourth quarter of 2015. the overall increased debt level in 2015 as compared to 2014 was due to the purchase of four hotels in 2015. income tax ( benefit ) expense for the years ended december 31 , 2015 and 2014 totaled approximately $ ( 0.03 ) million and $ 2.3 million . the decrease in income tax expense was due primarily to the redemption of the company 's energy investment , resulting in a decrease in taxable income for the company 's taxable reit subsidiary for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. results of operations for years 2014 and 2013 as of december 31 , 2014 , the company owned 51 hotels ( of which four were acquired during 2014 ) with 6,468 rooms as compared to 47 hotels ( of which 16 were acquired during 2013 ) , with a total of 5,933 rooms , as of december 31 , 2013. as a result , comparisons of 2014 operating results to prior year results are not meaningful . revenues for the years ended december 31 , 2014 and 2013 , the company had total revenue of approximately $ 219.6 million and $ 158.9 million . this revenue reflects hotel operations for the 51 hotels acquired through december 31 , 2014 for their respective periods of ownership by the company . for the years ended december 31 , 2014 and 2013 , the hotels achieved combined average occupancy of approximately 73.6 % and 71.4 % , adr of $ 120.91 and $ 114.61 and revpar of $ 88.97 and $ 81.86. for the 31 comparable hotels ( hotels owned since january 1 , 2013 ) , occupancy , adr and revpar increased 4 % , 3 % and 7 % , respectively for the year ended december 31 , 2014 compared to the year ended december 31 , 2013. during 2014 , the company experienced an overall increase in demand and room rate improvement for its comparable hotels , resulting in improved revenue and operating income as compared to 2013. in addition , seven of the hotels owned as of december 31 , 2014 opened since the beginning of 2013. generally , newly constructed hotels require 12-24 months to establish themselves in their respective markets . therefore , revenue for these hotels was below market levels for this period of time . 35 index expenses hotel operating expense relates to the 51 hotels acquired through december 31 , 2014 for their respective periods owned . for the years ended december 31 , 2014 and 2013 , hotel operating expense totaled approximately $ 124.4 million and $ 90.4 million or 57 % of total revenue in each year . as noted above , seven of the hotels acquired by the company opened since the beginning of 2013. as a result , although operating expenses will increase with a full year of ownership for all properties , it is anticipated that operating expenses as a percentage of revenue for these properties will decline as new properties establish themselves within their respective markets . property taxes , insurance , and other expense for the years ended december 31 , 2014 and 2013 totaled approximately $ 13.1 million and $ 10.8 million or 6 % and 7 % of total revenue . for comparable hotels , taxes increased for certain properties due to the reassessment of property values by localities resulting from the improved economy , which was partially offset by decreases in 2014 due to successful appeals of tax assessments at certain locations . general and administrative expense for the years ended december 31 , 2014 and 2013 totaled approximately $ 6.4 million and $ 5.1 million or 3 % of total revenue in each year . the increase in general and administrative expense was primarily due to the increase in the size of the company and the corresponding increase in advisory fees and associated allocated costs . acquisition related costs for the years ended december 31 , 2014 and 2013 totaled approximately $ 2.0 million and $ 7.0 million . the decrease was due to the acquisition of four hotels with a total purchase price of $ 84.0 million in 2014 compared to 16 hotels with a total purchase price of $ 264.6 million in 2013. depreciation expense for the years ended december 31 , 2014 and 2013 totaled approximately $ 29.0 million and $ 21.3 million . depreciation expense represents expense of the company 's 51 hotel buildings and related improvements owned at december 31 , 2014 , and associated personal property ( furniture , fixtures , and equipment ) for their respective periods owned . investment income for the years ended december 31 , 2014 and 2013 totaled approximately $ 11.9 million and $ 8.0 million . investment income primarily included $ 11.8 million and $ 7.8 million earned during 2014 and 2013 on the company 's energy investment , which was acquired in june 2013 and fully redeemed in november 2014. interest expense for the years ended december 31 , 2014 and 2013 totaled approximately $ 8.2 million and $ 5.7 million and is net of approximately $ 0.6 million and $ 0.3 million of interest capitalized associated with renovation projects . interest expense primarily arose from debt assumed with the acquisition of nine of the company 's hotels and , beginning in july 2013 , borrowings on the company 's $ 100 million credit facility . income tax expense for the years ended december 31 , 2014 and 2013 totaled approximately $ 2.3 million and $ 0.5 million .
| overview the company is a virginia corporation that has elected to be treated as a real estate investment trust ( “ reit ” ) for federal income tax purposes . the company was formed to invest in hotels and other income-producing real estate in selected metropolitan areas in the united states . the company was initially capitalized on august 13 , 2010 , with its first investor closing on january 27 , 2011 under its initial best-efforts offering of units ( each unit consists of one common share and one series a preferred share ) . effective july 31 , 2014 , the company concluded its best-efforts offering of units , with a total of 96.1 million units sold , gross proceeds of approximately $ 1.1 billion and proceeds net of offering costs of approximately $ 943.0 million . as of december 31 , 2015 , the company owned 55 hotels ( four acquired during 2015 , four acquired during 2014 , 16 acquired during 2013 , five acquired during 2012 and 26 acquired during 2011 ) , all of which operate under marriott or hilton brands . the hotels are operated and managed under separate management agreements with 12 hotel management companies , none of which are affiliated with the company . results of operations include only results from the date of ownership of the properties . 30 index hotels owned as of december 31 , 2015 , the company owned 55 hotels with an aggregate of 7,056 rooms located in 17 states . the following tables summarize the number of hotels and rooms by brand and by state : replace_table_token_7_th replace_table_token_8_th 31 index the following table summarizes the location , brand , manager , date acquired , number of rooms and gross purchase price for each of the 55 hotels the company owned as of december 31 , 2015. all dollar amounts are in thousands .
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overview we are a global market leader in the full-service natural gas compression business and a premier provider of operations , maintenance , service and equipment for oil and natural gas production , processing and transportation applications . our global customer base consists of companies engaged in all aspects of the oil and natural gas industry , including large integrated oil and natural gas companies , national oil and natural gas companies , independent producers and natural gas processors , gatherers and pipelines . we operate in three primary business lines : contract operations , fabrication and aftermarket services . in our contract operations business line , we own a fleet of natural gas compression equipment and crude oil and natural gas production and processing equipment that we utilize to provide operations services to our customers . in our fabrication business line , we fabricate equipment for sale to our customers and for use in our contract operations services . in addition , our fabrication business line provides engineering , procurement and fabrication services primarily related to the manufacturing of critical process equipment for refinery and petrochemical facilities , the fabrication of tank farms and the fabrication of evaporators and brine heaters for desalination plants . we offer customers , on either a contract operations basis or a sale basis , the engineering , design , project management , procurement and construction services necessary to incorporate our products into production , processing and compression facilities , which we refer to as integrated projects . in our aftermarket services business line , we sell parts and components and provide operations , maintenance , overhaul and reconfiguration services to customers who own compression , production , processing , treating and other equipment . industry conditions and trends our business environment and corresponding operating results are affected by the level of energy industry spending for the exploration , development and production of oil and natural gas reserves . spending by oil and natural gas exploration and production companies is dependent upon these companies ' forecasts regarding the expected future supply , demand and pricing of , oil and natural gas products as well as their estimates of risk-adjusted costs to find , develop and produce reserves . although we believe our contract operations business is typically less impacted by commodity prices than certain other energy service products and services , changes in oil and natural gas exploration and production spending normally results in changes in demand for our products and services . natural gas consumption and production . natural gas consumption in the u.s. for the twelve months ended november 30 , 2012 increased by approximately 4 % over the twelve months ended november 30 , 2011 , is expected to increase by 1.2 % in 2013 , and by an average of 0.5 % per year thereafter until 2035 according to the eia . the eia projects that natural gas consumption worldwide will increase by 1.6 % per year until 2035. natural gas marketed production in the u.s. for the twelve months ended november 30 , 2012 increased by approximately 6 % over the twelve months ended november 30 , 2011. the eia forecasts that total u.s. marketed production will grow by 1 % in 2013. in 2011 , the u.s. accounted for an estimated annual production of approximately 24 trillion cubic feet of natural gas , or 20 % of the worldwide total of approximately 123 trillion cubic feet . the eia estimates that the u.s. 's natural gas production level will be approximately 26 trillion cubic feet in 2035 , or 16 % of the projected worldwide total of approximately 169 trillion cubic feet . our performance trends and outlook our revenue , earnings and financial position are affected by , among other things , market conditions that impact demand and pricing for natural gas compression and oil and natural gas production and processing , and our customers ' decisions among using our products and services , using our competitors ' products and services or owning and operating the equipment themselves . during 2011 and 2012 , we saw robust drilling activity in north america in shale plays and areas focused on the production of oil and natural gas liquids . this activity led to higher demand and bookings for our fabricated compression , fabricated production and processing equipment and contract operations businesses in these markets . this new development activity has increased the overall amount of compression horsepower in the industry and in our business in north america ; however , these increases continue to be partially offset by horsepower declines in more mature and predominantly dry gas markets , where we provide a significant amount of contract operations services . in early 2012 , natural gas prices in north america fell to their lowest levels in more than a decade . since then , natural gas prices in north america have improved , but still remain at low levels which could limit natural gas production growth in north america , particularly in dry gas areas . we believe that the low natural gas price environment , as well as the recent capital investment in new equipment by our competitors and other third parties , could decrease demand for our natural gas compression and oil and natural gas production and processing equipment and services in north america . however , given current 34 backlog levels for our fabricated products and the level of activity we are generating in north america , we believe our fabrication revenues in 2013 will be similar to those achieved in 2012. in international markets , we believe demand for our contract operations and fabricated projects will continue and we expect to have opportunities to grow our international business through our contract operations , aftermarket services and fabrication business segments over the long term . in 2011 , we saw decreases in our international backlog in our fabrication business segment due to the longer lead times for international energy project development . story_separator_special_tag net loss attributable to exterran stockholders and ebitda , as adjusted . we recorded a consolidated net loss attributable to exterran stockholders of $ 39.5 million , $ 340.6 million and $ 101.8 million for the years ended december 31 , 2012 , 2011 and 2010 , respectively . we recorded ebitda , as adjusted , of $ 464.8 million , $ 395.4 million and $ 445.4 million for the years ended december 31 , 2012 , 2011 and 2010 , respectively . net loss attributable to exterran stockholders for the year ended december 31 , 2012 was negatively impacted by long-lived asset impairments of $ 183.4 million and other impairments of long-lived assets , including intangible and other assets , and inventory , that totaled $ 80.2 million on canadian discontinued operations . these impairments were partially offset by $ 143.5 million of net proceeds from the sale of previously nationalized venezuela assets to pdvsa gas and equity in income from non-consolidated affiliates of $ 51.5 million received from the sale of our venezuelan joint ventures ' assets during the year ended december 31 , 2012. net loss attributable to exterran stockholders for the year ended december 31 , 2011 was negatively impacted by goodwill impairments of $ 196.8 million . net loss attributable to exterran stockholders for the year ended december 31 , 2010 was negatively impacted by long-lived asset impairments of $ 143.9 million . net loss attributable to exterran stockholders and ebitda , as adjusted , for the year ended december 31 , 2012 benefitted from higher gross margins from operations compared to the years ended december 31 , 2011 and 2010. for a reconciliation of ebitda , as adjusted , to net loss , its most directly comparable financial measure , calculated and presented in accordance with accounting principles generally accepted in the u.s. ( gaap ) , please read part ii , item 6 ( selected financial data non-gaap financial measures ) of this report . story_separator_special_tag style= '' margin:0in 0in .0001pt ; '' > during 2011 , we reviewed the idle compression assets used in our contract operations segments for units that were not of the type , configuration , make or model that are cost effective to maintain and operate . our estimate of the impaired long-lived assets ' fair value was based on the expected net sale proceeds compared to other fleet units we had recently sold , as well as our review of other units recently offered for sale by third parties , or the estimated component value of the equipment we planned to use . the net book value of these assets exceeded the fair value by $ 5.7 million for the year ended december 31 , 2011 and was recorded as a long-lived asset impairment . in addition , in the fourth quarter of 2011 , we recorded a $ 0.4 million impairment of other long-lived assets . in november 2011 , we announced a workforce cost reduction program across all of our business segments as a first step in a broader overall profit improvement initiative . these actions were the result of a review of our cost structure aimed at identifying ways to reduce our on-going operating costs and to adjust the size of our workforce to be consistent with current and expected activity levels . a significant portion of the workforce cost reduction program was completed in 2011 , with the remainder completed in 2012. during 39 the years ended december 31 , 2012 and 2011 , we incurred $ 6.6 and $ 11.6 million , respectively , of restructuring charges primarily related to termination benefits and consulting services . see note 14 to the financial statements for further discussion of these charges . as a result of the level of decline in our stock price and corresponding market capitalization in the third quarter of 2011 , we performed a goodwill impairment test of our aftermarket services and fabrication reporting units ' goodwill as of september 30 , 2011. this decline in our market capitalization led us to increase the estimate of the market 's implied weighted average cost of capital and reduce the present value of the forecasted cash flows . the test indicated that our aftermarket services and fabrication reporting units ' goodwill was impaired and therefore we recorded a full impairment of our remaining goodwill during 2011 of $ 196.8 million . see note 8 to the financial statements for further discussion of the goodwill impairments . the decrease in interest expense for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 was primarily due to a decrease of $ 9.6 million in the amortization of payments to terminate interest rate swaps and a decrease as a result of the expiration of certain interest rate swaps in the third quarter of 2012. this was partially offset by refinancing a portion of our outstanding debt at a higher interest rate . the payments to terminate interest rate swap agreements are being amortized into interest expense over the original terms of the swaps . the change in equity in ( income ) loss of non-consolidated affiliates during the year ended december 31 , 2012 relates to net payments of $ 51.7 million received during the year ended december 31 , 2012 from the sale of our venezuelan joint ventures ' assets . the remaining principal amount due to us of approximately $ 57 million is payable in quarterly net cash installments through the first quarter of 2016. payments we receive from the sale will be recognized as equity in ( income ) loss of non-consolidated affiliates in our consolidated statements of operations in the periods such payments are received . the change in other ( income ) expense , net , in the year ended december 31 , 2012 compared to the year ended december 31 , 2011 was primarily due to a $ 13.4 million decrease related to non-income tax based tax receivables in brazil that we determined were realizable .
| results by business segment . the following table summarizes revenue , gross margin and gross margin percentages for each of our business segments ( dollars in thousands ) : replace_table_token_5_th ( 1 ) defined as revenue less cost of sales , excluding depreciation and amortization expense . gross margin , a non-gaap financial measure , is reconciled , in total , to net income ( loss ) , its most directly comparable financial measure calculated and presented in accordance with gaap in selected financial data non-gaap financial measures . ( 2 ) defined as gross margin divided by revenue . 36 operating highlights the following tables summarize our total available horsepower , total operating horsepower , average operating horsepower , horsepower utilization percentages and fabrication backlog ( horsepower in thousands and dollars in millions ) : replace_table_token_6_th replace_table_token_7_th ( 1 ) in the second quarter of 2012 , we began including installation backlog in our total fabrication backlog , and have updated all prior periods to also include installation backlog . year ended december 31 , 2012 compared to year ended december 31 , 2011 summary of business segment results north america contract operations ( dollars in thousands ) replace_table_token_8_th the increase in revenue in the year ended december 31 , 2012 compared to the year ended december 31 , 2011 was primarily attributable to a 2 % increase in average operating horsepower , an increase in rates , a $ 4.0 million increase in revenue from a gas processing plant that began operations during the fourth quarter of 2011 and a $ 3.9 million increase in freight revenue , partially offset by a $ 7.9 million decrease in revenue from our contract water treatment business .
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share-based compensation share-based compensation expenses for the years ended december 31 , 2020 and december 31 , 2019 were as follows : replace_table_token_38_th f-20 note 14. stock issuance and conversion of convertible notes stock issuance on april 27 , 2020 , the company entered into a securities purchase agreement with related parties pursuant to which the company agreed to sell and issue approximately 1.2 million shares for $ 5.0 million , or $ 4.08 per share . the selling price was determined by the average closing price over the ten trading days immediately preceding the date of securities purchase agreement . on may 7 , 2020 , the company closed the transaction and received proceeds of $ 4.9 million , net of offering costs . on august 13 , 2019 , the company entered into a securities purchase agreement with certain purchasers , pursuant to which the company agreed to sell and issue an aggregate of $ 7.0 million of the company 's common stock at a purchase price of $ 4.465 per share ( the “ financing ” ) . on august 15 , 2019 , the company closed the financing and issued approximately 1.6 million shares of its common stock . the company received proceeds of $ 6.8 million , net of offering costs . conversion of convertible notes on may 17 , 2019 , the company closed a financing transaction and issued convertible promissory notes ( the “ notes ” ) in the aggregate principal amount of $ 10.0 million to winsave resources limited and pioneer step holdings limited . the maturity date of the notes was originally july 1 , 2019 and was subsequently extended to august 15 , 2019. the notes accrued interest at a rate of 5.0 % per annum for a total of approximately $ 123,000 through the maturity date . on the maturity date , the notes automatically converted into approximately 2.3 million shares of the company 's common stock at a price of $ 4.465 per share . summary of convertible notes description modified conversion price * original conversion price extended maturity date original maturity date amount ( in thousands ) principal $ 4.465 $ 4.590 august 15 , 2019 july 1 , 2019 $ 10,000 interest at a rate of 5.0 % per annum 123 total amount converted for 2.3 million shares $ 10,123 debt discount - issuance costs 565 debt discount - down round feature 282 total debt discount recognized as interest expense $ 847 * the conversion price has a down round feature . the original conversion price of $ 4.59 was lowered to $ 4.465 due to the financing . debt issuance costs in connection with the issuance of the notes , the company incurred issuance costs of approximately $ 565,000 . the issuance costs were recorded as a debt discount and were amortized as interest expense using the effective interest method over the original term of 45 days . down round feature the notes had adjustments which meet the definition of a down round feature per asu 2017-11. pursuant to the terms of the notes , the conversion price per share was adjusted downward from $ 4.59 to $ 4.465 as the company closed the financing on the maturity date . as allowed under asu 2017-11 , the company excluded such down round feature when determining whether the instrument is indexed to the entity 's own stock and did not bifurcate the down round feature from the loan host . in accordance with asu 2017-11 , the company recognized the value of the triggered down round as a beneficial conversion discount to earnings . the note purchasers obtained approximately additional 62,000 shares of the company 's common stock due to the down round feature with an incremental intrinsic value of approximately $ 281,000 . this amount was initially recognized as debt discount and was amortized as interest expense . along with the issuance cost of the notes , the company recorded a total of approximately $ 0.8 million as interest expense in amortization of debt discounts during the year ended december 31 , 2019. debt modification on june 30 , 2019 , the company and the purchasers entered into an omnibus amendment to the purchase agreement and the notes to ( i ) remove the restriction on the company issuing common stock during a certain restricted period and ( ii ) amend the notes to extend the maturity date by 45 days from july 1 , 2019 to august 15 , 2019. the amendment to extend the maturity date for another 45 days to august 15 , 2019 was recognized as a modification of the notes . note 15. commitments and contingencies purchase obligations the company enters into purchase obligations with various vendors for goods and services that we need for our operations . the purchase obligations for goods and services include inventory , research and development , and laboratory supplies . minimum future payments under purchase obligations as of december 31 , 2020 are as follows : fiscal year ending : 2021 $ 17.3 million $ 17.3 million royalty the company has various licensing agreements with leading research universities and other patent holders , pursuant to which the company acquired patents related to certain products the company offers to its customers . these agreements afford for royalty payments based on contractual minimums and expire at various dates . in addition story_separator_special_tag you should read the following discussion and analysis of financial condition and results of operation together with “ selected financial data , ” the consolidated financial statements and the related notes included elsewhere this form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . story_separator_special_tag these regulations may in some cases , particularly with respect to those applicable to new ingredients , require a notification that must be submitted to the fda along with evidence of safety . there are similar regulations related to food additives . impact of covid-19 the covid-19 pandemic continues to drive global uncertainty and disruption , which has created headwinds for our business . our ecommerce business continues to perform relatively well in this challenging environment . our retail business , including sales to a.s. watson group and other partners in international markets , has been more impacted by the effects of covid-19 , due to store closures and reduced operating hours . to date , we have successfully navigated the business during the covid-19 pandemic , managing our working capital effectively . we have experienced shipment delays from our suppliers ; however , we have not encountered any major disruptions in our supply chain . we have been maintaining adequate safety stocks to support our growth and we currently have adequate inventory on hand to meet our current demands . overall , we believe the supply chain disruptions due to the covid-19 pandemic will not have a material impact to our business operations . in response to the outbreak , we prioritized the health and safety of our employees by closing our offices or enhancing safety protocols in place to ensure the well-being of our employees . we have been able to successfully conduct business virtually . r esults of operations our losses per basic and diluted share were $ 0.33 and $ 0.56 for the twelve-month periods ended december 31 , 2020 and december 31 , 2019 , respectively . replace_table_token_6_th the following table sets forth the computations of loss per share amounts applicable to common stockholders for the years ended december 31 , 2020 and december 31 , 2019 . 39 replace_table_token_7_th ( 1 ) includes approximately 0.2 million shares of restricted stock for each of the years 2020 and 2019 , which are participating securities that feature voting and dividend rights . ( 2 ) excluded from the computation of loss per share as their impact is antidilutive . net sales . net sales consist of gross sales less discounts and returns . replace_table_token_8_th total net sales increased by 28 % for the twelve-month period ended december 31 , 2020 , compared to the comparable period in 2019 . · the company 's tru niagen® sales for consumer products segment continue to increase after the company 's strategic shift towards consumer products in 2017 . · the increase in sales for the ingredients segment is largely due to strong demand from our niagen® ingredient customers , who resell niagen® under their own brands . · the decrease in sales for the analytical reference standards and services is largely due to the spinoff of the regulatory consulting business unit in november 2019. the regulatory consulting business generated net sales of approximately $ 0.7 million in 2019. in addition , sales of analytical reference standards decreased largely due to the effects of covid-19 . 40 cost of sales . costs of sales include raw materials , labor , overhead , and delivery costs . replace_table_token_9_th the cost of sales , as a percentage of net sales , decreased 4 % for the twelve-month period ended december 31 , 2020 compared to the comparable period in 2019 . · the cost of sales , as a percentage of net sales , for the consumer products segment decreased 3 % for the twelve-month period ended december 31 , 2020 compared to the comparable period in 2019. product cost savings initiatives and overall scale on our supply chain drove the decrease in cost of sales . · the cost of sales , as a percentage of net sales , for the ingredients segment decreased 9 % for the twelve-month period ended december 31 , 2020 compared to the comparable period in 2019. in 2020 , we were able to lower our cost of niagen® ingredient through supply chain cost savings initiatives , which resulted in a decrease in cost of sales . also , a portion of this decrease was realized in the form of a rebate from a supplier for prior year efficiency initiatives , which was recorded in the second quarter of 2020. in addition , we had an inventory write off of approximately $ 0.2 million related to our decision to wind down sales for a certain ingredient in the first quarter of 2019 . · the cost of sales , as a percentage of net sales for the analytical reference standards and services segment , increased 22 % for the twelve-month period ended december 31 , 2020 compared to the comparable period in 2019. the decrease in sales of analytical reference standards and services due to the spinoff of the regulatory consulting business in november 2019 and the effects of covid-19 led to a lower labor and overhead utilization rate , which resulted in our cost of sales increasing as a percentage of net sales . 41 gross profit . gross profit is net sales less the cost of sales and is affected by a number of factors including product mix , competitive pricing and costs of products , labor , overhead , services and delivery . replace_table_token_10_th · the consumer products segment posted gross profit of $ 29.5 million for the twelve-month period ending december 31 , 2020 , an increase of 37 % compared to the comparable period in 2019. the increased gross profit was due to higher sales , product cost savings initiatives and scale on our supply chain operations .
| general and administrative $ 30,448 $ 34,308 -11 % the following expenses contributed to the decrease in general and administrative expenses for the twelve-month period ended december 31 , 2020 , compared to the comparable period in 2019 : · a decrease in legal expenses . our legal expense decreased to approximately $ 8.6 million in the twelve-month period ended december 31 , 2020 compared to approximately $ 11.3 million in the comparable period in 2019 . · a decrease in bad debt expense . our bad debt expense decreased to an insignificant amount in the twelve-month period ended december 31 , 2020 compared to approximately $ 2.2 million in 2019. this is due to recording a write off of $ 2.2 million related to the trade receivable from elysium health in 2019 by increasing the allowance from $ 0.5 million to the entire trade receivable balance of $ 2.7 million . we placed a reserve for the entire outstanding balance as it was no longer deemed collectible . nonoperating - interest expense , net . interest expense , net consists of interest earned from bank deposit accounts less interest expenses from convertible notes , the line of credit arrangement and finance leases . twelve months ending ( in thousands ) december 31 , 2020 december 31 , 2019 change interest expense , net $ 71 $ 847 -92 % · in the second and third quarter of 2019 , we incurred debt issuance costs of approximately $ 0.8 million in connection with the issuance of convertible promissory notes in the aggregate principal amount of $ 10.0 million to winsave resources limited and pioneer step holdings limited . the issuance costs were recorded as a debt discount and have been amortized as interest expense using the effective interest method . 43 depreciation and amortization . for the twelve-month period ended december 31 , 2020 , we recorded approximately $ 0.9 million in depreciation compared to approximately $ 0.8
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refer to gaap to non-gaap reconciliation table for details . ( 2 ) targets will be re-evaluated and adjusted annually . the company revisited targets in early 2016 and has adjusted accordingly . strategic developments the company took the following actions to support our corporate strategy and the long-term financial goals shown above . ● loan and lease growth for the year was 10.3 % . this was within the company 's target organic growth rate of 10-12 % . a majority of this growth was in the c & i loan category . as of december 31 , 2015 , this segment of the portfolio accounted for 36 % of total loans and leases . at the same time , the company has reduced its reliance on cre loans , with that segment representing 40 % of the portfolio as of december 31 , 2015 , down from 43 % as of december 31 , 2014. this loan and lease growth has continued to help move the loan and lease to total asset ratio upward to 69 % , from 65 % in the prior year and 61 % two years ago . additionally , the company continues to evaluate market opportunities to rotate out of securities and into loans and leases , as this will also make the balance sheet more profitable . generally , securities have a lower yield ; therefore , by replacing with loans and leases , the company will continue to improve nim . ● in the second quarter of 2015 , the company executed a common stock offering and balance sheet restructuring that greatly reduced borrowings and the weighted average cost of borrowings in order to improve the long-term profitability of the company . refer to note 12 to the consolidated financial statements for additional information . the company continued to execute restructuring activities in the fourth quarter of 2015 ( described in notes 9 and 10 of the consolidated financial statements ) and the first quarter of 2016 ( described in note 25 of the consolidated financial statements ) . 30 ● the company was heavily focused on reducing npas to total assets ratio to below 1.00 % and was successful in achieving this benchmark during the third quarter , with an actual ratio of 0.80 % as of september 30 . 2015. the company continued to see improvement in this ratio in the fourth quarter , with an actual ratio of 0.74 % as of december 31 , 2015. the reduction of npas throughout the year was primarily due to oreo sales and nonaccrual loan paydowns . the company remains committed to further improving asset quality in 2016 . ● management continues to focus on reducing the company 's reliance on wholesale funding . the balance sheet restructuring that was executed in the second quarter lowered the company 's reliance significantly . continued restructuring in the fourth quarter of 2015 helped further reduce the company 's reliance on wholesale funding to 20 % ( down from 30 % at december 31 , 2014 ) . the restructuring executed in the 1 st quarter of 2016 ( as described in note 25 of the consolidated financial statements ) has further reduced the company 's reliance on wholesale funding . management continues to closely evaluate opportunities for further reduction in wholesale funding . ● correspondent banking continues to be a core line of business for the company . the company is competitively positioned with experienced staff , software systems and processes to continue growing in the three states currently served – iowa , illinois and wisconsin . the company acts as the correspondent bank for 172 downstream banks with total noninterest bearing deposits of $ 286.9 million as of december 31 , 2015. average noninterest bearing deposit balances for 2015 totaled $ 343.1 million . this line of business provides a strong source of noninterest bearing deposits , fee income and high-quality loan participations . ● the company provides commercial leasing services through its wholly-owned subsidiary , m2 lease funds , which has lease specialists in iowa , illinois , wisconsin , minnesota , south carolina , north carolina , georgia , florida and pennsylvania . historically , this portfolio has been high yielding , with an average gross yield in 2015 approximating 8.2 % . this portfolio has also shown strong asset quality throughout its history and the company intends to grow this portfolio to 10 % of consolidated assets . ● sba and usda lending is a specialty lending area on which the company has focused . once these loans are originated , the government-guaranteed portion of the loan can be sold to the secondary market for premiums . the company intends to make this a more significant and consistent source of noninterest income . in 2014 , the company hired a government-guaranteed lending specialist in the qcbt market . also in 2014 , in the crbt market , the company added a usda relationship manager to crbt 's specialty lending team . ● as a result of the historically low interest rate environment , the company is focused on executing interest rate swaps on select commercial loans . the interest rate swaps allow the commercial borrowers to pay a fixed interest rate while the company receives a variable interest rate as well as an upfront fee dependent on the pricing . management believes that these swaps help position the company more favorably for rising rate environments . the company will continue to review opportunities to execute these swaps at all of its subsidiary banks , as the circumstances are appropriate for the borrower and the company . ● wealth management is another core line of business for the company and includes a full range of products , including trust services , brokerage and investment advisory services , asset management , estate planning and financial planning . as of december 31 , 2015 the company had $ 1.73 billion of total financial assets in trust ( and related ) accounts and $ 628 million of total financial assets in brokerage ( and related ) accounts . story_separator_special_tag the company continues to monitor and evaluate both prepayment and debt restructuring opportunities within the wholesale funding portion of the balance sheet , as executing on such a strategy could potentially increase nim at a much quicker pace than holding the debt until maturity . 34 the company 's average balances , interest income/expense , and rates earned/paid on major balance sheet categories are presented in the following table : replace_table_token_17_th ( 1 ) interest earned and yields on nontaxable investment securities and loans are determined on a tax equivalent basis using a 35 % tax rate in each year presented . ( 2 ) loan/lease fees are not material and are included in interest income from loans/leases receivable in accordance with accounting and regulatory guidance . ( 3 ) non-accrual loans/leases are included in the average balance for gross loans/leases receivable in accordance with accounting and regulatory guidance . 35 the company 's components of change in net interest income are presented in the following table : replace_table_token_18_th ( 1 ) the column `` inc/ ( dec ) from prior year '' is segmented into the changes attributable to variations in volume and the changes attributable to changes in interest rates . the variations attributable to simultaneous volume and rate changes have been proportionately allocated to rate and volume . ( 2 ) interest earned and yields on nontaxable investment securities and loans are determined on a tax equivalent basis using a 35 % tax rate in each year presented . ( 3 ) loan/lease fees are not material and are included in interest income from loans/leases receivable in accordance with accounting and regulatory guidance . the company 's operating results are also impacted by various sources of noninterest income , including trust department fees , investment advisory and management fees , deposit service fees , gains from the sales of residential real estate loans and government guaranteed loans , earnings on boli , and other income . offsetting these items , the company incurs noninterest expenses which include salaries and employee benefits , occupancy and equipment expense , professional and data processing fees , fdic and other insurance expense , loan/lease expense , and other administrative expenses . the company 's operating results are also affected by economic and competitive conditions , particularly changes in interest rates , income tax rates , government policies , and actions of regulatory authorities . 36 critical accounting policies the company 's financial statements are prepared in accordance with accounting principles generally accepted in the united states of america . the financial information contained within these statements is , to a significant extent , financial information that is based on approximate measures of the financial effects of transactions and events that have already occurred . allowance for loan and lease losses based on its consideration of accounting policies that involve the most complex and subjective decisions and assessments , management has identified its most critical accounting policy to be that related to the allowance . the company 's allowance methodology incorporates a variety of risk considerations , both quantitative and qualitative , in establishing an allowance that management believes is appropriate at each reporting date . quantitative factors include the company 's historical loss experience , delinquency and charge-off trends , collateral values , governmental guarantees , payment status , changes in nonperforming loans/leases , and other factors . quantitative factors also incorporate known information about individual loans/leases , including borrowers ' sensitivity to interest rate movements . qualitative factors include the general economic environment in the company 's markets , including economic conditions throughout the midwest , and in particular , the economic health of certain industries . size and complexity of individual credits in relation to loan/lease structure , existing loan/lease policies and pace of portfolio growth are other qualitative factors that are considered in the methodology . as the company adds new products and increases the complexity of its loan/lease portfolio , it enhances its methodology accordingly . management may report a materially different amount for the provision in the statement of operations to change the allowance if its assessment of the above factors were different . the discussion regarding the company 's allowance should be read in conjunction with the company 's financial statements and the accompanying notes presented elsewhere in this form 10-k , as well as the portion of this md & a section entitled “ financial condition – allowance for estimated losses on loans/leases. ” although management believes the level of the allowance as of december 31 , 2015 was adequate to absorb losses inherent in the loan/lease portfolio , a decline in local economic conditions , or other factors , could result in increasing losses that can not be reasonably predicted at this time . other-than-temporary impairment the company 's assessment of otti of its securities portfolio is another critical accounting policy as a result of the level of judgment required by management . available-for-sale and held to maturity securities are evaluated to determine whether declines in fair value below their cost are other-than-temporary . in estimating otti losses , management considers a number of factors including , but not limited to : ( 1 ) the length of time and extent to which the fair value has been less than amortized cost ; ( 2 ) the financial condition and near-term prospects of the issuer ; ( 3 ) the current market conditions ; and ( 4 ) the intent of the company to not sell the security prior to recovery and whether it is not more-likely-than-not that the company will be required to sell the security prior to recovery . the discussion regarding the company 's assessment of otti should be read in conjunction with the company 's financial statements and the accompanying notes presented elsewhere in this form 10-k. 37 results of operations for the years ended december 31 , 201 5 , 201 4 , and 201 3 interest income for 2015 , interest income grew $ 4.0 million , or 5 % .
| executive overview the company reported net income of $ 16.9 million for the year ended december 31 , 2015 , and diluted eps of $ 1.61. for the same period in 2014 , the company reported net income of $ 15.0 million , and diluted eps of $ 1.72 , after preferred stock dividends of $ 1.1 million . by comparison , for 2013 , the company reported net income of $ 14.9 million , and diluted eps of $ 2.08 , after preferred stock dividends of $ 3.2 million . the fiscal year ended december 31 , 2015 was highlighted by several significant items : ● a successful common stock offering ( described in note 12 to the consolidated financial statements ) ; ● several balance sheet restructurings ( described in notes 9 , 10 and 12 to the consolidated financial statements ) ; ● net interest margin improvement of 22 basis points , year-over-year , primarily attributable to the balance sheet restructurings ; ● loan and lease growth of 10.3 % for the year ; ● strong gains on the sale of government guaranteed portions of loans and swap fee income – totaling $ 3.0 million for the year ; and ● improved asset quality metrics , with a reduction in npas as a percentage of total assets from 1.31 % at december 31 , 2014 to 0.74 % at december 31 , 2015. following is a table that represents the various net income measurements for the years ended december 31 , 2015 , 2014 , and 2013. replace_table_token_12_th * the increase in the weighted average common and common equivalent shares outstanding was primarily due to the common stock issuance discussed in note 12 to the consolidated financial statements .
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our primary served markets are manufacturers of capital equipment for semiconductor manufacturing , electronic thin films , life and health sciences , process and industrial technologies , as well as research and defense . acquisition of newport corporation on april 29 , 2016 , we completed our acquisition of newport corporation ( newport ) pursuant to an agreement and plan of merger dated as of february 22 , 2016 ( the newport merger ) . at the effective time of the newport merger , each share of newport 's common stock issued and outstanding as of immediately prior to the effective time of the newport merger was converted into the right to receive $ 23.00 in cash , without interest and subject to deduction for any required withholding tax . we paid to the former newport stockholders aggregate consideration of approximately $ 905 million , excluding related transaction fees and expenses , and repaid approximately $ 93 million of newport 's u.s. indebtedness outstanding as of immediately prior to the effective time of the newport merger . we funded the payment of the aggregate consideration with a combination of our available cash on hand of approximately $ 240 million and the proceeds from the senior secured term loan facility of $ 780 million described below . newport is a global supplier of advanced-technology products and systems to customers in the scientific research and defense/security , microelectronics , life and health sciences and industrial manufacturing markets . effective april 29 , 2016 , in conjunction with our acquisition of newport , we changed the structure of our reportable segments based upon our organizational structure and how our chief operating decision maker ( codm ) utilizes information provided to allocate resources and make decisions . our two reportable segments are the vacuum & analysis segment and the light & motion segment . the vacuum & analysis segment represents the legacy mks business and the light & motion segment represents the legacy newport business . the vacuum & analysis segment provides a broad range of instruments , components , subsystems and software which are derived from our core competencies in pressure measurement and control , flow measurement and control , gas and vapor delivery , gas composition analysis , residual gas analysis , leak detection , control and information technology , ozone generation and delivery , rf & dc power , reactive gas generation and vacuum technology . the light & motion segment provides a broad range of instruments , components and subsystems which are derived from our core competencies in lasers , photonics and optics . we have a diverse base of customers and our primary served markets are manufacturers of capital equipment for semiconductor manufacturing , electronic thin films , life and health sciences , process and industrial technologies , as well as research and defense . approximately 58 % , 69 % and 70 % of our net revenues for the years 2016 , 2015 and 2014 , respectively , were from sales to semiconductor capital equipment manufacturers and semiconductor device manufacturers . as a result of our acquisition of newport , we estimate that sales to semiconductor capital equipment manufacturers and semiconductor device manufacturers could account for approximately 50 % of our total sales in future periods . approximately 42 % , 31 % and 30 % of our net revenues in the years 2016 , 2015 and 2014 , respectively , were from other advanced manufacturing applications . these include , but are not limited to , thin films , life and health sciences , process and industrial technologies , as well as research and defense . 34 net revenues from semiconductor capital equipment manufacture and semiconductor device manufacture customers increased by $ 186 million or 33 % in 2016 compared to 2015 and increased $ 17 million or 3 % in 2015 compared to 2014. the increase in 2016 compared to 2015 is attributed to net semiconductor revenues from the newport merger of $ 103 million and net semiconductor revenues from the legacy mks business ( vacuum & analysis segment ) , which increased $ 83 million or 15 % in 2016 compared to 2015. the semiconductor capital equipment industry is subject to rapid demand shifts , which are difficult to predict , and we are uncertain as to the timing or extent of future demand or any future weakness in the semiconductor capital equipment industry . our net revenues from customers in other advanced markets , which exclude semiconductor capital equipment and semiconductor device manufacture customers , increased by $ 296 million or 118 % in 2016 compared to 2015 and increased $ 15 million or 6 % in 2015 compared to 2014. the increase in 2016 compared to 2015 is primarily attributed to revenues from customers in other advanced markets from the newport merger of $ 320 million . this increase is offset by a decrease in net revenues from customers in other advanced markets from the legacy mks business ( vacuum & analysis segment ) of $ 24 million or 9 % , mainly related to the general industrial , medical and solar markets . revenues from customers in other advanced markets are made up of many different markets , including general industrial , life sciences , defense , research and solar . some of these markets are project-based and our revenues can fluctuate quarter to quarter . a significant portion of our net revenues are from sales to customers in international markets . for the years ended december 31 , 2016 , 2015 and 2014 , international net revenues accounted for approximately 48 % , 44 % and 43 % of our total net revenues , respectively . a significant portion of our international net revenues were in korea , japan and israel . we expect that international net revenues will continue to represent a significant percentage of our total net revenues . story_separator_special_tag we continuously monitor our customers ' credit worthiness , and use our judgment in establishing a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified . while such credit losses have historically been within our expectations and the provisions established , there is no assurance that we will continue to experience the same credit loss rates that we have in the past . a significant change in the liquidity or financial position of our customers could have a material adverse impact on the collectability of accounts receivable and our future operating results . inventory . we value our inventory at the lower of cost ( first-in , first-out method ) or market . we regularly review inventory quantities on hand and record a provision to write-down excess and obsolete inventory to its estimated net realizable value , if less than cost , based primarily on our estimated forecast of product demand . once our inventory value is written-down and a new cost basis has been established , the inventory value is not increased due to demand increases . demand for our products can fluctuate significantly . a significant increase in the demand for our products could result in a short-term increase in the cost of inventory purchases as a result of supply shortages or a decrease in the cost of inventory purchases as a result of volume discounts , while a significant decrease in demand could result in an increase in the charges for excess inventory quantities on hand . in addition , our industry is subject to technological change , new product development and product technological 36 obsolescence that could result in an increase in the amount of obsolete inventory quantities on hand . therefore , any significant unanticipated changes in demand or technological developments could have a significant impact on the value of our inventory and our reported operating results . for 2016 , 2015 and 2014 , our charges for excess and obsolete inventory totaled $ 16.0 million , $ 13.6 million and $ 12.1 million , respectively . warranty costs . we provide for the estimated costs to fulfill customer warranty obligations upon the recognition of the related revenue . we provide warranty coverage for our products for periods ranging from 12 to 36 months , with the majority of our products for periods ranging from 12 to 24 months . short-term accrued warranty obligations , which expire within one year , are included in other current liabilities and long-term accrued warranty obligations are included in other liabilities in the consolidated balance sheet . we estimate the anticipated costs of repairing our products under such warranties based on the historical costs of the repairs and any known specific product issues . the assumptions we use to estimate warranty accruals are re-evaluated periodically in light of actual experience and , when appropriate , the accruals are adjusted . our determination of the appropriate level of warranty accrual is based upon estimates . should product failure rates differ from our estimates , actual costs could vary significantly from our expectations . defective products will be either repaired or replaced , generally at our option , upon meeting certain criteria . pension plans . several of our non-u.s. subsidiaries have defined benefit pension plans covering substantially all full-time employees of those subsidiaries . some of the plans are unfunded , as permitted under the plans and applicable laws . for financial reporting purposes , the calculation of net periodic pension costs is based upon a number of actuarial assumptions , including a discount rate for plan obligations , an assumed rate of return on pension plan assets and an assumed rate of compensation increase for employees covered by the plan . all of these assumptions are based upon our judgment , considering all known trends and uncertainties . actual results that differ from these assumptions would impact future expense recognition and the cash funding requirements of our pension plans . stock-based compensation expense . we record compensation expense for all share-based compensation awards to employees and directors based upon the estimated fair market value of the underlying instrument . accordingly , share-based compensation cost is measured at the grant date , based upon the fair value of the award . we typically issue restricted stock units ( rsus ) as stock-based compensation . we also provide employees the opportunity to purchase shares through an employee stock purchase plan ( espp ) . for rsus , the fair value is the stock price on the date of grant . we estimate the fair value of stock appreciation rights and shares issued under our espp , using the black scholes pricing model , which is affected by our stock price as well as assumptions regarding a number of complex and subjective variables . these variables include our expected stock price volatility over the term of the awards , expected life , risk free interest rate and expected dividends . management determined that blended volatility , a combination of historical and implied volatility , is more reflective of market conditions and a better indicator of expected volatility than historical or implied volatility alone . we are also required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates . certain rsus involve stock to be issued upon the achievement of performance conditions ( performance shares ) under our stock incentive plans . such performance shares become available subject to time-based vesting conditions if , and to the extent that , financial or operational performance criteria for the applicable period are achieved . accordingly , the number of performance shares earned will vary based on the level of achievement of financial or operational performance objectives for the applicable period . until such time that our performance can ultimately be determined , each quarter we estimate the number of performance shares to be earned based on an evaluation of the probability of achieving the performance objectives .
| results of operations the following table sets forth , for the periods indicated , the percentage of total net revenues of certain line items included in our consolidated statements of operations and comprehensive income data : replace_table_token_5_th year ended december 31 , 2016 , compared to 2015 and 2014 net revenues replace_table_token_6_th product revenues increased $ 436.9 million during 2016 compared to 2015. this increase was primarily attributed to the newport merger , as sales by newport accounted for product revenues of $ 387.1 million during 2016. product revenues increased for our legacy mks business ( vacuum & analysis segment ) by $ 49.8 million during 2016 , compared to 2015 , primarily due to an increase in product revenues from our semiconductor capital equipment and semiconductor device manufacture customers of $ 71.3 million , primarily due to volume , offset by a decrease in product revenues from our other advanced markets of $ 21.5 million , primarily related to volume decreases in the solar , thin film and data storage markets . product revenues increased $ 23.3 million during 2015 compared to 2014. product revenues related to our semiconductor capital equipment manufacturer and semiconductor device manufacturer customers increased by 40 $ 9.4 million in 2015 compared to 2014 , mainly as a result of volume increases . our product revenues for all other markets which exclude semiconductor capital equipment and semiconductor device product applications , increased by $ 13.9 million in 2015 compared to 2014. the increase in our non-semiconductor markets was primarily attributed to volume increases of $ 13.2 million in our solar market and $ 12.3 million in our data storage market . these increases were partially offset by a decrease of $ 11.8 million in our general industrial markets . service revenues consisted mainly of fees for services related to the repair of our products , software license and maintenance , installation services and training . service revenues increased $ 44.9
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on a constant currency basis , 37 infusion consumables revenue was comparable at $ 474.0 million for 2020 , as the full year impact of foreign currency was negligible . infusion consumables revenue decreased in 2019 , as compared to 2018. the decrease was mostly driven by foreign exchange rates . on a constant currency basis , infusion consumables revenue would have been $ 485.8 million for 2019 , an increase of $ 2.8 million or 0.6 % , as compared to 2018. infusion systems the following table summarizes our total infusion systems revenue ( in millions , except percentages ) : replace_table_token_8_th infusion systems revenue increased in 2020 , as compared to 2019. the increase in revenue was primarily due to high demand for our infusion pumps during the covid-19 pandemic , offset partially by lower demand for our dedicated infusion sets and losses of our non-core ambulatory pump business . on a constant currency basis infusion systems revenue in 2020 would have been $ 364.7 million , an increase of $ 36.4 million or 11.1 % , as compared to 2019. infusion systems revenue decreased in 2019 , as compared to 2018. the decrease in revenue was primarily due to the impact of exchange rates and losses of our non-core ambulatory and patient controlled analgesia pumps business . on a constant currency basis infusion systems revenue in 2019 would have been $ 338.6 million , a decrease of $ 16.9 million or 4.8 % , as compared to 2018. iv solutions the following table summarizes our total iv solutions revenue ( in millions , except percentages ) : replace_table_token_9_th iv solutions sales decreased in 2020 , as compared to 2019 , due to lower contract manufacturing sales to pfizer and higher sales in the first quarter of 2019 to non-contracted customers . iv solutions sales decreased in 2019 , as compared to 2018. supply constraints at our competitors beginning in the second quarter of 2017 and continuing through 2018 caused some temporary customer purchases and stock-up of iv solutions in 2018. these market shortages temporarily drove up the demand for our product during the latter part of 2017 , in 2018 and during the first part of 2019. the temporary increase in iv solutions sales that we had as a result of competitor supply constraints normalized in mid-2019 as customers returned to their original contract supplier . critical care the following table summarizes our total critical care revenue ( in millions , except percentages ) : replace_table_token_10_th critical care revenue increased in 2020 , as compared to 2019 , primarily as a result of growth in the asia region and improved manufacturing capacity . critical care revenue decreased in 2019 , as compared to 2018 , primarily due to manufacturing constraints . 38 gross profits gross profits for 2020 , 2019 and 2018 were 36.3 % , 37.3 % , and 40.7 % , respectively . the decrease in gross profit in 2020 , as compared to 2019 was primarily due to lower iv solutions manufacturing volumes and unfavorable product mix as a result of lower demand for our consumables products during the covid-19 pandemic . the decrease in gross profit in 2019 , as compared to 2018 was primarily due to the slowdown in manufacturing of iv solutions and additional supply chain costs related to higher than optimal inventory levels . in 2019 , we also recorded a one-time supply chain inventory optimization charge of $ 16.3 million for the initial ramp down of iv solution production to align supply to market demand . selling , general and administrative ( `` sg & a '' ) expenses the following table summarizes our sg & a expenses ( in millions , except percentages ) : replace_table_token_11_th consolidated sg & a expenses increased in 2020 , as compared to 2019. dealer fees increased $ 9.3 million , depreciation and amortization expense increased $ 7.1 million , compensation expense increased $ 5.5 million , and stock compensation increased $ 2.0 million . offsetting these expense increases was a $ 6.3 decrease in bad debt expense , a $ 6.3 million decrease in travel expenses , a $ 3.7 million decrease in consulting expenses , and a $ 2.8 million decrease in sales and marketing expenses . dealer fees increased due to a change to a distribution model from a direct model in canada and an increase in revenue from distributors . depreciation and amortization expense increased primarily as a result of the increase in amortization base due to the november 2019 acquisition of pursuit . compensation expense increased as a result of lower incentive compensation recognized in the prior year due to results below performance targets . stock compensation increased in the current year due to a change in the number of performance shares estimated to vest on one of our non-executive performance awards . bad debt expense is estimated based on an analysis of the expected losses on the accounts receivables at the reporting date , which varies from period-to-period due to the quality of those receivables . travel expenses decreased in the current year , as compared to prior year , due to travel restrictions in response to covid-19 . consulting expense was higher in 2019 due to charges incurred related to tax compliance and it infrastructure expenses . sales and marketing expenses decreased due to the impact of covid-19 on trade shows , conferences , and related expenses . consolidated sg & a expenses decreased in 2019 , as compared to 2018. consulting expenses decreased $ 33.9 million , compensation expense decreased $ 17.9 million , legal expense decreased $ 3.8 million , marketing expenses decreased $ 3.4 million , information technology decreased $ 3.3 million , stock based compensation decreased $ 3.2 million and travel expenses decreased $ 2.8 million . partially offsetting these decreases was a $ 10.6 million increase in depreciation and amortization and a $ 7.9 million increase in bad debt and warranty expense . story_separator_special_tag in 2020 , the other income , net was primarily related to interest income of $ 3.7 million , miscellaneous income , net of $ 2.8 million and gain from the disposal of property , plant and equipment of $ 1.8 million , which was mostly offset by $ 7.2 million in foreign exchange losses incurred as a result of the strengthening of the u.s. dollar from the impact of covid-19 during the first half of the year . in 2019 , other income , net was primarily due to interest income of $ 6.8 million related to our banking and investment accounts . in 2018 , other expense , net included $ 8.1 million of foreign exchange losses and a $ 3.9 million loss on disposal of or write-off of property , plant and equipment offset by $ 5.4 million of interest income . income taxes income taxes were accrued at an estimated annual effective tax rate of 11 % , 12 % and ( 29 % ) in 2020 , 2019 and 2018 , respectively . the effective tax rate in 2020 differs from the federal statutory rate of 21 % principally because of the effect of the mix of u.s. and foreign incomes , state income taxes , global intangible low-taxed income ( `` gilti '' ) , foreign-derived intangible income ( `` fdii '' ) and tax credits . the effective tax rate in 2020 included a tax benefit of $ 5.3 million related to the excess tax benefits recognized on stock option exercises and the vesting of restricted stock units during the period . the effective tax rate for 2020 also included u.s. federal and state return-to-provision adjustments net of related reserve changes for the year ended december 31 , 2019 of $ 3.8 million tax benefit primarily due to changes in estimates for gilti , fdii , and related foreign tax credits . the effective tax rate in 2019 differs from the federal statutory rate of 21 % principally because of the effect of the mix of u.s. and foreign incomes , state income taxes , gilti and tax credits . the effective tax rate for 2019 included a tax benefit of $ 9.6 million related to the excess tax benefits recognized on stock option exercises and the vesting of restricted stock units during the period . the effective tax rate for 2019 was also impacted by the repatriation of certain intellectual property and assets from a liquidation of one of our foreign subsidiaries to the u.s. parent . in accordance with the changes to the accounting for income tax effects of such intra-entity transfers of assets , we recorded a net tax benefit of $ 3.8 million related to the liquidation . lastly , the effective tax rate during 2019 included a tax expense of $ 2.2 million related to return-to-provision adjustments for the year ended december 31 , 2018 primarily due to changes in estimates for our u.s. gilti inclusion . the effective tax rate in 2018 differs from the federal statutory rate of 21 % principally because of the effect of the mix of u.s. and foreign incomes , state income taxes and tax credits . the effective tax rate for 2018 included a tax benefit of $ 12.6 million related to the excess tax benefits recognized on stock option exercises and the vesting of restricted stock units during the period . liquidity and capital resources introduction our primary sources of cash are cash flows from operating activities , proceeds from the exercise of employee options and borrowings under our credit facility ( as defined above ) . our primary uses of cash are to meet working capital requirements , finance capital expenditures and acquisitions along with acquisition-related incremental transaction and integration costs . during 2020 , our cash , cash equivalents and short-term investment securities increased by $ 118.1 million from $ 292.6 million at december 31 , 2019 to $ 410.8 million at december 31 , 2020. our cash provided by operations was partially offset by purchases of property and equipment and cash taxes paid by us on behalf of employees related to net share settlement of their equity awards . 41 future cash flows short-term our five-year $ 150 million credit facility provides us with fast , flexible funding for future acquisition and operational needs . our short-term investment portfolio is invested in corporate bonds and our primary investment goal is capital preservation . while we can provide no assurances , we estimate that our capital expenditures in 2021 will approximate $ 75 million to $ 85 million . we anticipate making additional investments in machinery and equipment in our manufacturing operations in costa rica , the u.s. and mexico to support new and existing products and in infusion pumps that get placed with customers outside the u.s. we expect to use our cash and cash equivalents to fund our capital purchases . amounts of spending are estimates and actual spending may substantially differ from those amounts . we believe that our existing cash , cash equivalents along with funds expected to be generated from future operations will provide us with sufficient funds to finance our current operations for the next twelve months . long-term our long-term liquidity needs include capital expenditures related to the expansion and maintenance of our business and potential acquisitions in accordance with our growth strategy . we are unable to project with certainty whether our long-term cash flow from operations and amounts available to us under our credit facility will be sufficient to fund our future capital expenditures and acquisitions as they arise . in the event that we experience illiquidity in our investment securities , downturns or cyclical fluctuations in our business that are more severe or longer than anticipated or if we fail to achieve anticipated revenue and expense levels , we may need to obtain or seek alternative sources of capital or financing , and we can provide no assurances that the terms of such capital or financing will be available to us on favorable terms , if at all .
| business overview and highlights we are one of the world 's leading pure-play infusion therapy companies with global operations and a wide-ranging product portfolio that includes iv solutions , iv smart pumps with pain management and safety software technology , dedicated and nondedicated iv sets and needlefree connectors designed to help meet clinical , safety and workflow goals . in addition , we manufacture automated pharmacy iv compounding systems with workflow technology , closed system transfer devices for preparing and administering hazardous iv drugs and cardiac monitoring systems for critically ill patients . covid-19 pandemic as a result of the covid-19 pandemic , our non-essential offices and facilities , including our corporate headquarters are closed to non-essential employees . our manufacturing , distribution , and pump service facilities are operating under our business continuity plan due to the need for our critical healthcare products , however , we have taken certain precautionary measures including the following to maximize the safety of our employees and to mitigate disruption to our operations : implemented physical distancing measures ; enhanced hygiene protocols and increased frequency of cleaning procedures ; acquired additional personal protective equipment ; developed contingency plans and protocols to assess employee illness ; helped employees with childcare issues due to school and daycare closures ; implemented covid-19 temperature screening for employees entering our manufacturing and distribution facilities ; and initiated a visitor pre-entry questionnaire to limit potential exposure in our facilities . during the first quarter in 2020 , as a precautionary measure in response to market uncertainty driven by covid-19 , we preemptively increased our liquidity by borrowing $ 150.0 million under our senior secured revolving credit facility ( `` credit facility '' ) .
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2. audit-related services are for assurance and related services that are traditionally performed by an independent registered public accounting firm , including due diligence related to mergers and acquisitions , employee benefit plan audits , and special procedures required to meet certain regulatory requirements . 3. tax services include all services performed by an independent registered public accounting firm 's tax personnel except those services specifically related to the audit of the financial statements , and includes fees in the areas of tax compliance , tax planning , and tax advice . 4. other fees are those associated with services not captured in the other categories . the company generally does not request such services from our independent registered public accounting firm . 41 prior to engagement , the audit committee pre-approves these services by category of service . the fees are budgeted and the audit committee requires our independent registered public accounting firm and management to report actual fees versus the budget periodically throughout the year by category of service . during the year , circumstances may arise when it may become necessary to engage our independent registered public accounting firm for additional services not contemplated in the original pre-approval . in those instances , the audit committee requires specific pre-approval before engaging our independent registered public accounting firm . the audit committee may delegate pre-approval authority to one or more of its members . the member to whom such authority is delegated must report , for informational purposes only , any pre-approval decisions to the audit committee at its next scheduled meeting . 42 part i v item 15. exhibits , financial statement schedules ( a ) ( 1 ) , ( 2 ) financial statements the financial statements and financial statement schedules listed on page f-1 of this document are filed as part of this filing . ( a ) ( 3 ) exhibits the following exhibits are filed as part of this report : exhibit no . description 3.1 certificate of incorporation of catasys , inc. , filed with the secretary of state of the state of delaware on september 29 , 2003 , incorporated by reference to exhibit of the same number of catasys inc. 's form 8-k filed with the securities and exchange commission on september 30 , 2003 . 3.2 certificate of amendment to certificate of incorporation of catasys , inc. , incorporated by reference to exhibit of the same number to catasys , inc. 's annual report on form 10-k filed with the securities and exchange commission for the year ended december 31 , 2010 . 3.3 certificate of amendment , as corrected by the certificate of correction , to certificate of incorporation of catasys , inc. , incorporated by reference to exhibit of the same number to catasys , inc 's registration statement on form s-1/a filed with securities and exchange commission on september 9 , 2011 . 3.4 certificate of amendment of the certificate of incorporation of catasys , inc. , incorporated by reference to exhibit 3.1 of catasys , inc. 's current report on form 8-k filed with the securities and exchange commission on august 10 , 2012 . 3.5 certificate of amendment of the certificate of incorporation of catasys , inc. , incorporated by reference to exhibit 3.1 of catasys , inc. 's current report on form 8-k filed with the securities and exchange commission on may 7 , 2013 . 3.6 by-laws of catasys , inc. , a delaware corporation , incorporated by reference to exhibit of the same number of catasys , inc. 's form 8-k filed with the securities and exchange commission on september 30 , 2003 . 4.1 specimen common stock certificate , incorporated by reference to exhibit of the same number to catasys inc. 's annual report on form 10-k filed with the securities and exchange commission for the year ended december 31 , 2005 . 4.2 form of common stock purchase warrant incorporated by reference to exhibit 4.2 of catasys , inc. 's form 8-k filed with the securities and exchange commission on july 31 , 2015 . 4.3 form of 12 % original issue discount convertible debenture due january 18 , 2016 incorporated by reference to exhibit 4.1 of catasys , inc. 's form 8-k filed with the securities and exchange commission on july 31 , 2015 . 4.4 form of 8 % promissory note , dated july 22 , 2015 , incorporated by reference to exhibit 4.1 of catasys , inc. 's form 8-k filed with the securities and exchange commission on july 24 , 2015 . 4.5 form on common stock purchase warrant incorporated by reference to exhibit 4.2of catasys , inc 's form 8-k filed with the securities and exchange commission on april 21 , 2015 . 4.6 form of 12 % original issue discount convertible debenture due january 18 , 2016 incorporated by reference to exhibit 4.1 of catasys , inc 's form 8-k filed with the securities and exchange commission on april 21 , 2015 . 4.7 form of warrant incorporated by reference to exhibit 4.1 of catasys , inc. 's current report on form 8-k filed with story_separator_special_tag forward-looking statements this annual report on form 10-k contains forward-looking statements that involve risks and uncertainties . our actual results may differ materially from those discussed due to factors such as , among others , limited operating history , difficulty in developing , exploiting and protecting proprietary technologies , intense competition and substantial regulation in the healthcare industry . additional information concerning factors that could cause or contribute to such differences can be found in the following discussion , as well as in item 1 . a . - “ risk factors . story_separator_special_tag if we do not obtain additional capital , there is a significant doubt as to whether we can continue to operate as a going concern and we will need to curtail or cease operations or seek bankruptcy relief . if we discontinue operations , we may not have sufficient funds to pay any amounts to our stockholders . off-balance sheet arrangements as of december 31 , 2015 , we had no off-balance sheet arrangements . critical accounting estimates the discussion and analysis of our financial condition and results of operations is based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) . u.s. gaap requires management to make estimates , judgments and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses , and the disclosure of contingent assets and liabilities . we base our estimates on 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 may not be readily apparent from other sources . on an on-going basis , we evaluate the appropriateness of our estimates and we maintain a thorough process to review the application of our accounting policies . our actual results may differ from these estimates . 24 we consider our critical accounting estimates to be those that ( 1 ) involve significant judgments and uncertainties , ( 2 ) require estimates that are more difficult for management to determine , and ( 3 ) may produce materially different results when using different assumptions . we have discussed these critical accounting estimates , the basis for their underlying assumptions and estimates and the nature of our related disclosures herein with the audit committee of our board of directors . we believe our accounting policies related to share-based compensation expense , the impairment assessments for intangible assets , estimation of the fair value of warrant liabilities , and the estimation of the fair value of our derivative liabilities involve our most significant judgments and estimates that are material to our consolidated financial statements . they are discussed further below . share-based compensation expense we account for the issuance of stock , stock options and warrants for services from non-employees based on an estimate of the fair value of options and warrants issued using the black-scholes pricing model . this model 's calculations include the exercise price , the market price of shares on grant date , weighted average assumptions for risk-free interest rates , expected life of the option or warrant , expected volatility of our stock and expected dividend yield . the amounts recorded in the financial statements for share-based compensation expense could vary significantly if we were to use different assumptions . for example , the assumptions we have made for the expected volatility of our stock price have been based on the historical volatility of our stock , measured over a period generally commensurate with the expected term . if we were to use a different volatility than the actual volatility of our stock price , there may be a significant variance in the amounts of share-based expense from the amounts reported . the weighted average expected option term for the twelve months ended december 31,2015 and 2014 reflects the application of the simplified method set out in sec staff accounting bulletin no . 107 , which defines the life as the average of the contractual term of the options and the weighted average vesting period for all option tranches . from time to time , we retain terminated employees as part-time consultants upon their resignation from the company . because the employees continue to provide services to us , their options continue to vest in accordance with the original terms . due to the change in classification of the option awards , the options are considered modified at the date of termination . the modifications are treated as exchanges of the original awards in return for the issuance of new awards . at the date of termination , the unvested options are no longer accounted for as employee awards and are accounted for as new non-employee awards . the accounting for the portion of the total grants that have already vested and have been previously expensed as equity awards is not changed . there were one employee moved to consulting for the twelve months ended december 31 , 2015 , and no employees moved to consulting for the same period in 2014. the employees options were 100 % vested at the date of termination so no entry was recorded . impairment of intangible assets we have capitalized significant costs for acquiring patents and other intellectual property directly related to our products and services . we review our intangible assets for impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable . in reviewing for impairment , we compare the carrying value of such assets to the estimated undiscounted future cash flows expected from the use of the assets and or their eventual disposition . if the estimated undiscounted future cash flows are less than their carrying amount , we record an impairment loss to recognize a loss for the difference between the assets ' fair value and their carrying value . since we have not recognized significant revenue to date , our estimates of future revenue may not be realized and the net realizable value of our capitalized costs of intellectual property or other intangible assets may become impaired .
| summary of consolidated operating results loss from continuing operations before provision for income taxes for the twelve months ended december 31 , 2015 was $ 7.3 million compared with $ 27.1 million for the twelve months ended december 31 , 2014. the decrease in loss from continuing operations was primarily due to an increase in revenue of $ 675,000 and an increase in fair value of warrants of $ 31.5 million . revenues during the twelve months ended december 31 , 2015 , we have expanded our customer base and health plan populations covered under our programs , which has resulted in a significant increase in the number of patients enrolled in our programs compared with the same period in 2014. for the twelve months ended december 31 , 2015 , enrollment increased by more than 121 % over the same period in 2014. recognized revenue increased by $ 675,000 , or 33 % for the year ended december 31 , 2015 , compared with the same periods in 2014 , respectively . we reserve a portion , and in some cases all , of the revenue related to these contracts as the revenue is subject to performance guarantees , or in the instance of case rates received upon enrollment and other fees in advance , recognized ratably over the period of enrollment . deferred revenue increased by $ 1.3 million since december 31 , 2014. operating expenses cost of healthcare services cost of healthcare services consists primarily of salaries related to our care coaches , community care coordinators , healthcare provider claims payments to our network of physicians and psychologists , and fees charged by our third party administrators for processing these claims .
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as the company 's historical share option exercise is limited due to a lack of sufficient data points , and does not provide a reasonable basis upon which to estimate an expected term , the expected term is derived by using the midpoint between the vesting commencement date and the contractual expiration period of the stock-based award . the expected term for options issued to non-employees is the contractual term . expected volatility since the company has limited information on the volatility of common stock due to its short trading history , the expected volatility is derived from the historical stock volatilities of comparable peer public companies within its industry that are considered to be comparable to the company 's business over a period equivalent to the expected term of the stock-based awards . risk-free interest rate the risk-free interest rate is based on the u.s. treasury yield curve in effect at the story_separator_special_tag the following discussion contains management 's discussion and analysis of our financial condition and results of operations and should be read together with the historical consolidated financial statements and the notes thereto included in part ii , item 8 consolidated financial statements and supplementary data. 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 . actual results may differ materially from those contained in any forward-looking statements . you should carefully read special note regarding forward-looking statements and part i , item 1a , risk factors. we are a clinical stage drug development company advancing targeted therapeutics for the treatment of patients with cancer . we are an ambitious oncology-focused company , oriented towards achieving the successful registration and commercialization of our product candidates . we have a world-class management team with a proven track record of success in oncology drug development and we are advancing an emerging pipeline of next generation therapies that target the dna damage response ( ddr ) network . our lead product candidate , sra737 , is a highly selective , orally bioavailable small molecule inhibitor of checkpoint kinase 1 ( chk1 ) . chk1 is a key cell cycle checkpoint and central regulator of the ddr network , a system of cellular pathways that monitor , detect and repair dna damage . in cancer cells , replication stress induced by oncogenic drivers ( e.g. , myc and ras ) combined with loss of function in tumor suppressors ( e.g. , tp53 and atm ) results in persistent dna damage and genomic instability . targeted inhibition of the remaining components of the ddr network , such as by sra737 , may be synthetically lethal to cancer cells and have utility as a monotherapy in a range of tumor indications . chk1 is also believed to facilitate tumor cell resistance to chemotherapy or radiation-induced dna damage and , as such , the combination of sra737 with these standards-of-care may provide synergistic anti-tumor activity , consistent with findings in preclinical oncology models . importantly , the oral bioavailability of sra737 may afford greater dosing flexibility for both monotherapy and combination therapy settings than is possible with intravenously administered agents . we are pursuing an innovative development plan for sra737 , which is currently being evaluated in two phase 1 clinical trials in patients with advanced cancer . the first trial is intended to evaluate sra737 's potential to induce synthetic lethality as monotherapy , while the second trial is intended to explore sra737 's potentiating effects in combination with dna-damaging chemotherapy . we successfully transferred sponsorship of these two trials in january 2017 and subsequently submitted protocol amendments intended to enhance both of these studies . in particular , we plan to focus enrollment on pre-selected patients predicted to most likely derive benefit from sra737 treatment based on the genetics of their tumors . a preliminary update of the sra737 clinical trials is anticipated to be available approximately by the end of 2017. concurrently , we are conducting preclinical research evaluating sra737 in combination with other ddr-targeted agents , including poly adp ribose polymerase ( parp ) inhibitors , as well as with immuno-oncology therapeutics , that may guide a potential next wave of clinical development for our asset , possibly further broadening its therapeutic utility . we are also advancing sra141 , a potent , selective and orally bioavailable small molecule inhibitor of cell division cycle 7 kinase ( cdc7 ) undergoing preclinical development . cdc7 is a key regulator of both dna replication and the ddr network , making it a compelling emerging target for the potential treatment of a broad range of tumor types . sierra oncology retains the global commercialization rights to both sra737 and sra141 . in june 2016 , we suspended the development of pnt2258 , our former lead product candidate , based on our review of the interim results from a phase 2 trial of pnt2258 . although we observed modest efficacy from 65 pnt2258 in this interim analysis , we did not view these data as robust enough to justify continued development of the drug . no further investment in pnt2258 or the underlying dnai platform is contemplated and we subsequently have closed our research facility based in plymouth , michigan , which supported these programs . since inception , we have devoted substantially all of our resources to research and development activities , including the clinical development of our former lead product candidate pnt2258 and our current product candidates sra141 and sra737 , and providing general and administrative support for these operations . we have never generated revenue and have incurred significant net losses since inception . our net losses were $ 47.9 million , $ 53.3 and $ 23.9 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively . as of december 31 , 2016 , we had an accumulated deficit of $ 582.1 million . story_separator_special_tag 67 the following table summarizes restructuring activities for the year ended december 31 , 2016 : replace_table_token_6_th other income ( expense ) , net change in fair value of preferred stock warrants our preferred stock warrants were classified as a liability on our consolidated balance sheets and , as such , were re-measured to fair value at each balance sheet date , with the corresponding gain or loss from the adjustment recorded in the consolidated statement of operations . upon the completion of the ipo , the liability on the outstanding preferred stock warrants was reclassified to additional paid-in capital in stockholders ' equity . other income other income primarily consists of interest and dividends earned on our cash and cash equivalents and short-term investments , as well as foreign currency exchange gains and losses . foreign currency exchange gains and losses relate to transactions and monetary asset and liability balances denominated in currencies other than the u.s. dollar . foreign currency gains and losses may continue to fluctuate in the future due to changes in foreign currency exchange rates . provision for income taxes provision for income taxes consists of federal and state income taxes in the united states and income taxes in canada and australia , as well as deferred income taxes and changes in related valuation allowance , reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . we did not record a provision for u.s. federal income taxes for the year ended december 31 , 2016. our tax expense relates to income taxes in canada and australia . our net u.s. deferred tax assets continue to be offset by a full valuation allowance . 68 story_separator_special_tag td width= '' 5 % '' > acquire or in-license additional product candidates and technologies ; develop additional product candidates ; hire additional clinical , scientific and management personnel ; invest in scaling our manufacturing capacity to support development and our global commercialization strategy ; seek regulatory and marketing approvals for any product candidates that we may develop ; ultimately establish a sales , marketing and distribution infrastructure to commercialize any drugs for which we may obtain marketing approval ; defend against lawsuits alleging that we violated securities laws ; maintain , expand and protect our intellectual property portfolio ; and add operational , financial and management information systems and personnel , including personnel to support our drug development , any future commercialization efforts and to operate as a public company . to fund our current operating plans , we will need to raise additional capital . our existing cash and cash equivalents will not be sufficient for us to complete development of our product candidates and , if applicable , to prepare for commercializing any product candidate that may receive approval . accordingly , we will continue to require substantial additional capital to continue our clinical development and potential commercialization activities ; however , we believe that our existing cash and cash equivalents and proceeds from our february 2017 public offering will be sufficient to fund our current operating plans through approximately mid-2019 . we can not assure that we will ever be profitable or generate positive cash flow from operating activities . however , our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties , and actual results could vary materially . the amount and timing of our future funding requirements will depend on many factors , including the pace and results of our clinical development efforts . we plan to continue to fund our current operating plans ' needs through equity financings or other arrangements . to the extent that we raise additional capital through future equity financings , the ownership interest of our 71 stockholders will be diluted , and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders . if we raise additional funds through the issuance of debt securities , these securities could contain covenants that would restrict our operations . there can be no assurance that such additional financing , if available , can be obtained on terms acceptable to us . if we are unable to obtain such additional financing , we would need to reevaluate our future operating plans . cash flows the following table summarizes our cash flows for the periods indicated : replace_table_token_9_th cash flows from operating activities in 2016 , cash used in operating activities of $ 41.2 million was attributable to a net loss of $ 47.9 million , partially offset by $ 6.5 million in non-cash charges and a net change of $ 0.2 million in our net operating assets and liabilities . the non-cash charges consisted primarily of $ 5.5 million in stock-based compensation and a $ 0.8 million in non-cash restructuring charges . in 2015 , cash used in operating activities of $ 28.3 million was attributable to a net loss of $ 53.3 million , partially offset by $ 20.8 million in non-cash charges and a net change of $ 4.2 million in our net operating assets and liabilities . the non-cash charges consisted primarily of $ 17.4 million for the change in fair value of our preferred stock warrants and $ 3.2 million in stock-based compensation . the change in operating assets and liabilities was primarily attributable to an increase in accrued liabilities of $ 5.3 million due to an increase in accrued research and development activities and headcount , partially offset by an increase in prepaid expenses of $ 1.1 million , driven by an increase in prepaid insurance and third-party manufacturing costs .
| results of operations year ended december 31 , 2016 compared to year ended december 31 , 2015 replace_table_token_7_th research and development research and development expenses increased $ 7.5 million , from $ 26.4 million in 2015 to $ 33.9 million in 2016. the increase was primarily due to a $ 7.0 million upfront fee paid to cpf for the exclusive license of sra737 , a $ 2.0 million fee due upon the successful transfer of the two ongoing clinical trials in accordance with the license agreement , and a $ 0.9 million upfront fee paid to carna biosciences , inc. ( carna ) for the exclusive license of sra141 . the remaining increase was attributable to a $ 4.5 million increase in personnel-related costs due mainly to increased headcount , of which $ 1.8 million was attributable to an increase in stock-based compensation , a $ 2.2 million restructuring charge related to the halt in investment in pnt2258 and the dnai platform , and a $ 0.7 million increase in other research costs and allocated overhead expenses primarily related to increased headcount . these increased costs were partially offset by a $ 6.7 million decrease in third-party manufacturing costs and a $ 3.1 million decrease in clinical costs primarily due to halting our investment in pnt2258 . general and administrative general and administrative expenses increased $ 4.7 million , from $ 9.5 million in 2015 to $ 14.2 million in 2016. the increase was primarily due to a $ 2.3 million increase in personnel-related costs associated mainly with increased headcount , of which $ 0.5 million was attributable to an increase in stock-based compensation .
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story_separator_special_tag adjustments relating to recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the company be unable to continue in existence . results of operations for the years ended december 31 , 2015 and 2014 revenues and gross profit replace_table_token_1_th our total revenue for the year ended december 31 , 2015 decreased 23 % , to $ 3.2 million from $ 4.1 million , when compared to the same period in 2014. this decrease is primarily attributable to : · product sales : an increase in revenue of 118 % in 2015 as compared to 2014 is attributable to the inclusion of advandx products sales subsequent to the merger , offset in part by a reduction in the sale of our argus products , as we transition from our legacy mapping products to the introduction of acuitas mdro products ; · laboratory services : a decrease in revenue of 75 % in 2015 as compared to 2014 as a result of a reduction in sales of mapping products , as we transition from our legacy mapping products to the introduction of acuitas mdro products ; and · collaboration revenue : a decrease in revenue generated under a collaboration arrangement with hitachi of 86 % in 2015 as compared to 2014 as a result of the completion of our technology development agreement with hitachi . the company expects an increase in product sales in 2016 due to the inclusion of a full year of quickfish and pna fish product sales . this increase is expected to be partially offset by a decrease in the sale of argus products . the company expects a decline in mapping products and an increase in acuitas and lighthouse products . 50 operating expenses replace_table_token_2_th the company 's total operating expenses for the year ended december 31 , 2015 increased 88 % , to $ 18.2 million from $ 9.7 million , when compared to the same period in 2014. this increase is primarily attributable to : · costs of sales : costs of product sales for the year ended december 31 , 2015 increased 177 % while costs of services decreased 30 % , when compared to the same period in 2014. the change in costs of sales is primarily attributable to the inclusion of costs of quickfish products sold along with a decrease in the cost of generating laboratory services revenue ; · research and development : an increase in expenses of $ 1.6 million , primarily due to the inclusion of $ 1.7 million of expenses related to the development of the automation of our quickfish products . the remaining expenses primarily relate to the development of the lighthouse data warehouse , portal , and antibiotic analysis and the acuitas rapid molecular diagnostics products ; · general and administrative : an increase in expenses of $ 3.5 million primarily due to salaries of $ 0.8 million , public company costs of $ 0.8 million , share-based compensation costs of $ 0.6 million , $ 0.4 million of legal costs , and $ 0.2 million of rent , along with $ 0.7 million related to recruiting , relocation , severance and other support costs ; · sales and marketing : an increase in expenses of $ 2.2 million primarily due to share-based compensation costs of $ 0.6 million clinical outcome cost benefit studies costs of $ 0.3 million , salaries of $ 0.3 million , consulting costs of $ 0.3 million , and clia pilot studies of $ 0.1 million , along with $ 0.6 million of recruiting and other support costs ; and · transaction expenses : the company incurred $ 0.5 million of transaction expenses in connection with the merger . in 2015 and 2014 , the company incurred $ 370,539 and $ 138,339 of operating expenses related to agreements with fluidigm corporation , a related party . fluidigm corporation supplies the company with its microfluidic test platform for use in manufacturing the acuitas mdro gene test ( see note 12 to the 2015 audited financial statements included elsewhere herein ) . other income ( expense ) replace_table_token_3_th other income ( expense ) for the year ended december 31 , 2015 increased to a net expense of ( $ 2.4 million ) from a net expense of ( $ 0.1 million ) in 2014. this increase was primarily the result of $ 1.5 million of non-cash interest expense related to the conversion of our convertible notes in may 2015 and the final mark-to-market adjustment related to our warrant liabilities , which were reclassified to stockholders ' equity on may 8 , 2015 when their net cash-settlement features lapsed . the company recognized a benefit for income taxes of $ 0.1 million for the year ended december 31 , 2015 ( none in 2014 ) as a result of the net deferred tax liabilities in the u.s. taxing jurisdiction acquired in the merger . 51 liquidity and capital resources at december 31 , 2015 , the company had cash and cash equivalents of $ 7.8 million , compared to $ 0.7 million at december 31 , 2014. the company raised significant funds in the first nine months of 2015 , consisting of : · $ 0.8 million in short-term notes ( in the first quarter of 2015 , $ 0.3 million of demand notes held by an entity controlled by our chief executive officer were settled as partial payment for a 2015 convertible note , and in the second quarter of 2015 , $ 0.2 million of notes from a related party were repaid in cash ) ; · $ 1.5 million through the issuance of convertible notes ; · $ 12.1 million in net proceeds from its ipo , as discussed further below ; and · $ 6.0 million in net proceeds from the issuances of common stock and senior secured promissory note tomerck ghi . story_separator_special_tag revenue is recognized when the following criteria are met : persuasive evidence of an arrangement exists ; delivery has occurred ; the selling price is fixed or determinable ; and collectability is reasonably assured . at times , the company sells products and services , or performs software development , under multiple-element arrangements with separate units of accounting ; in these situations , total consideration is allocated to the identified units of accounting based on their relative selling prices and revenue is then recognized for each unit based on its specific characteristics . when an argus system is sold without the genome builder software , total arrangement consideration is recognized as revenue when the system is delivered to the customer . ancillary performance obligations , including installation , limited customer training and limited consumables , are considered inconsequential and are combined with the argus system as one unit of accounting . when an argus system is sold with the genome builder software in a multiple-element arrangement , total arrangement consideration is allocated to the argus system and to the genome builder software ( considered multiple elements ) based on their relative selling prices . selling prices are determined based on sales of similar systems to similar customers and , where no sales have occurred , on management 's best estimate of the expected selling price relative to similar products . revenue related to the argus system is recognized when it is delivered to the customer ; revenue for the genome builder software is recognized when it is delivered to the customer . revenue is recognized for genome builder software and for consumables , when sold on a stand-alone basis , upon delivery to the customer . 53 revenue for the sales of quickfish , pna fish and xpressfish diagnostic test products is recognized upon shipment to the customer . sales are recorded net of accruals for estimated rebates , discounts and other deductions and returns . the company recognizes revenue associated with laboratory services contracts when the service has been performed and reports are made available to the customer . the company recognizes revenue associated with extended warranty service contracts over the service period in proportion to the costs expected to be incurred over that same period . the company 's funded software development arrangements generally consist of multiple elements . total arrangement consideration is allocated to the identified units of accounting based on their relative selling prices and revenue is then recognized for each unit based on its specific characteristics . when funded software development arrangements include substantive research and development milestones , revenue is recognized for each such milestone when the milestone is achieved and is due and collectible . milestones are considered substantive if all of the following conditions are met : ( 1 ) the milestone is nonrefundable ; ( 2 ) achievement of the milestone was not reasonably assured at the inception of the arrangement ; ( 3 ) substantive effort is involved to achieve the milestone ; and ( 4 ) the amount of the milestone appears reasonable in relation to the effort expended , the other milestones in the arrangement and the related risk associated with achievement of the milestone . impairment of long-lived assets property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset . recoverability measurement and estimating of undiscounted cash flows is done at the lowest possible level for which we can identify assets . if such assets are considered to be impaired , impairment is recognized as the amount by which the carrying amount of assets exceeds the fair value of the assets . definite-lived intangible assets include trademarks , developed technology and customer relationships . if any indicators were present , the company would test for recoverability by comparing the carrying amount of the asset to the net undiscounted cash flows expected to be generated from the asset . if those net undiscounted cash flows do not exceed the carrying amount ( i.e. , the asset is not recoverable ) , the company would perform the next step , which is to determine the fair value of the asset and record an impairment loss , if any . goodwill represents the excess of the purchase price for advandx over the fair values of the acquired tangible or intangible assets and assumed liabilities . the company will conduct an impairment test of goodwill on an annual basis as of october 1 of each year , and will also conduct tests if events occur or circumstances change that would , more likely than not , reduce the company 's fair value below its net equity value . share-based compensation share-based payments to employees , directors and consultants are recognized at fair value . the resulting fair value is recognized ratably over the requisite service period , which is generally the vesting period of the option . the estimated fair value of equity instruments issued to nonemployees is recorded at fair value on the earlier of the performance commitment date or the date the services required are completed . for all time-vesting awards granted , expense is amortized using the straight-line attribution method . for awards that contain a performance condition , expense is amortized using the accelerated attribution method . share-based compensation expense recognized is based on the value of the portion of stock-based awards that is ultimately expected to vest during the period . the fair value of share-based payments is estimated , on the date of grant , using the black-scholes model . option valuation models , including the black-scholes model , require the input of highly subjective estimates and assumptions , and changes in those estimates and assumptions can materially affect the grant-date fair value of an award .
| overview we are a precision medicine company using molecular diagnostics and informatics to combat infectious disease . we are developing molecular information solutions to combat infectious disease in global healthcare settings , helping to guide clinicians with more rapid information about life threatening infections , improve patient outcomes , and decrease the spread of infections caused by multidrug-resistant microorganisms . our proprietary dna tests and bioinformatics address the rising threat of antibiotic resistance by helping physicians and healthcare providers optimize patient care decisions and protect the hospital biome through customized screening and surveillance solutions . on july 14 , 2015 , opgen completed the strategic acquisition ( the “ merger ” ) of advandx , inc. and its wholly owned subsidiary advandx a/s , collectively referred to as advandx . advandx researches , develops and markets advanced in vitro diagnostic kits for the diagnosis and prevention of infectious diseases , and sells its products principally to hospitals and clinical laboratories in the united states and europe . the company acquired advandx principally to use advandx 's diagnostic capabilities with respect to mdros and leverage advandx 's relationships with hospitals and clinical laboratories to accelerate the sales of opgen 's products and services . the company 's headquarters are in gaithersburg , maryland , and its principal operations are in gaithersburg , maryland and woburn , massachusetts . the company also has operations in copenhagen , denmark . the company operates in one business segment . recent developments since inception , the company has incurred , and continues to incur , significant losses from operations . the company has funded its operations primarily through external investor financing arrangements .
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this final rule was effective on november 5 , 2018. we will adopt this guidance in the first quarter of fiscal 2020. reclassifications certain amounts story_separator_special_tag investors should read the following discussion and analysis of our financial condition and results of operations together with the section titled “ selected consolidated financial data ” and the consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including those discussed in the section titled ” risk factors ” and in other parts of this annual report on form 10-k. see also the section titled “ note regarding forward-looking statements ” in this report . our fiscal year end is january 31. overview we help innovators to build a better world with data . as data continues to grow and organizations strive to mine intelligence from data and the need for real-time analytics increases , we are focused on delivering software-defined data storage solutions that are uniquely fast and cloud-capable , enabling customers to maximize the value of data , gain competitive advantage and keep pace with cutting edge developments . our innovative data platform replaces storage systems designed for mechanical disk with all-flash systems optimized end-to-end for solid-state memory . our pure1 cloud-based support and management platform simplifies storage administration , while real-time scanning enables us to find and fix issues before they have an impact . our innovative business model replaces the traditional forklift upgrade cycle with an evergreen storage subscription model for hardware and software innovation , support and maintenance . we were incorporated in october 2009 and are headquartered in mountain view , california , with operations throughout the world . our primary offerings include our flasharray and flashblade products , inclusive of our purity operating environment ( purity oe ) software , our pure1 cloud-based management and support software , flashstack and artificial intelligence ready infrastructure ( airi ) , our joint converged infrastructure offerings , and evergreen storage service ( es2 ) , a cloud-like , storage consumption offering that enables customers to purchase on-premises or offsite-hosted private storage on a pay-per-month-per-terabyte basis , after a baseline commitment . in addition , in november 2018 , we announced the launch of our cloud data services , a suite of new cloud offerings that will enable customers to invest in a single storage architecture that unifies application deployments on-premises and on the cloud . since launching in may 2012 , our customer base has grown to over 5,800 customers , including over 40 % of the fortune 500. our customers include enterprise and commercial organizations , cloud , global systems integrators , and service providers across a diverse set of industry verticals , consumer web , education , energy , financial services , governments , healthcare , manufacturing , media , retail and telecommunications . our data services are used for a broad set of use cases , including database applications , large-scale analytics , artificial intelligence / machine learning , private and public cloud infrastructure and webscale applications , virtual server infrastructure and virtual desktop infrastructure . our data platform helps customers scale their businesses through real-time and more accurate analytics , increase employee productivity , improve operational efficiency , and deliver more compelling user experiences to their customers and partners . we define a customer as an end user that purchases our products and services either from one of our channel partners or from us directly . no end user customer represented 10 % or more of revenue in the years ended january 31 , 2017 , 2018 and 2019 . we have experienced substantial growth over the past three years , with revenue increasing from $ 739.2 million for the year ended january 31 , 2017 to $ 1,024.8 million for the year ended january 31 , 2018 and to $ 1,359.8 million for the year ended january 31 , 2019 , representing year-over-year revenue growth of 39 % and 33 % for our two most recent years . we expect that our revenue growth rate will continue to decline as our business scales , even if our revenue continues to grow in absolute terms . we have continued to make significant expenditures and investments , including in personnel-related costs , sales and marketing , infrastructure and operations , and have incurred net losses in each period since our inception , including net losses of $ 221.5 million , $ 159.9 million and $ 178.4 million , respectively , for the years ended january 31 , 2017 , 2018 and 2019 . since our founding , we have invested heavily in growing our business . our headcount increased from over 2,100 employees as of january 31 , 2018 to over 2,800 employees as of january 31 , 2019 . we intend to continue to invest in our research and development organization to extend our technology leadership , enhance the functionality of our existing products and introduce new products . by investing in research and development , we believe we will be well positioned to continue our rapid growth and take advantage of our large market opportunity . we also intend to continue to invest in and expand our sales and marketing functions and channel programs , including expanding our global network of channel partners and carrying out associated marketing activities in key 33 geographies . by investing in sales and technical training , demand generation and partner programs , we believe we can enable many of our partners to independently identify , qualify , sell and upgrade customers , with limited involvement from us . in addition , we intend to expand and continue to invest in our international operations , which we believe will be an important factor in our continued growth . story_separator_special_tag we also expect that a substantial portion of our future sales will continue to be sales to existing customers , including expansion of existing arrays . seasonality in our business operations consistent with the seasonality of enterprise it as a whole , we generally experience the lowest demand for our products and services in the first quarter of our fiscal year and the greatest demand for our products and services in the last quarter of our fiscal year . furthermore , we typically focus investments into our sales organization , along with significant product launches , in the first half of our fiscal year . as a result , we expect that our business and results of operations will fluctuate from quarter to quarter , reflecting seasonally softer revenue and operating margin in the first half of our fiscal year , followed by a stronger second half , the relative impact of which will grow as we operate at a larger scale . components of results of operations revenue we derive revenue from the sale of our flasharray and flashblade products and support subscription services . provided that all other revenue recognition criteria have been met , we typically recognize product revenue upon transfer of control to our customers and the satisfaction of our performance obligations . products are typically shipped directly by us to customers , and our channel partners do not stock our inventory . we expect our product revenue may vary from period to period based on , among other things , the timing and size of orders and delivery of products and the impact of significant transactions . we provide our support subscription services pursuant to support subscription agreements , which involve customer support , hardware maintenance and software upgrades for a period of generally one to six years . support subscription services includes our es2 offering . we recognize revenue from support subscription agreements ratably over the contractual service period . we expect our support subscription revenue to increase as we add new customers and our existing customers renew support subscription agreements . cost of revenue cost of product revenue primarily consists of costs paid to our third-party contract manufacturers , which includes the costs of our components , and personnel costs associated with our manufacturing operations . personnel costs consist of salaries , bonuses and stock-based compensation expense . our cost of product revenue also includes allocated overhead costs , inventory write-offs , amortization of intangible assets pertaining to developed technology , and freight . allocated overhead costs consist of certain employee benefits and facilities-related costs . we expect our cost of product revenue to increase in absolute dollars as our product revenue increases . cost of support subscription revenue primarily consists of personnel costs associated with our customer support organization , parts replacement costs , allocated overhead costs and depreciation of computer equipment used for our 35 es2 offering . we expect our cost of support subscription revenue to increase in absolute dollars , as our support subscription revenue increases . operating expenses our operating expenses consist of research and development , sales and marketing and general and administrative expenses . salaries and personnel-related costs , including stock-based compensation expense , are the most significant component of each category of operating expenses . operating expenses also include allocated overhead costs for employee benefits and facilities-related costs . research and development . research and development expense consists primarily of employee compensation and related expenses , prototype expenses , depreciation associated with assets acquired for research and development , third-party engineering and contractor support costs , as well as allocated overhead . we expect our research and development expense to increase in absolute dollars and it may decrease as a percentage of revenue , as we continue to invest in new and existing products and build upon our technology leadership . sales and marketing . sales and marketing expense consists primarily of employee compensation and related expenses , sales commissions , marketing programs , travel and entertainment expenses as well as allocated overhead . marketing programs consist of advertising , events , corporate communications and brand-building activities . we expect our sales and marketing expense to increase in absolute dollars and it may decrease as a percentage of revenue , as we expand our sales force and increase our marketing resources , expand into new markets and further develop our channel program . general and administrative . general and administrative expense consists primarily of compensation and related expenses for administrative functions including finance , legal , human resources , it and fees for third-party professional services as well as amortization of intangible assets pertaining to defensive technology patents and allocated overhead . we expect our general and administrative expense to increase in absolute dollars and it may decrease as a percentage of revenue , as we continue to invest in the growth of our business . other income ( expense ) , net other income ( expense ) , net consists primarily of interest income earned on cash , cash equivalents and marketable securities , interest expense from convertible notes and gains ( losses ) from foreign currency transactions . provision for income taxes provision for income taxes consists primarily of income taxes in certain foreign jurisdictions in which we conduct business and state income taxes in the united states . we have recorded no u.s. federal income tax and provided a full valuation allowance for u.s. deferred tax assets , which mainly includes net operating loss , carryforwards and tax credits related primarily to research and development . we expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not that the deferred tax assets will not be realized based on our history of losses . 36 story_separator_special_tag style= '' line-height:120 % ; font-size:10pt ; '' > * as adjusted to reflect the impact of the full retrospective adoption of asc 606. for further information , see note 2 in part ii , item 8 of this report sales and marketing expense increased by $ 120.1
| results of operations the following tables set forth our results of operations for the periods presented in dollars and as a percentage of our total revenue ( in thousands ) : replace_table_token_3_th _ * as adjusted to reflect the impact of the full retrospective adoption of asc 606. for further information , see note 2 in part ii , item 8 of this report . ( 1 ) includes stock-based compensation expense as follows ( in thousands ) : replace_table_token_4_th ( 2 ) represents a one-time charge for our legal settlement with dell , inc. for further information , see note 7 in part ii , item 8 of this report . 37 replace_table_token_5_th _ * as adjusted to reflect the impact of the full retrospective adoption of asc 606. for further information , see note 2 in part ii , item 8 of this report . revenue replace_table_token_6_th _ * as adjusted to reflect the impact of the full retrospective adoption of asc 606. for further information , see note 2 in part ii , item 8 of this report . total revenue increased by $ 335.1 million , or 33 % , during the year ended january 31 , 2019 compared to the year ended january 31 , 2018 . the increase in product revenue was driven by repeat purchases from existing customers and a growing number of new customers . the number of customers grew from over 4,500 as of january 31 , 2018 to over 5,800 as of january 31 , 2019 . the increase in support subscription revenue was primarily driven by an increase in maintenance and support subscription agreements sold with increased product sales , as well as increased recognition of deferred support subscription revenue contracts .
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business overview we design , manufacture and sell versatile and high performance video infrastructure products and system solutions that enable our customers to efficiently create , prepare and deliver a full range of video and broadband services to consumer devices , including televisions , personal computers , laptops , tablets and smart phones . we do business in three geographic regions : the americas , emea and apac and operate in two segments , video and cable edge . our video business sells video processing and production and playout solutions and services worldwide to cable operators and satellite and telecommunications ( telco ) pay-tv service providers , which we refer to collectively as “ service providers , ” as well as to broadcast and media companies , including streaming new media companies . our cable edge business sells cable access solutions and related services , primarily to cable operators globally . acquisition of tvn on february 29 , 2016 , through our wholly-owned subsidiary harmonic international ag , we completed our acquisition of 100 % of the share capital and voting rights of tvn for $ 82.5 million in cash . tvn , a global leader in advanced video compression solutions , is headquartered in rennes , france . the tvn acquisition was primarily funded with cash proceeds from the issuance of the notes in december 2015. tvn is now a part of our video segment and its results of operations are included in our consolidated statements of operations beginning march 1 , 2016. the acquisition of tvn is intended to strengthen our competitive position in the video infrastructure market as well as enhance the depth and scale of our research and development and service and support capabilities in the video arena . we believe that the combined product portfolios , research and development teams and global sales and service personnel of harmonic and tvn will allow us to accelerate innovation for our customers while leveraging greater scale to drive operational efficiencies . ( see note 3 , “ business acquisition , ” of the notes to our consolidated financial statements for additional information on the tvn acquisition ) . historically , our revenue has been dependent upon capital spending in the cable , satellite , telco , broadcast and media industries , including streaming media . our customers ' capital spending patterns are dependent on a variety of factors , including but not limited to : economic conditions in the u.s. and international markets ; access to financing ; annual budget cycles of each of the industries we serve ; impact of industry consolidations ; and customers suspending or reducing capital spending in anticipation of new products or new standards , new industry trends and or technology shifts . if our product portfolio and product development plans do not position us well to capture an increased portion of the capital spending in the markets in which we compete , our revenue may decline . as we attempt to further diversify our customer base in these markets , we may need to continue to build alliances with other equipment manufacturers , content providers , resellers and system integrators , manage services providers and software developers ; adapt our products for new applications ; take orders at prices resulting in lower margins ; and build internal expertise to handle the particular operational , payment , financing and or contractual demands of our customers , which could result in higher operating costs for us . implementation issues with our products or those of other vendors have caused in the past , and may cause in the future , delays in project completion for our customers and delay our recognition of revenue . a majority of our revenue has been derived from relatively few customers , due in part to the consolidation of our service provider customers . sales to our 10 largest customers in 2016 , 2015 and 2014 accounted for approximately 28 % , 32 % and 35 % of our revenue , respectively . although we are attempting to broaden our customer base by penetrating new markets and further expanding internationally , we expect to see continuing industry consolidation and customer concentration . during 2016 , no customers accounted for more than 10 % of our net revenue . during 2015 and 2014 , revenue from comcast accounted for 12 % and 16 % , of our net revenue , respectively . no other customers accounted for more than 10 % of our net revenue in 2015 and 2014. the loss of any significant customer , or any material reduction in orders from any significant customer , or our failure to qualify our new products with any significant customer could materially and adversely affect our operating results , financial condition and cash flows . 39 our video segment revenue increased in 2016 compared to 2015 primarily due to our acquisition of tvn , which led to stronger demand from both our service provider and broadcast and media customers , particularly within emea and the americas . our video segment customers continue to be cautious with investments in new technologies , such as next-generation ip architecture and ultra hd . we believe a material and growing portion of the opportunities for our video business are linked to a migration by our customers to ip workflows and the distribution of linear and on-demand , over-the-top , and new mobile video services . we believe we are well positioned to address these opportunities as we continue to steadily transition our video business away from legacy and customized computing hardware to more software-centric solutions , enabling video compression and processing through our vos software platform running on standard off-the-shelf servers , data centers and in the cloud . our cable edge strategy is to become a major player in the approximately $ 2 billion ccap market by delivering innovative new docsis 3.1 cmts technology , which we refer to as cableos . story_separator_special_tag revenue recognition harmonic 's principal sources of revenue are from the sale of hardware , software , hardware and software maintenance contracts , and the sale of end-to-end solutions , encompassing design , manufacture , test , integration and installation of products . harmonic recognizes revenue when persuasive evidence of an arrangement exists , delivery has occurred or services have been provided , the sale price is fixed or determinable , and collectability is reasonably assured . we generally use contracts and customer purchase orders to determine the existence of an arrangement . shipping documents and customer acceptance , when applicable , are used to verify delivery . we assess whether the sales price is fixed or determinable based on the payment terms associated with the transaction and whether the price is subject to refund or adjustment . we assess collectability based primarily on the creditworthiness of the customer , as determined by credit checks and analysis , as well as the customer 's payment history . significant management judgments and estimates must be made in connection with determination of the revenue to be recognized in any accounting period . because of the concentrated nature of our customer base , different judgments or estimates made for any one large contract or customer could result in material differences in the amount and timing of revenue recognized in any particular period . we have multiple-element revenue arrangements that include hardware and software essential to the hardware product 's functionality , non-essential software , services and support . we allocate revenue to all deliverables based on their relative selling prices . we determine the relative selling prices by first considering vendor-specific objective evidence of fair value ( “ vsoe ” ) , if it exists ; otherwise third-party evidence ( “ tpe ” ) of the selling price is used . when we are unable to establish selling price using vsoe or tpe , we use our best estimate of selling price ( “ besp ” ) in our allocation of arrangement consideration . the objective of besp is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis . besp is generally used for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings . the company 's process for determining besp involves management 's judgment , and considers multiple factors that may vary over time , depending upon the unique facts and circumstances related to each deliverable . if the facts and circumstances underlying the factors considered change or should future facts and circumstances lead the company to consider additional factors , the company 's besp may also change . once revenue is allocated to all deliverables based on their relative selling prices , revenue related to hardware elements ( hardware , essential software and related services ) are recognized using a relative selling price allocation and non-essential software and related services are recognized under the residual method . sales of stand-alone software that are not considered essential to the functionality of the hardware continue to be subject to the software revenue recognition guidance . in accordance with the software revenue recognition guidance , the company applies the residual method to recognize revenue for the delivered elements in stand-alone software transactions . under the residual method , the amount of revenue allocated to delivered elements equals the total arrangement consideration , less the aggregate fair value of any undelivered elements , typically maintenance , provided that vsoe of fair value exists for all 41 undelivered elements . we establish fair value by reference to the price the customer is required to pay when an item is sold separately , using contractually stated , substantive renewal rates , when applicable , or the price of recently completed stand alone sales transactions . accordingly , the determination as to whether appropriate objective and reliable evidence of fair value exists can impact the timing of revenue recognition for an arrangement . solution sales for the design , manufacture , test , integration and installation of products are accounted for in accordance with applicable guidance on accounting for performance of construction/production contracts , using the percentage-of-completion method of accounting when various requirements for the use of this accounting guidance exist . under the percentage-of-completion method , our revenue recognized reflects the portion of the anticipated contract revenue that has been earned , equal to the ratio of actual labor hours expended to total estimated labor hours to complete the project . costs are recognized proportionally to the labor hours incurred . management believes that , for each such project , labor hours expended in proportion to total estimated hours at completion represents the most reliable and meaningful measure for determining a project 's progress toward completion . this requires us to estimate , at the outset of each project , a detailed project plan and associated labor hour estimates for that project . for contracts that include customized services for which labor costs are not reasonably estimable , the company uses the completed contract method of accounting . under the completed contract method , 100 % of the contract 's revenue and cost is recognized upon the completion of all services under the contract . if the estimated costs to complete a project exceed the total contract amount , indicating a loss , the entire anticipated loss is recognized . our application of the percentage-of-completion method of accounting is subject to our estimates of labor hours to complete each project . in the event that actual results differ from these estimates or we adjust these estimates in future periods , our operating results , financial position or cash flows for a particular period could be adversely affected . revenue on shipments to resellers and systems integrators is generally recognized on delivery . resellers and systems integrators purchase our products for specific capital equipment projects of the end-user and do not hold inventory as a standard operating practice .
| results of operations net revenue the following table presents the breakdown of revenue for each of our business segments described in item 1 of this annual report on form 10-k for each of the three years ended december 31 , 2016 , 2015 and 2014 ( in thousands , except percentages ) : replace_table_token_3_th the following table presents the breakdown of revenue by geographical region for each of the three years ended december 31 , 2016 , 2015 and 2014 ( in thousands , except percentages ) : replace_table_token_4_th fiscal 2016 compared to fiscal 2015 our video segment net revenue increased $ 59.7 million , or 20 % , in 2016 compared to 2015. this increase was primarily attributable to a $ 40.6 million increase in video product revenue and a $ 19.1 million increase in video service revenue , and such increases were primarily due to the acquisition of tvn which contributed approximately $ 60.0 million of revenue in 2016. while demand for video infrastructure from our customers in the americas and emea regions improved , overall demand trends were impacted due to several significant ongoing technology transitions and evolving pay-tv business models . our cable edge segment net revenue decreased $ 30.8 million , or 36 % , in 2016 compared to 2015. the decrease was primarily due to lower revenue in the americas , and to a lesser extent in the apac and emea regions . the decrease was 46 primarily due to lower spending associated with a decrease in demand as some of our customers are deferring purchases as they plan their migration to next generation docsis 3.1 technologies and ccap architectures . several of our cable customers have started planning for the transition from docsis 3.0 to docsis 3.1 technologies , which will improve high speed data services and enable our customers ' networks to adopt new ccap architectures .
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in 2014 , the company granted market-based performance stock units to the chief executive officer as part of his initial compensation package . the market-based awards vest after a two -year service period and if the price of the company 's common stock exceeds specified targets . the fair value of the market-based awards was determined using the monte-carlo simulation model . a monte carlo story_separator_special_tag management 's discussion and analysis of financial condition and results of operations as well as other sections of this annual report on form 10-k contain forward-looking statements . the private securities litigation reform act of 1995 provides a safe harbor for forward-looking statements . forward-looking statements are not historical facts , but instead represent only our beliefs , assumptions , expectations , estimates , forecasts and projections regarding future events , many of which , by their nature , are inherently uncertain and outside our control . these statements include statements other than historical information or statements of current condition and may relate to our future plans and objectives and results . by identifying these statements for you in this manner , we are alerting you to the possibility that our actual results and financial condition may differ , possibly materially , from the anticipated results and financial condition indicated in these forward-looking statements . important factors that could cause our actual results and financial condition to differ from those indicated in the forward-looking statements include , among others , those discussed under the section heading “ risk factors ” in part i , item 1a of this form 10-k. factors that may affect the outcome of the forward-looking statements include , among other things , leadership changes , our ability to attract , integrate , manage and retain qualified consultants and senior leaders ; our ability to develop and maintain strong , long-term relationships with our clients ; fluctuations in the global economy and our ability to execute successfully our leadership advisory strategy through business cycles ; the timing , speed or robustness of any future economic recovery ; social or political instability in markets where we operate , the impact of foreign currency exchange rate fluctuations ; unfavorable tax law changes and tax authority rulings ; price competition ; the ability to forecast , on a quarterly basis , variable compensation accruals that ultimately are determined based on the achievement of annual results ; our ability to realize our tax losses ; the timing of the establishment or reversal of valuation allowance on deferred tax assets ; the mix of profit and loss by country ; our reliance on information management systems ; any impairment of our goodwill and other intangible assets ; and the ability to align our cost structure and headcount with net revenue . we undertake no obligation to update publicly any forward-looking statements , whether as a result of new information , future events or otherwise . executive overview our business we are a leadership advisory firm providing executive search , leadership consulting and culture shaping services . we help our clients build leadership teams by facilitating the recruitment , management and development of senior executives . we believe focusing on top-level services offers us several advantages that include access to and influence with key decision makers , increased potential for recurring search consulting engagements , higher fees per search , enhanced brand visibility , and a leveraged global footprint , which create added barriers to entry for potential competitors . working at the top of client organizations also allows us to attract and retain high-caliber consultants . in addition to executive search , we provide culture shaping services and leadership consulting expertise including executive leadership assessment ; leadership , team and board development ; succession planning ; talent strategy ; people performance ; inter-team collaboration ; and organizational transformation . on october 1 , 2015 , we acquired co company limited ( `` co company '' ) , an organizational development consulting firm . we provide our services to a broad range of clients through the expertise of over 300 consultants located in major cities around the world . our executive search services are provided on a retained basis . revenue before reimbursements of out-of-pocket expenses ( “ net revenue ” ) consists of retainers and indirect expenses billed to clients . typically , we are paid a retainer for our executive search services equal to approximately one-third of the estimated first year compensation for the position to be filled . in addition , if the actual compensation of a placed candidate exceeds the estimated compensation , we often are authorized to bill the client for one-third of the excess . indirect expenses are calculated as a percentage of the retainer with certain dollar limits per search . key performance indicators we manage and assess heidrick & struggles ' performance through various means , with the primary financial and operational measures including net revenue , operating income , operating margin , adjusted ebitda ( non-gaap ) , and adjusted ebitda margin ( non-gaap ) . executive search and leadership consulting performance is also measured using consultant headcount and consultant productivity . specific to executive search , confirmation trends and average revenue per search are used to measure performance . 20 revenue is driven by market conditions and a combination of the number of executive search engagements and leadership consulting and culture shaping projects and the average revenue per search or project . with the exception of compensation expense , incremental increases in revenue do not necessarily result in proportionate increases in costs , particularly operating and administrative expenses , thus potentially improving operating margins . the number of consultants , confirmation trends , number of searches or projects completed , productivity levels and the average revenue per search or project will vary from quarter to quarter , affecting net revenue and operating margin . our compensation model at the executive search consultant level there are fixed and variable components of compensation . story_separator_special_tag the decrease in revenue was due to foreign exchange rate fluctuations which decreased revenue by $ 12.6 million , or 11.6 % , partially offset by revenue generated by the acquisition of co company in the fourth quarter of 2015. the decrease in net revenue was across all industry practice groups except the global technology & services practice group . the number of consultants was 90 as of december 31 , 2015 and 89 as of december 31 , 2014 , with co company contributing four consultants . salaries and employee benefits expense decreased $ 3.7 million from 2014 primarily due to the impact of foreign exchange rate fluctuations of $ 8.7 million . fixed compensation decreased $ 2.2 million due to foreign exchange impacts of $ 7.0 million , partially offset by higher average headcount , minimum guarantees for new consultant hires , and the salaries and 25 employee benefits cost related to the employees of co company , our fourth quarter 2015 acquisition . variable compensation decreased $ 1.5 million due foreign exchange fluctuations . general and administrative expense decreased $ 2.1 million from 2014 due to a $ 2.7 million benefit of foreign currency fluctuations , lower hiring fees and bad debt expense and the non-recurring benefit from 2014 related to the value added tax charge of $ 0.5 million , partially offset by co company expenses and $ 0.6 million of costs associated with the regional conference in 2015. the europe segment reported operating income of $ 2.2 million in 2015 , a decrease of $ 2.6 million compared to $ 4.8 million in 2014 . asia pacific asia pacific reported net revenue of $ 93.7 million in 2015 , an increase of 4.5 % compared to $ 89.7 million in 2014 . the increase in net revenue was partially offset by the impact of foreign exchange rate fluctuations which lowered net revenue by $ 7.4 million in 2015 . the increase in net revenue was due to higher average revenue per executive search . the global technology & services , healthcare & life sciences and financial services practice groups increased net revenue , partially offset by the consumer markets practice group . the number of consultants was 92 as of december 31 , 2015 , compared to 78 as of december 31 , 2014 . salaries and employee benefits expense increased $ 4.0 million . the impact of foreign exchange rate fluctuations lowered salaries and employee benefits expense by $ 4.7 million . variable compensation increased $ 6.2 million due to higher production , partially offset by foreign exchange rate fluctuations of $ 1.7 million . fixed compensation decreased $ 2.2 million due to foreign exchange rate fluctuations of $ 3.0 million and lower separation costs , partially offset by the cost of higher headcount and minimum guarantees for new consultant hires . general and administrative expenses decreased $ 1.0 million primarily due to the benefit of foreign currency fluctuations of $ 1.3 million , partially offset by $ 0.5 million of costs associated with the regional conference in 2015. the asia pacific segment reported operating income of $ 5.8 million in 2015 , an increase of $ 1.0 million compared to 2014 . culture shaping the culture shaping segment reported net revenue of $ 36.3 million in 2015 , an increase of 4.5 % compared to $ 34.8 million in 2014 . net revenue increased due to additional projects . net revenue in 2014 excluded $ 0.4 million of pre-acquisition deferred revenue that we were unable to recognize as a result of purchase accounting . salaries and employee benefits expense increased $ 2.2 million due to higher average headcount and variable compensation . general and administrative expenses decreased $ 0.9 million due to lower amortization and accretion expense of $ 1.4 million , partially offset by internal meeting costs . the culture shaping segment reported operating income of $ 4.9 million in 2015 , a increase of $ 0.3 million compared to $ 4.6 million in 2014 . global operations support global operations support expenses in 2015 increased $ 1.2 million or 2.8 % to $ 46.5 million from $ 45.3 million in 2014. salaries and employee benefits expense increased $ 2.3 million . the increase in salaries and employee benefits expense was due to increases in fixed compensation of $ 2.2 million from higher support staff headcount and from higher stock-based compensation expense , which increased due to higher performance share unit compensation and a prior year forfeiture of equity awards . general and administrative expense decreased $ 1.1 million . the decrease in general and administrative expense was primarily due to the prior year expense for the global partner meeting of $ 1.8 million and the state franchise tax matter of $ 1.3 million , partially offset by higher legal costs of $ 1.3 million and higher training costs of $ 1.1 million in 2015 . 26 2014 compared to 2013 total revenue . consolidated total revenue increased $ 32.2 million , or 6.7 % , to $ 513.2 million in 2014 from $ 481.0 million in 2013. the increase in total revenue was primarily due to the increase in revenue before reimbursements ( net revenue ) . revenue before reimbursements ( net revenue ) . consolidated net revenue increased $ 32.3 million , or 7.0 % , to $ 494.3 million in 2014 from $ 462.0 million in 2013. executive search and leadership consulting net revenue was $ 459.5 million in 2014 , an increase of $ 22.3 million , compared to 2013. increases in the financial services , global technology & services , and consumer markets search practices were the primary drivers of the increase in consolidated net revenue ; however , these increases were partially offset by declines in net revenue from the healthcare & life sciences and industrial practices .
| results of operations the following table summarizes , for the periods indicated , the results of operations ( in thousands ) : replace_table_token_7_th 22 the following table summarizes , for the periods indicated , our results of operations as a percentage of revenue before reimbursements ( net revenue ) : replace_table_token_8_th note : totals and subtotals may not equal the sum of individual line items due to rounding . we operate our executive search and leadership consulting services in the americas ; europe ( which includes africa ) ; and asia pacific ( which includes the middle east ) and operate our culture shaping business as a separate segment ( see note 18 , segment information ) . due to our recent acquisitions , we are currently reviewing our 2016 segment presentation and disclosure . 23 the following table sets forth , for the periods indicated , our revenue and operating income by segment ( in thousands ) : replace_table_token_9_th 2015 compared to 2014 total revenue . consolidated total revenue increased $ 35.1 million , or 6.8 % , to $ 548.3 million in 2015 from $ 513.2 million in 2014 . the increase in total revenue was primarily due to the increase in revenue before reimbursements ( net revenue ) . revenue before reimbursements ( net revenue ) . consolidated net revenue increased $ 36.8 million or 7.5 % , to $ 531.1 million in 2015 from $ 494.3 million in 2014 . foreign exchange rate fluctuations decreased revenue by $ 24.2 million , or 4.9 % . executive search and leadership consulting net revenue was $ 494.8 million in 2015 , an increase of $ 35.3 million compared to 2014 . strong growth in healthcare & life sciences , global technology & services and financial services practice groups were the primary drivers for the increase in consolidated net revenue , partially offset by a decrease in the consumer markets practice group . culture shaping net revenue was $ 36.3
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such procedures included examining , on a test basis , evidence regarding the amounts and disclosures in the financial statements . our audits also included evaluating the accounting principles used and significant estimates made by management , as well as evaluating the overall presentation of story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements , the related notes and the section “ important notice to investors regarding forward-looking statements ” that appear elsewhere in this report . critical accounting policies and estimates the company 's discussion and analysis of its results of operations , financial condition and liquidity are based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states ( `` gaap '' ) . the preparation of these financial statements requires the company to make estimates and judgments that affect the reported amounts of assets , liabilities , shareholders ' equity , sales and expenses , as well as related disclosures of contingent assets and liabilities . the company bases its estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances . actual results may materially differ from these estimates under different assumptions or conditions . on an ongoing basis , the company reviews its estimates to ensure that the estimates appropriately reflect changes in its business and new information as it becomes available . management believes the critical accounting policies discussed below affect its more significant estimates and assumptions used in the preparation of its consolidated financial statements . for a complete discussion of all of the company 's significant accounting policies , see note 2 “ summary of significant accounting policies ” in the notes to consolidated financial statements in this form 10-k. revenue recognition as of january 1 , 2018 , the company accounts for revenue recognition in accordance with accounting standards codification ( “ asc ” ) topic 606 , `` revenue from contracts with customers . '' the adoption of this new standard left the way in which the company recognizes revenue largely unchanged , except for the timing of when sales program incentives are recognized as a reduction to revenue , which occurs at the time of the sale as opposed to when the programs are approved and announced . see further discussion below and note 2 `` summary of significant accounting policies `` and note 3 “ revenue recognition ” in the notes to consolidated financial statements in this form 10-k. the company recognizes revenue from the sale of its products when it satisfies the terms of a sales order from a customer , and transfers control of the products ordered to the customer . control transfers at a point in time when products are shipped , and in certain cases , when products are received by customers . in addition , the company recognizes revenue at the point of sale on transactions with consumers at its retail locations . royalty income is recognized over time in net sales as underlying product sales occur , subject to certain minimum royalties , in accordance with the related licensing arrangements and is included in the company 's gear , accessories and other operating segment . revenues from gift cards are deferred and recognized when the cards are redeemed . the company 's gift cards have no expiration date . the company recognizes revenue from unredeemed gift cards , otherwise known as breakage , when the likelihood of redemption becomes remote and under circumstances that comply with any applicable state escheatment laws . the amount of revenue the company recognizes is based on the amount of consideration it expects to receive from customers . the amount of consideration is the sales price adjusted for estimates of variable consideration , including sales returns , discounts and allowances as well as sales programs , sales promotions and price concessions that are offered by the company as described below . these estimates are based on the amounts earned or to be claimed by customers on the related sales , and are therefore recorded as reductions to sales and trade accounts receivable . the company 's primary sales program , the “ preferred retailer program , ” offers potential rebates and discounts , for participating retailers in exchange for providing certain benefits to the company , including the maintenance of agreed upon inventory levels , prime product placement and retailer staff training . under this program , qualifying retailers can earn either discounts or rebates based upon the amount of product purchased . discounts are applied and recorded at the time of sale . for rebates , the company estimates the amount of variable consideration related to the rebate at the time of sale based on the customer 's estimated qualifying current year product purchases . the estimate is based on the historical level of purchases , adjusted for any factors expected to affect the current year purchase levels . the estimated year-end rebate is adjusted quarterly based on actual purchase levels , as necessary . the preferred retailer program is generally short-term in nature and the actual amount of rebate to be paid under this program is known as of the end of the year and paid to customers shortly after year-end . historically , the company 's actual amount of variable consideration related to its preferred retailer program has not been materially different from its estimates . 30 the company also offers short-term sales program incentives , which include sell-through promotions and price concessions or price reductions . sell-through promotions are generally offered throughout a product 's life cycle of approximately two years , and price concessions or price reductions are generally offered at the end of a product 's life cycle . the estimated variable consideration related to these programs is based on a rate that includes historical and forecasted data . the company records a reduction to net sales using this rate at the time of the sale . story_separator_special_tag however , if actual results are not consistent with the company 's estimates and assumptions used in calculating future cash flows and asset fair values , the company may be exposed to losses that could be material . the company completed its annual impairment test and fair value analysis of goodwill and other indefinite-lived intangible assets as of december 31 , 2018 , and the estimated fair values of the company 's reporting units , as well as the estimated fair values of certain trade names and trademarks , significantly exceeded their carrying values . as a result , no impairment was recorded as of december 31 , 2018 . warranty policy the company has a stated two-year warranty policy for its golf clubs . the company 's policy is to accrue the estimated cost of satisfying future warranty claims at the time the sale is recorded . in estimating its future warranty obligations , the company considers various relevant factors , including the company 's stated warranty policies and practices , the historical frequency of claims , and the cost to replace or repair its products under warranty . the company 's estimates for calculating the warranty reserve are principally based on assumptions regarding the warranty costs of each club product line over the expected warranty period . where little or no claims experience may exist , the company 's warranty obligation calculation is based upon long-term historical warranty rates of similar products until sufficient data is available . as actual model-specific rates become available , the company 's estimates are modified to ensure that the forecast is within the range of likely outcomes . historically , the company 's actual warranty claims have not been materially different from management 's original estimated warranty obligation . the company does not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate the warranty obligation . however , if the number of actual warranty claims or the cost of satisfying warranty claims were to significantly exceed the estimated warranty reserve , the company may be exposed to losses that could be material . assuming there had been a 10 % increase in warranty claims over the 2018 recorded estimated allowance for warranty obligations , pre-tax income for the year ended december 31 , 2018 would have decreased by approximately $ 0.8 million . income taxes current income tax expense or benefit is the amount of income taxes expected to be payable or receivable for the current year . a deferred income tax asset or liability is established for the difference between the tax basis of an asset or liability computed pursuant to asc topic 740 and its reported amount in the financial statements that will result in taxable or deductible amounts in future years when the reported amount of the asset or liability is recovered or settled , respectively . in accordance with the applicable accounting rules , the company maintains a valuation allowance for a deferred tax asset when it is deemed to be more likely than not that some or all of the deferred tax assets will not be realized . in evaluating whether a valuation allowance is required under such rules , the company considers all available positive and negative evidence , including prior operating results , the nature and reason for any losses , its forecast of future taxable income , and the dates on which any deferred tax assets are expected to expire . these assumptions require a significant amount of judgment , including estimates of future taxable income . these estimates are based on the company 's best judgment at the time made based on current and projected circumstances and conditions . for further information , see note 11 “ income taxes . ” pursuant to asc topic 740-25-6 , the company is required to accrue for the estimated additional amount of taxes for uncertain tax positions if it is deemed to be more likely than not that the company would be required to pay such additional taxes . the company is required to file federal and state income tax returns in the united states and various other income tax returns in foreign jurisdictions . the preparation of these income tax returns requires the company to interpret the applicable tax laws and regulations in effect in such jurisdictions , which could affect the amount of tax paid by the company . the company accrues an amount for its estimate of additional tax liability , including interest and penalties in income tax expense , for any uncertain tax positions taken 32 or expected to be taken in an income tax return . the company reviews and updates the accrual for uncertain tax positions as more definitive information becomes available . historically , additional taxes paid as a result of the resolution of the company 's uncertain tax positions have not been materially different from the company 's expectations . the company recognizes interest and or penalties related to income tax matters in income tax expense . for further information , see note 11 “ income taxes . ” in december 2017 , the u.s. government enacted comprehensive tax legislation referred to as the tax cuts and jobs act ( the `` tax act '' ) . shortly after the tax act was enacted , the sec issued staff accounting bulletin no . 118 , income tax accounting implications of the tax cuts and jobs act ( `` sab 118 '' ) , which provides guidance on accounting for the tax act 's impact .
| executive summary in comparing the company 's results for the twelve months ended december 31 , 2018 to the same period in 2017 , the following factors affect the year-over-year comparisons : the product launch cadence in 2018 was heavily loaded toward the first half of the year compared to 2017 , which affects quarterly comparisons . the company 's results of operations for 2018 include a full year of the results of operations from the travismathew apparel business , which was acquired in august 2017. the company 's operating expenses for 2018 include transaction and transition expenses related to the jack wolfskin acquisition completed in january 2019 of $ 3.7 million , and other income includes a $ 4.4 million gain from the re-measurement of a foreign currency forward contract that was put in place to mitigate the risk of foreign currency fluctuations on the purchase price , which was denominated in euros . by comparison , 2017 includes transaction and transition expenses of $ 2.6 million and $ 8.8 million , respectively , related to the ogio and travismathew acquisitions completed in january 2017 and august 2017 , respectively . the u.s. corporate income tax rate was reduced from 35 % to 21 % for tax years beginning after december 31 , 2017 due to the tax cuts and jobs act ( the `` tax act '' ) enacted in december 2017. due to the strength of the company 's 2018 product line led by increases in irons , putters and golf balls , as well as in gear , accessories and other largely due to the addition of the travismathew business in august 2017 , the company 's net sales increased 18.5 % to $ 1.2 billion in 2018 , a record high , compared to $ 1.0 billion in 2017. the company 's net sales in 2018 also benefited from improved industry and macroeconomic conditions , including favorable changes in foreign currency exchange rates , which positively impact net sales
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the term also refers in article 2a of the uniform commercial code to a special type of lease in which the lessor , lessee and the manufacturer have contractual relationships and the lessor at all times , with the lessee 's acknowledgement , remains a passive investor where the lessee makes most equipment decisions directly with the manufacturer . “ full payout net lease ” means an initial net lease of the equipment under which the non-cancelable rental payments due ( and which can be calculated at the commencement of the net lease ) during the initial non-cancelable fixed term ( not including any renewal or extension period ) of the lease or other contract for the use of the equipment are at least sufficient to recover the purchase price of the equipment . “ general partner ” means commonwealth income & growth fund , inc. and any additional , substitute or successor general partner of the partnership . “ gross lease revenues ” means partnership gross receipts from leasing or other operation of the equipment , except that , to the extent the partnership has leased the equipment from an unaffiliated party , it shall mean such receipts less any lease expense . “ irs ” means the internal revenue service . “ limited partner ” means a person who acquires units and who is admitted to the partnership as a limited partner in accordance with the terms of the partnership agreement . “ net dispositions proceeds ” means the net proceeds realized by the partnership from the refinancing , sale or other disposition of equipment , including insurance proceeds or lessee indemnity payments arising from the loss or destruction of equipment , less such amounts as are used to satisfy partnership liabilities . “ net lease ” means a lease or other contract under which the owner provides equipment to a lessee or other operator in return for a payment , and the lessee assumes all obligations and pays for the operation , repair , maintenance and insuring of the equipment . “ net profits ” or “ net losses ” shall be computed in accordance with section story_separator_special_tag the following is a discussion of our current financial position and results of operations . this discussion should be read together with the partnership 's financial statements contained under item 8 of this annual report on form 10-k. this discussion should also be read in conjunction with the disclosures above regarding “ forward-looking statements. ” introduction we were formed for the purpose of acquiring various types of business-essential technology equipment , including computer information technology , telecommunications , medical technology and other similar capital equipment . we offered for sale up to 2,500,000 units of the limited partnership at the purchase price of $ 20 per unit in a public offering that commenced on march 6 , 2007 ( the “ offering ” ) . we reached the minimum offering amount , broke escrow and commenced operations on may 10 , 2007. the offering terminated on march 6 , 2009 with 1,810,311 units sold for a total of approximately $ 36,000,000 in limited partner contributions . our management team consists of the officers of our corporate general partner , commonwealth income & growth fund , inc. we have utilized the net proceeds of our public offering to purchase equipment that is subject to leases with businesses throughout the united states . we have also utilized debt financing ( not in excess of 30 % of the aggregate cost of the equipment owned or subject to conditional sales contracts at the time the debt is incurred ) to purchase additional equipment . we acquire and lease equipment principally to u.s. corporations and other institutions pursuant to operating and finance leases . we retain the flexibility to enter into full payout net leases and conditional sales contracts , but have not done so . competitive outlook as discussed in “ competition ” in item 1 above , the commercial leasing and financing industry is highly competitive and is characterized by competitive factors that vary based upon product and geographic region . we compete primarily on the basis of pricing , terms and structure , particularly on structuring flexible , responsive , and customized financing solutions for our customers . our investments are often made directly rather than through competition in the open market . this approach limits the competition for our typical investment , which is intended to enhance returns . we believe our investment model will represent the best way for individual investors to participate in investing in business-essential equipment . nevertheless , to the extent that our competitors compete aggressively on any combination of the foregoing factors , our results could be adversely impacted . principal investment objectives our principal investment objectives are to : a ) acquire , lease and sell equipment to generate revenues from operations sufficient to provide annual cash distributions to our limited partners ; b ) preserve and protect limited partners ' capital ; c ) use a portion of cash flow and net disposition proceeds derived from the sale , refinancing or other disposition of equipment to purchase additional equipment ; and d ) refinance , sell or otherwise dispose of equipment in a manner that will maximize proceeds . 15 industry overview we invest in various types of domestic information technology equipment leases located solely within the united states . our investment objective is to acquire primarily high technology equipment . we believe that dealing in high technology equipment is particularly advantageous due to a robust aftermarket . information technology has developed rapidly in recent years and is expected to continue to do so . technological advances have permitted reductions in the cost of computer processing capacity , speed , and utility . in the future , the rate and nature of equipment development may cause equipment to become obsolete more rapidly . story_separator_special_tag management 's estimates are based 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 that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe that our critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements . 16 revenue recognition the partnership is principally engaged in business of leasing equipment . ancillary to the partnership 's principal equipment leasing business , the partnership also sells certain equipment and may offer certain services to support its customers . the partnership 's lease transactions are principally accounted for under topic 842 on january 1 , 2019. prior to topic 842 , the partnership accounted for these transactions under topic 840 , leases ( “ topic 840 ” ) . lease revenue includes revenue generated from leasing equipment to customers , including re-rent revenue , and is recognized as either on a straight line basis or using the effective interest method over the length of the lease contract , if such lease is either an operating lease or finance lease , respectively . the partnership 's sale of equipment along with certain services provided to customers is recognized under asc topic 606 , revenue from contracts with customers , ( “ topic 606 ” ) , which was adopted on january 1 , 2018. prior to adoption of topic 606 , the partnership recognized these transactions under asc topic 605 , revenue recognized , and ( “ topic 605 ” ) . the partnership recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer . the amount of revenue recognized reflects the consideration the partnership expects to be entitled to in exchange for such products or services . for the year ended december 31 , 2020 , the partnership 's lease portfolio consisted of operating leases and finance leases . for operating leases , lease revenue is recognized on a straight-line basis in accordance with the terms of the lease agreement . finance lease interest income is recorded over the term of the lease using the effective interest method . upon the end of the lease term , if the lessee has not met the return conditions as set out in the lease , the partnership is entitled in certain cases to additional compensation from the lessee . the partnership 's accounting policy for recording such payments is to treat them as revenue . gains or losses from sales of leased and off-lease equipment are recorded on a net basis in the partnership 's statement of operations . gains from the termination of leases are recognized when the lease is modified and terminated concurrently . our leases do not contain any step-rent provisions or escalation clauses nor are lease revenues adjusted based on any index . partnership 's accounting policy for sales and property taxes collected from the lessees are presented in the current period as gross revenues and expenses . long lived assets depreciation on technology and inventory management equipment for financial statement purposes is based on the straight-line method estimated generally over useful lives of two to four years . once an asset comes off lease or is released , the partnership reassesses the useful life of an asset . the partnership evaluates its long-lived assets when events or circumstances indicate that the value of the asset may not be recoverable . the partnership determines whether impairment exists by estimating the undiscounted cash flows to be generated by each asset . if the estimated undiscounted cash flows are less than the carrying value of the asset then impairment exists . the amount of the impairment is determined based on the difference between the carrying value and the fair value . fair value is determined based on estimated discounted cash flows to be generated by the asset , third party appraisals or comparable sales of similar assets , as applicable , based on asset type . residual values are determined by management and are calculated using information from both internal and external sources , as well as other economic indicators . reimbursable expenses reimbursable expenses are comprised of both ongoing operational expenses and fees associated with the allocation of salaries and benefits , referred to as other lp expenses . reimbursable expenses , which are charged to the partnership by ccc in connection with the administration and operation of the partnership , are allocated to the partnership based upon several factors including , but not limited to , the number of investors , leasing volume and stage of the program . for example , if a partnership has more investors than another program sponsored by ccc , then higher amounts of expenses related to investor services , including mailing and printing costs will be allocated to that partnership . also , while a partnership is in its offering stage , higher compliance costs are allocated to it than to a program not in its offering stage , as compliance resources are utilized to review incoming investor suitability and proper documentation . finally , lease related expenses , such as due diligence , correspondence , collection efforts and analysis and staff costs , increase as programs purchase more leases , and decrease as leases terminate and equipment is sold . all of these factors contribute to ccc 's determination as to the amount of expenses to allocate to the partnership or to other sponsored programs . ccc is not reimbursed for salary and benefit costs of control persons . for the partnership , all reimbursable items are expensed as they are incurred .
| results from operations for the year ended december 31 , 2020 , we recognized revenue of approximately $ 673,000 , expenses of approximately $ 723,000 , which resulted in a net loss of approximately $ 51,000. for the year ended december 31 , 2019 , we recognized revenue of approximately $ 738,000 , expenses of approximately $ 866,000 , which resulted in a net loss of approximately $ 128,000. we have 37 active operating leases that generated lease revenue of approximately $ 558,000 during 2020 as compared to 36 active operating leases that generated lease revenue of approximately $ 688,000 during 2019. this decrease in lease revenue is primarily due to more leases expiring versus being acquired . management expects to add new leases to the partnership 's portfolio throughout 2021 , primarily through debt financing . 19 the partnership 's equipment portfolio consists primarily of approximately 25 % digital storage , 17 % datacom , 15 % high end servers , 13 % multifunction centers , 12 % server/other , 10 % desk/laptop computers produced by various manufacturers , 6 % inventory control centers , 1 % high volume & spec printers and 1 % fitness equipment . the general partner continuously monitors and seeks to decrease the concentration of equipment by type to diversify the equipment portfolio and potentially reduce the overall risk to the investor . for the year ended december 31 , 2020 , the partnership had a total of four lessees that accounted for lease revenue of 10 % or greater which are ranked as follows : 36 % ; 30 % ; 18 % and 12 % . for the year ended december 31 , 2019 , the partnership had a total of five lessees that accounted for lease revenue of 10 % or greater which are ranked as follows : 28 % ; 24 % ; 23 % ; 12 % ; and 12 % .
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, expectations and intentions . the cautionary statements made in this annual report on form 10-k should be read as applying to all related forward-looking statements wherever they appear in 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 but not limited to those set forth under item 1a , “ risk factors ” and elsewhere in this annual report on form 10-k. business overview we are a provider of secure , integrated , intelligent communication solutions , focused on empowering mobile workers in healthcare , hospitality , energy , and other mission-critical mobile work environments , in the united states and internationally . today , the significant majority of our business is generated from sales of our solutions in the healthcare market to help our customers improve patient safety and experience , and increase operational efficiency . as of december 31 , 2016 , care teams at approximately 1,400 healthcare facilities worldwide have selected our solutions . we primarily sell products , software maintenance and professional services directly to end users . total revenue increased 22.7 % to $ 127.7 million in 2016 from $ 104.1 million in 2015 , and our 2015 revenue increased 9.1 % from $ 95.4 million in 2014 . for the year ended december 31 , 2016 , we recorded a net loss of $ 17.3 million compared to a net loss of $ 17.1 million for the year ended december 31 , 2015 . our diverse customer base ranges from large hospital systems to small local hospitals , as well as other healthcare facilities and customers in non-healthcare markets . we do not rely on any one customer for a substantial portion of our revenue . while we have international customers in other english speaking countries such as canada , the united kingdom , australia , singapore and parts of the middle east , most of our customers are located in the united states . international customers represented 10.6 % and 8.8 % of our revenue in 2016 and in 2015 , respectively . we are exploring plans to expand our presence in other english-speaking markets and enter non-english speaking markets . in recent years , u.s. hospital spending on information technology has been predominantly directed toward further investment in electronic health records and preparation for utilizing new icd-10 diagnosis coding , which are both driven by regulatory requirements and reimbursement earn-back incentives from federal healthcare reform . in addition , as patient volumes and reimbursement levels continued to fluctuate for many healthcare providers , hospitals exercised strong expense limits and reductions , also impacting capital purchases and departmental operating budgets through which our solutions are purchased . despite this volatility , healthcare providers are placing increased emphasis on and investment in solutions for communication and care coordination , a trend that we believe is favorable for us . we believe certain international markets represent attractive opportunities for growth . we currently sell our solutions in canada , the united kingdom as well as multiple english speaking countries in the asia-pacific and middle east regions where we see significant investment in healthcare systems to improve capacity and quality . we outsource the manufacturing of our hardware products . our outsourced manufacturing model allows us to scale our business without the significant capital investment and on-going expenses required to establish and maintain manufacturing operations . we work closely with our contract manufacturer , smtc corporation , and key suppliers to manage the procurement , quality and cost of components . we seek to maintain an optimal level of finished goods inventory to meet our forecast sales and unanticipated shifts in sales volume and mix . in the fourth quarter of 2016 , we acquired all of the outstanding equity interest of extension healthcare for $ 52.5 million in cash . in addition , $ 2.5 million has been set aside for retention bonuses for key employees of which $ 0.5 million was paid in december 2016 and $ 2 million will be paid over the next two years . extension healthcare was a leading provider of clinical , event-driven communication and workflow collaboration software for the hospital environment . extension healthcare was known in the market for its clinical integration software solution engage , which features an advanced clinical rules engine that unifies data from multiple sources simultaneously , enables prioritization of notifications , adds patient context , and sends messages to the right care team members on their mobile devices . the engage platform allows clinicians to be away from the bedside while staying informed about their patients . 32 components of operating results revenue . we generate revenue from the sale of products and services . as discussed further in the section titled “ critical accounting policies and estimates—revenue recognition ” below , revenue is recognized when persuasive evidence of an arrangement exists , delivery has occurred , the price is fixed or determinable and collection is reasonably assured . revenue is comprised of the following : product . our solutions include both hardware and software . we refer to hardware revenue as device revenue , which includes revenue from sales of our communication badges and badge accessories , which include batteries , battery chargers , lanyards , clips and other ancillary badge components as well as revenue from the resale of mc40 devices and related accessories . software revenue is derived primarily from the sale of perpetual licenses to our vocera communication system . we derive additional software revenue from the sale of term licenses and hosted software subscriptions , which can be renewed on a subscription basis . product revenue is generally recognized upon shipment of hardware and perpetual licenses and , in the case of term licenses or subscription services , ratably over the applicable term . service . we receive service revenue from sales of software maintenance , extended hardware warranties and professional services . story_separator_special_tag general and administrative expense . general and administrative expense decreased $ 1.7 million , or 9.5 % , from the year ended december 31 , 2015 compared to the year ended december 31 , 2014. this resulted primarily from a decrease of $ 0.4 million in outside services related to lower legal expenses and a lower reliance on consultants . the decrease also resulted from $ 0.4 million in severance charges . during the fourth quarter of 2014 , we initiated a restructuring plan that resulted in $ 0.7 million of severance charges , of which $ 0.1 million was recorded to cost of revenue and $ 0.6 million was recorded to operating expenses . see note 6 , consolidated balance sheet components , in the notes to the consolidated financial statements in item 8 of this report , for further discussion of our restructuring activities . replace_table_token_15_th interest income . interest income increased $ 0.2 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 due to the shift in these periods from cash equivalents to higher interest-bearing short-term investments . other expense , net . the change in other expense , net for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 was primarily due to foreign exchange fluctuations . provision for income taxes . the $ 0.5 million provision on $ 16.6 million of loss before income taxes in 2015 represented a negative effective tax rate of 2.8 % . the negative effective tax rate for 2015 was due primarily to the impact of pre-tax losses in the u.s. operations , offset by income taxes from foreign operations . the negative effective tax rate of 1.2 % in 2014 is due primarily to the impact of pre-tax losses in the u.s. operations , offset by income taxes from foreign operations . 38 liquidity and capital resources replace_table_token_16_th as of december 31 , 2016 , we had cash and cash equivalents and short-term investments of $ 74.1 million and no debt . during 2016 , 2015 and 2014 , our purchases of property and equipment were $ 4.7 million , $ 1.2 million and $ 2.0 million , respectively . the expenditures in 2016 primarily relate to leasehold improvements related to the renovation of our corporate offices . the expenditures in 2015 and 2014 primarily related to leasehold improvements and computer equipment . we believe that our existing sources of liquidity will satisfy our anticipated working capital and capital requirements for at least the next twelve months . our future liquidity and capital requirements will depend upon numerous factors , including our rate of growth , the rate at which we add personnel to generate and support future growth , and potential future acquisitions . in the future , we may seek to sell additional equity securities or borrow funds . the sale of additional equity or convertible securities may result in additional dilution to our stockholders . if we raise additional funds through the issuance of debt securities or other borrowings , these securities or borrowings could have rights senior to those of our common stock and could contain covenants that could restrict our operations . any required additional capital may not be available on reasonable terms , if at all . operating activities cash provided by operating activities was $ 11.3 million in 2016 , due in part to non-cash items such as stock-based compensation of $ 12.0 million , $ 2.6 million in non-cash compensation expense and depreciation and amortization of $ 3.8 million for property and equipment and acquired intangible assets , partially offset by the 2016 net loss of $ 17.3 million . with respect to changes in assets and liabilities , cash was provided through a decrease of $ 0.1 million in other receivables , a $ 0.2 million increase in accounts payable , a $ 2.4 million increase in accrued liabilities and an $ 11.2 million increase in deferred revenue . these factors were offset by certain cash outflows , including an increase in accounts receivable of $ 0.3 million , which is attributable to current period 's billings exceeding collection on prior periods ' invoices , an increase in inventory of $ 2.0 million and a $ 0.8 million increase in prepaid expenses . cash used in operating activities was $ 0.1 million in 2015 , due in part to the 2015 net loss of $ 17.1 million , partially offset by non-cash items such as depreciation and amortization of $ 3.3 million for property and equipment and acquired intangible assets and stock-based compensation of $ 11.0 million . with respect to changes in assets and liabilities , cash was provided through a decrease of $ 0.6 million in inventory , a $ 1.1 million increase in accounts payable , a $ 2.8 million increase in accrued liabilities and a $ 4.1 million increase in deferred revenue . these factors were offset by certain cash outflows , including an increase in accounts receivable of $ 5.1 million , which is attributable to current period 's billings exceeding collection on prior periods ' invoices , and $ 0.3 million increase in prepaid expenses . cash used in operating activities was $ 4.7 million in 2014 , due in part to the 2014 net loss of $ 28.3 million , partially offset by non-cash items such as depreciation and amortization of $ 3.0 million for property and equipment and acquired intangible assets and stock-based compensation of $ 11.1 million . with respect to changes in assets and liabilities , cash was provided by a decrease in accounts receivable of $ 5.7 million , which is attributable to collection on prior periods ' invoices exceeding the current period 's billings , a decrease of $ 1.9 million in inventory , a $ 1.1 million increase in accrued liabilities and a $ 2.8 million increase in deferred revenue .
| results of operations the following table is a summary of our consolidated statements of operations for the years ended december 31 , 2016 , 2015 and 2014 . replace_table_token_7_th 34 year ended december 31 , 2016 compared to year ended december 31 , 2015 revenue : replace_table_token_8_th total revenue increased $ 23.6 million , or 22.7 % , for the year ended december 31 , 2016 compared to the year ended december 31 , 2015. the increase in total revenue was a result of increases in both product and services revenue . product revenue increased $ 15.0 million , or 26.8 % , for the year ended december 31 , 2016 compared to the year ended december 31 , 2015. device revenue increased $ 9.5 million , or 23.5 % , and software revenue increased $ 5.4 million , or 35.9 % , for the year ended december 31 , 2016 , compared to the year ended december 31 , 2015. the increase in device revenue , which related entirely to our communication solution , was driven primarily by an increase in unit sales of badges and related accessories to new customers making initial purchases and existing customers expanding deployments within their facilities to departments and users . the increase in software revenue was mainly a result of an increase in unit sales of licenses of our communication software . service revenue increased $ 8.7 million , or 17.9 % , for the year ended december 31 , 2016 compared to the year ended december 31 , 2015. software maintenance and support revenue increased $ 5.0 million , or 13.0 % , and professional services and training revenue increased $ 3.7 million , or 36.9 % , for the year ended december 31 , 2016 compared to the year ended december 31 , 2015. the increase in software maintenance and support revenue was primarily a result of having a larger customer base .
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liquidity management involves monitoring the bank 's sources and uses of funds in order to meet the day-to-day cash flow requirements while maximizing profits . stable core deposits and a strong capital position are the components of a solid foundation for the bank 's liquidity position . liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control . for example , the timing of maturities of securities held-to-maturity is fairly predictable and subject to a high degree of control at the time investment decisions are made . however , net deposit inflows and outflows are far less predictable and are not subject to the same degree of control . funding sources for the bank primarily include paid-in capital and customer-based deposits but also include borrowed funds and cash flow from operations . the bank has in place several agreements that will provide alternative sources of funding , including , but not limited to , lines of credit , sale of investment securities , purchase of federal funds , advances through the federal home loan bank of atlanta ( fhlba ) and correspondents , and brokered certificate of deposit arrangements . management believes that the bank has the ability to meet its liquidity needs . at december 31 , 2014 , liquid assets , which include cash , interest-bearing and noninterest-bearing deposits with banks , federal funds sold , and securities available-for-sale totaled $ 37,138,000 on december 31 , 2014 as compared to $ 62,762,000 at december 31 , 2013. despite this decrease , management deems liquidity to be adequate . investment securities traditionally provide a secondary source of liquidity since they can be converted into cash in a timely manner . however , approximately $ 11,630,000 of these securities are pledged against outstanding debt , public deposits , or lines of credit . therefore , the related debt would need to be repaid prior to the securities being sold in order for these securities to be converted to cash . 35 the following table sets forth non-deposit sources of funding : replace_table_token_13_th ( 1 ) currently the bank has in place pledged collateral in the amount of approximately $ 25,000,000 against which $ 12,000,000 was drawn and outstanding on december 31 , 2014. additional collateral would be required to be pledged in order for the full $ 78,370,000 to be available . at the end of 2014 , approximately 76.89 % , or $ 307,073,000 of the loan portfolio would mature or could reprice within a one-year period . at december 31 , 2014 , non-deposit sources of available funds totaled $ 108,498,000 , which included $ 78,370,000 available from the fhlba . capital resources capital adequacy is an important measure of financial stability and performance . management 's objectives are to maintain a level of capitalization that is sufficient to sustain asset growth and promote depositor and investor confidence . 36 regulatory agencies measure capital adequacy utilizing a formula that takes into account the individual risk profiles of financial institutions . the guidelines define capital as tier 1 ( primarily common stockholders ' equity , defined to include certain debt obligations ) and tier 2 ( remaining capital generally consisting of a limited amount of subordinated debt , certain hybrid capital instruments and other debt securities , preferred stock and a limited amount of the general valuation allowance for loan losses ) . the bank 's regulatory capital levels exceed those established for well-capitalized institutions . the following table ( along with note 17 of the audited financial statements ) shows the minimum capital requirements and the bank 's capital position as of december 31 , 2014 and 2013. replace_table_token_14_th replace_table_token_15_th during the third quarter of 2012 , financial closed a private placement of unregistered debt securities ( the 2012 offering ) pursuant to which financial issued $ 10,000,000 in principal of notes ( the 2012 notes ) . the 2012 notes have not been and will not be registered under the securities act of 1933 and may not be offered or sold in the united states absent registration or an applicable exemption from registration requirements . the 2012 notes bear interest at the rate of 6 % per year with interest payable quarterly in arrears . the 2012 notes mature on april 1 , 2017 , but are subject to prepayment in whole or in part on or after april 1 , 2013 at financial 's sole discretion on 30 days written notice to the holders . financial used $ 7 million of the proceeds from the 2012 offering in april 2012 to pay on maturity the principal due on notes issued in 2009. the proceeds from the 2012 offering , existing capital , and funds generated from operations provide financial with sufficient liquidity and capital with which to operate . the capital ratios set forth in above tables state the capital position and analysis for the bank only . because total assets on a consolidated basis are less than $ 500,000,000 , financial is not subject to the consolidated capital requirements imposed by the bank holding company act . consequently , financial does not calculate its financial ratios on a consolidated basis . if calculated , the capital ratios for the company on a consolidated basis would no longer be comparable to the capital ratios of the bank because the proceeds of these private placements do not qualify as equity capital on a consolidated basis . 37 as further described under regulation of the bank capital requirements , the basel committee released in june 2011 a revised framework for the regulation of capital and liquidity of internationally active banking organizations . the new framework is generally referred to as basel iii . as discussed above , when full phased in , basel iii will require certain bank holding companies and their bank subsidiaries to maintain substantially more capital , with a greater emphasis on common story_separator_special_tag liquidity management involves monitoring the bank 's sources and uses of funds in order to meet the day-to-day cash flow requirements while maximizing profits . stable core deposits and a strong capital position are the components of a solid foundation for the bank 's liquidity position . liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control . for example , the timing of maturities of securities held-to-maturity is fairly predictable and subject to a high degree of control at the time investment decisions are made . however , net deposit inflows and outflows are far less predictable and are not subject to the same degree of control . funding sources for the bank primarily include paid-in capital and customer-based deposits but also include borrowed funds and cash flow from operations . the bank has in place several agreements that will provide alternative sources of funding , including , but not limited to , lines of credit , sale of investment securities , purchase of federal funds , advances through the federal home loan bank of atlanta ( fhlba ) and correspondents , and brokered certificate of deposit arrangements . management believes that the bank has the ability to meet its liquidity needs . at december 31 , 2014 , liquid assets , which include cash , interest-bearing and noninterest-bearing deposits with banks , federal funds sold , and securities available-for-sale totaled $ 37,138,000 on december 31 , 2014 as compared to $ 62,762,000 at december 31 , 2013. despite this decrease , management deems liquidity to be adequate . investment securities traditionally provide a secondary source of liquidity since they can be converted into cash in a timely manner . however , approximately $ 11,630,000 of these securities are pledged against outstanding debt , public deposits , or lines of credit . therefore , the related debt would need to be repaid prior to the securities being sold in order for these securities to be converted to cash . 35 the following table sets forth non-deposit sources of funding : replace_table_token_13_th ( 1 ) currently the bank has in place pledged collateral in the amount of approximately $ 25,000,000 against which $ 12,000,000 was drawn and outstanding on december 31 , 2014. additional collateral would be required to be pledged in order for the full $ 78,370,000 to be available . at the end of 2014 , approximately 76.89 % , or $ 307,073,000 of the loan portfolio would mature or could reprice within a one-year period . at december 31 , 2014 , non-deposit sources of available funds totaled $ 108,498,000 , which included $ 78,370,000 available from the fhlba . capital resources capital adequacy is an important measure of financial stability and performance . management 's objectives are to maintain a level of capitalization that is sufficient to sustain asset growth and promote depositor and investor confidence . 36 regulatory agencies measure capital adequacy utilizing a formula that takes into account the individual risk profiles of financial institutions . the guidelines define capital as tier 1 ( primarily common stockholders ' equity , defined to include certain debt obligations ) and tier 2 ( remaining capital generally consisting of a limited amount of subordinated debt , certain hybrid capital instruments and other debt securities , preferred stock and a limited amount of the general valuation allowance for loan losses ) . the bank 's regulatory capital levels exceed those established for well-capitalized institutions . the following table ( along with note 17 of the audited financial statements ) shows the minimum capital requirements and the bank 's capital position as of december 31 , 2014 and 2013. replace_table_token_14_th replace_table_token_15_th during the third quarter of 2012 , financial closed a private placement of unregistered debt securities ( the 2012 offering ) pursuant to which financial issued $ 10,000,000 in principal of notes ( the 2012 notes ) . the 2012 notes have not been and will not be registered under the securities act of 1933 and may not be offered or sold in the united states absent registration or an applicable exemption from registration requirements . the 2012 notes bear interest at the rate of 6 % per year with interest payable quarterly in arrears . the 2012 notes mature on april 1 , 2017 , but are subject to prepayment in whole or in part on or after april 1 , 2013 at financial 's sole discretion on 30 days written notice to the holders . financial used $ 7 million of the proceeds from the 2012 offering in april 2012 to pay on maturity the principal due on notes issued in 2009. the proceeds from the 2012 offering , existing capital , and funds generated from operations provide financial with sufficient liquidity and capital with which to operate . the capital ratios set forth in above tables state the capital position and analysis for the bank only . because total assets on a consolidated basis are less than $ 500,000,000 , financial is not subject to the consolidated capital requirements imposed by the bank holding company act . consequently , financial does not calculate its financial ratios on a consolidated basis . if calculated , the capital ratios for the company on a consolidated basis would no longer be comparable to the capital ratios of the bank because the proceeds of these private placements do not qualify as equity capital on a consolidated basis . 37 as further described under regulation of the bank capital requirements , the basel committee released in june 2011 a revised framework for the regulation of capital and liquidity of internationally active banking organizations . the new framework is generally referred to as basel iii . as discussed above , when full phased in , basel iii will require certain bank holding companies and their bank subsidiaries to maintain substantially more capital , with a greater emphasis on common
| results of operations december 31 , 2014 compared to year ended december 31 , 2013 net income the net income for financial for the year ended december 31 , 2014 was $ 3,413,000 or $ 1.01 per basic and diluted share compared with net income of $ 3,060,000 or $ 0.91 per basic and diluted share for the year ended december 31 , 2013. note 13 of the audited financial statements provide additional information with respect to the calculation of financial 's earnings per share . the increase of $ 353,000 in 2014 net income compared to 2013 net income was due in large part the following : i ) a significant decrease in provisions for loan losses in 2014 as compared to 2013 ; ii ) a slight increase in net interest income ; iii ) a decrease in expenses associated with other real estate owned ; iv ) a decrease in fdic insurance expense , and v ) an increase in mortgage origination income . the increase was partially offset by increases in salary and employee benefits expense , occupancy and equipment expense , and marketing expense . as discussed in more detail below , we charged off $ 551,000 in nonperforming loans during the year ended december 31 , 2014 as compared with $ 1,105,000 in 2013. the amount of the provision for loan losses was $ 55,000 in the year ended december 31 , 2014 as compared to $ 540,000 in 2013. these operating results represent a return on average stockholders ' equity of 10.28 % for the year ended december 31 , 2014 compared to 10.13 % for the year ended december 31 , 2013. the return on average assets for the year ended december 31 , 2014 was 0.76 % compared to 0.71 % in 2013 .
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deferred income taxes have not been provided on the undistributed earnings of foreign subsidiaries in the united kingdom , germany , china and hong kong . the amount of such earnings at december 30 , 2016 was $ 11,783,000 . these earnings have been permanently reinvested and the company does not plan to initiate any action that would precipitate the payment of income taxes thereon . the unrecognized deferred tax liability for these earnings is estimated to be approximately $ 2,368,000 . note 8 : stockholders ' equity preferred stock the company has authorized 2,000,000 shares of undesignated preferred stock with a par value of $ 0.001 per share . none of the preferred shares were issued and outstanding at december 30 , 2016 and january 1 , 2016. dividends the company declared and paid cash dividends per common share during the periods presented as follows : replace_table_token_31_th replace_table_token_32_th on february 1 , 2017 the company 's board of directors announced a cash dividend of $ 0.21 per share of the company 's common stock , payable march 24 , 2017 , to stockholders of record as of march 3 , story_separator_special_tag overview exponent , inc. is a science and engineering consulting firm that provides solutions to complex problems . our multidisciplinary team of scientists , engineers , business and regulatory consultants brings together more than 90 different technical disciplines to solve complicated issues facing industry and government today . our services include analysis of product development , product recall , regulatory compliance , and the discovery of potential problems related to products , people , property and impending litigation . critical accounting estimates in preparing our consolidated financial statements , we make assumptions , judgments and estimates that can have a significant impact on our revenue , operating income and net income , as well as on the value of certain assets and liabilities on our consolidated balance sheet . we base our assumptions , judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances . actual results could differ materially from these estimates under different assumptions or conditions . on a regular basis we evaluate our assumptions , judgments and estimates and make changes accordingly . we believe that the assumptions , judgments and estimates involved in accounting for revenue recognition and estimating the allowance for contract losses and doubtful accounts have the greatest potential impact on our consolidated financial statements , so we consider these to be our critical accounting policies . we discuss below the assumptions , judgments and estimates associated with these policies . historically , our assumptions , judgments and estimates relative to our critical accounting policies have not differed materially from actual results . for further information on our critical accounting policies , see “ note 1 : summary of significant accounting policies ” of our notes to consolidated financial statements . 19 revenue recognition . we derive our revenues primarily from professional fees earned on consulting engagements , fees earned for the use of our equipment and facilities , as well as reimbursements for outside direct expenses associated with the services that are billed to our clients . substantially all of our engagements are service contracts performed under time and material or fixed-price billing arrangements . for time and material and fixed-price service projects , revenue is generally recognized as the services are performed . for substantially all of our fixed-price service engagements , we recognize revenue based on the relationship of incurred labor hours at standard rates to our estimate of the total labor hours at standard rates we expect to incur over the term of the contract . our estimate of total labor hours we expect to incur over the term of the contract is based on the nature of the project and our past experience on similar projects . we believe this methodology achieves a reliable measure of the revenue from the consulting services we provide to our customers under fixed-price contracts . significant management judgments and estimates must be made and used in connection with the revenues recognized in any accounting period . these judgments and estimates include an assessment of collectability and , for fixed-price engagements , an estimate as to the total effort required to complete the project . if we made different judgments or utilized different estimates , the amount and timing of our revenue for any period could be materially different . all contracts are subject to review by management , which requires a positive assessment of the collectability of contract amounts . if , during the course of the contract , we determine that collection of revenue is not reasonably assured , we do not recognize the revenue until its collection becomes reasonably assured , which in those situations would generally be upon receipt of cash . we assess collectability based on a number of factors , including past transaction history with the client , as well as the credit-worthiness of the client . losses on fixed-price contracts are recognized during the period in which the loss first becomes evident . contract losses are determined to be the amount by which the estimated total costs of the contract exceeds the total fixed price of the contract . estimating the allowance for contract losses and doubtful accounts . we make estimates of our ability to collect accounts receivable and our unbilled but recognized work-in-process . in circumstances where we are aware of a specific customer 's inability to meet its financial obligations to us or for disputes with customers that affect our ability to fully collect our accounts receivable and unbilled work-in-process , we record a specific allowance to reduce the net recognized receivable to the amount we reasonably believe will be collected . story_separator_special_tag the tax benefit realized during fiscal 2016 was $ 4,827,000. excluding the excess tax benefit , the effective tax rate would have been 38.3 % for fiscal 2016. fiscal years ended january 1 , 2016 , and january 2 , 2015 revenues replace_table_token_6_th the increase in revenues for our engineering and other scientific segment was due to an increase in billable hours and an increase in billing rates . during fiscal 2015 , billable hours for this segment increased by 5.2 % to 835,000 as compared to 794,000 during fiscal 2014. the increase was due to demand for services in our materials & corrosion engineering , biomedical engineering , polymer science & materials chemistry practices , as well as our infrastructure group . utilization increased to 75 % for fiscal 2015 as compared to 74 % for fiscal 2014. technical full-time equivalents increased 3.5 % to 537 for fiscal 2015 from 519 for fiscal 2014 due to our recruiting and retention efforts . the decrease in revenues from our environmental and health segment was due to a decrease in billable hours . during fiscal 2015 , billable hours for this segment decreased by 7.3 % to 290,000 as compared to 313,000 during fiscal 2014. utilization decreased to 65 % for fiscal 2015 as compared to 68 % for fiscal 2014. the decrease in billable hours and utilization was due to one of our major investigations ending in july of 2015 and weaker demand for our services in our health centers . technical full-time equivalents decreased 3.6 % to 214 during fiscal 2015 as compared to 222 for fiscal 2014 due to our efforts to align resources with anticipated demand . compensation and related expenses fiscal years percent ( in thousands except percentages ) 2015 2014 change compensation and related expenses $ 184,502 $ 183,533 0.5 % percentage of total revenues 59.0 % 60.2 % the increase in compensation and related expenses during fiscal 2015 was due to an increase in payroll , fringe benefits , and bonus expense partially offset by a change in the value of assets associated with our deferred compensation plan . during fiscal 2015 payroll and fringe benefits increased $ 1,683,000 and $ 971,000 , respectively , due to the increase in technical full-time equivalent employees , our annual salary increase and , an increase in health insurance rates . bonuses increased $ 1,204,000 due to a corresponding increase in income before income taxes , before bonus expense , and before stock-based compensation expense . during fiscal 2015 , deferred compensation expense decreased $ 2,850,000 with a corresponding decrease to other income as compared with the prior year due to the change in value of assets associated with our deferred compensation plan . this decrease consisted of a decrease in the value of the plan assets of $ 325,000 during fiscal 2015 as compared to an increase in the value of the plan assets of $ 2,525,000 during fiscal 2014. other operating expenses fiscal years percent ( in thousands except percentages ) 2015 2014 change other operating expenses $ 26,975 $ 26,285 2.6 % percentage of total revenues 8.6 % 8.6 % other operating expenses include facilities-related costs , technical materials , computer-related expenses and depreciation and amortization of property , equipment and leasehold improvements . the increase in other operating expenses was primarily due to an increase in computer expense of $ 274,000 , an increase in office expense of $ 167,000 , an increase in technical materials of $ 150,000 , and several individually insignificant increases , which were associated with the increase in technical full-time equivalent employees and investments in our corporate infrastructure . 24 reimbursable expenses fiscal years percent ( in thousands except percentages ) 2015 2014 change reimbursable expenses $ 17,127 $ 15,495 10.5 % percentage of total revenues 5.5 % 5.1 % the increase in reimbursable expenses was primarily due to an increase in project-related costs in our materials & corrosion engineering practice within our engineering and other scientific segment . the amount of reimbursable expenses will vary from year to year depending on the nature of our projects . general and administrative expenses fiscal years percent ( in thousands except percentages ) 2015 2014 change general and administrative expenses $ 15,295 $ 15,842 ( 3.5 ) % percentage of total revenues 4.9 % 5.2 % the decrease in general and administrative expenses during fiscal 2015 was primarily due to a decrease in legal fees of $ 566,000 and a decrease in charitable contributions of $ 507,000 , partially offset by an increase in outside consulting services of $ 218,000 and an increase in accounting fees of $ 164,000. the decrease in legal fees was due to a decrease in costs associated with legal claims during fiscal 2015 as compared to fiscal 2014. the increase in outside consulting services was due to investments in our corporate infrastructure . other income fiscal years percent ( in thousands except percentages ) 2015 2014 change other income $ 2,200 $ 4,416 ( 50.2 ) % percentage of total revenues 0.7 % 1.4 % other income consists primarily of interest income earned on available cash , cash equivalents and short-term investments , changes in the value of assets associated with our deferred compensation plan and rental income from leasing excess space in our silicon valley facility . the decrease in other income was primarily due to the change in value of assets associated with our deferred compensation plan .
| executive summary revenues for fiscal 2016 increased 1 % and revenues before reimbursements also increased 1 % as compared to the prior year . the increase in revenues before reimbursements was due to an increase in billing rates . billable hours for fiscal 2016 decreased 1 % as compared to the prior year . the low revenue growth and the decrease in billable hours during fiscal 2016 was due to a challenging year over year comparison due to the completion of a major project during the third quarter of fiscal 2015 and lower revenues from the oil and gas and industrial chemicals industries . during 2016 we were retained to investigate many significant accidents and product recalls and to evaluate reliability , safety , human health and environmental impacts of increasingly complex technologies , products , and processes . we experienced strong demand for our multi-disciplinary battery consulting services to investigate product performance for potential recalls as well as to assist clients during the product development and manufacturing process . during fiscal 2016 , we had notable performances in several practices including materials & corrosion engineering , polymer science & materials chemistry , biomedical engineering , and human factors . the materials & corrosion engineering practice experienced growth from the utilities industry in failure analyses of systems and proactive services in asset integrity management . the polymer science & materials chemistry practice experienced growth in battery consulting services . the biomedical engineering practice realized growth in design consulting and product liability claims support . the human factors practice realized growth in user study services for the consumer products industry . net income increased to $ 47,480,000 during fiscal 2016 as compared to $ 43,599,000 during fiscal 2015. diluted earnings per share increased to $ 1.75 for fiscal 2016 as compared to $ 1.60 for fiscal 2015. the increase in net income and diluted earnings per share was due to the early adoption of asu no .
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future claims against us , whether meritorious or not , could have a material adverse effect upon our 86 consolidated financial position , results of operations or cash flows , including losses due to costly litigation and losses due to matters that require significant amounts of story_separator_special_tag general the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this annual report . our consolidated financial statements are not directly comparable from period to period due to acquisitions and dispositions . refer to note 3 of our consolidated financial statements under item 8 of this annual report for details of each of these transactions . we have elected the presentation requirements under rule 12b-2 of the exchange act as a smaller reporting company and have herein included a two-year discussion of our financial condition and results of operations . historical operating results are not necessarily indicative of future operating results . actual future results may differ from those contained in or implied by the forward-looking statements as a result of various factors . these factors include , but are not limited to : the coronavirus covid-19 ( covid-19 ) that is adversely impacting our business , risks and uncertainties relating to the need for additional funds to service our debt , risks and uncertainties relating to the need for additional funds to execute our business strategy , our ability to access borrowings under our asset based loan ( abl facility ) , reductions in revenue forecasts , our ability to renew our broadcast licenses , changes in interest rates , the timing of our ability to complete any acquisitions or dispositions , costs and synergies resulting from the integration of any completed acquisitions , our ability to effectively manage costs , our ability to drive and manage growth , the popularity of radio as a broadcasting and advertising medium , changes in consumer tastes , the impact of general economic conditions in the united states or in specific markets in which we do business , industry conditions , including existing competition and future competitive technologies , disruptions or postponements of advertising schedules and programming in response to national or world events , our ability to generate revenue from new sources , including local commerce and technology-based initiatives , and the impact of regulatory rules or proceedings that may affect our business from time to time , and the future write-off of any material portion of the fair value of our fcc broadcast licenses and goodwill . overview salem media group , inc. ( salem we us our and its ) is a domestic multimedia company specializing in christian and conservative content , with media properties comprising radio broadcasting , digital media , and publishing . our content is intended for audiences interested in christian and family-themed programming and 27 conservative news talk . we maintain a website at www.salemmedia.com . our annual reports on form 10-k , quarterly reports on form 10-q , current reports on form 8-k , and any amendments to these reports are available free of charge through our website as soon as reasonably practicable after those reports are electronically filed with or furnished to the sec . the information on our website is not a part of or incorporated by reference into this or any other report of the company filed with , or furnished to , the sec . we have three operating segments : ( 1 ) broadcast , ( 2 ) digital media , and ( 3 ) publishing , which also qualify as reportable segments . our operating segments reflect how our chief operating decision makers , which we define as a collective group of senior executives , assess the performance of each operating segment and determine the appropriate allocations of resources to each segment . we continually review our operating segment classifications to align with operational changes in our business and may make changes as necessary . we measure and evaluate our operating segments based on operating income and operating expenses that exclude costs related to corporate functions , such as accounting and finance , human resources , legal , tax and treasury . we also exclude costs such as amortization , depreciation , taxes and interest expense when evaluating the performance of our operating segments . our principal sources of broadcast revenue include : the sale of block program time to national and local program producers ; the sale of advertising time on our radio stations to national and local advertisers ; the sale of banner advertisements on our station websites or on our mobile applications ; the sale of digital streaming advertisements on our station websites or on our mobile applications ; the sale of advertisements included in digital newsletters ; fees earned for the creation of custom web pages and custom digital media campaigns for our advertisers through salem surround ; the sale of advertising time on our national network ; the syndication of programming on our national network ; product sales and royalties for on-air host materials , including podcasts and programs ; and other revenue such as events , including ticket sales and sponsorships , listener purchase programs , where revenue is generated from special discounts and incentives offered to our listeners from our advertisers ; talent fees for voice-overs or custom endorsements from our on-air personalities and production services , and lease income for studios , towers or office space . our principal sources of digital media revenue include : the sale of digital banner advertisements on our websites and mobile applications ; the sale of digital streaming advertisements on websites and mobile applications ; the support and promotion to stream third-party content on our websites ; the sale of advertisements included in digital newsletters ; the digital delivery of newsletters to subscribers ; and the number of video and graphic downloads . story_separator_special_tag barter revenue is recorded on a gross basis unless an agency represents the programmer , in which case , revenue is reported net of the commission retained by the agency . during each of the years ended december 31 , 2020 and 2019 , 98 % and 97 % , respectively , of our broadcast revenue was sold for cash . broadcast operating expenses include : ( i ) employee salaries , commissions and related employee benefits and taxes , ( ii ) facility expenses such as lease expense and utilities , ( iii ) marketing and promotional expenses , ( iv ) production and programming expenses , and ( v ) music license fees . in addition to these expenses , our network incurs programming costs and lease expenses for satellite communication facilities . digital media our digital media based businesses provide christian , conservative , investing , e-commerce , audio and video streaming , and other resources digitally through the web . refer to item 1. business of this annual report for a description of each of our digital media websites and operations . revenue generated from this segment is reported as digital media revenue in our consolidated statements of operations included in this annual report . digital media revenue is impacted by the rates our sites can charge for advertising time , the level of advertisements sold , the number of impressions delivered or the number of products sold and the number of digital subscriptions sold . like our broadcasting segment , our second and fourth quarter advertising revenue generally exceeds our first and third quarter advertising revenue . this seasonal fluctuation in advertising revenue corresponds with quarterly fluctuations in the retail advertising industry . we also experience fluctuations in quarter-over-quarter comparisons based on the date on which easter is observed , as this holiday generates a higher volume of product downloads from our church product websites . additionally , we experience increased demand for advertising time and placement during election years for political advertisements . 30 the primary operating expenses incurred by our digital media businesses include : ( i ) employee salaries , commissions and related employee benefits and taxes , ( ii ) facility expenses such as lease expense and utilities , ( iii ) marketing and promotional expenses , ( iv ) royalties , ( v ) streaming costs , and ( vi ) cost of goods sold associated with e-commerce sites . publishing our publishing operations include book publishing through regnery ® publishing , self-publishing services through salem author services and singing news magazine . refer to item 1. business of this annual report for a description of each of our publishing operations . revenue generated from this segment is reported as publishing revenue in our consolidated statements of operations included in this annual report . publishing revenue is impacted by the retail price of books and e-books , the number of books sold , the number and retail price of e-books sold , the number and rate of print magazine subscriptions sold , the rate and number of pages of advertisements sold in each print magazine , and the number and rate at which self-published books are published . regnery ® publishing revenue is impacted by elections as it generates higher levels of interest and demand for publications containing conservative and political based opinions . the primary operating expenses incurred by our publishing businesses include : ( i ) employee salaries , commissions and related employee benefits and taxes , ( ii ) facility expenses such as lease expense and utilities , ( iii ) marketing and promotional expenses ; and ( iv ) cost of goods sold that includes printing and production costs , fulfillment costs , author royalties and inventory reserves . known trends and uncertainties in march 2020 , the world health organization declared the outbreak of covid-19 a global pandemic . the responses by federal , state and local governments to restrict public gatherings and travel rapidly grew to include stay-at-home orders , school closures and mandatory restrictions on non-essential businesses and services that has adversely affected workforces , certain economies , and financial markets resulting in a significant economic downturn . we experienced declining revenue from advertising , programming , events and book sales . several advertisers reduced or ceased advertising spend due to the outbreak and stay-at-home orders that effectively shut many businesses down . this was particularly true within our broadcast segment , which derives substantial revenue from local advertisers who have been particularly hard hit due to social distancing and government interventions and in our publishing segment that sells books in retail stores and through live events . while this disruption is expected to be temporary , there remains to be considerable uncertainty around the duration . although advertising revenue continues to improve from the lowest levels experienced during april and may of 2020 , it remains significantly below prior years . the exact timing and pace of the recovery has not been determinable as certain markets have reopened , some of which have since experienced a resurgence of covid-19 cases , resulting in varying degrees of reinstated stay-at-home orders . due to continuing uncertainties regarding the ultimate scope and trajectory of covid-19 's spread and evolution , it is impossible to predict the total impact that the pandemic will have on our business . if public and private entities continue to enforce restrictive measures , the material adverse effect on our business , results of operations , financial condition and cash flows could persist . our businesses could also continue to be impacted by the disruptions from covid-19 and resulting adverse changes in advertising customers and consumer behavior . future availability under our credit facility is contingent upon our eligible receivable balance , which is negatively impacted by lower revenue and longer days to collect .
| results of operations year ended december 31 , 2020 compared to the year ended december 31 , 2019 the following factors affected our results of operations and cash flows for the year ended december 31 , 2020 as compared to the prior year : financing during the year ended december 31 , 2020 , we completed repurchases of $ 3.5 million of the notes for $ 3.4 million in cash , recognizing a net gain of $ 49,000 after adjusting for bond issuance costs compared to repurchases of compared to repurchases of $ 18.7 million of the notes for $ 16.8 million in cash , recognizing a net gain of $ 1.7 million after adjusting for bond issuance costs during the prior year as detailed in note 13long-term debt in the notes to our consolidated financial statements contained in item 8 of this annual report . equity transactions distributions of $ 0.7 million ( $ 0.025 per share ) were declared and paid in march 2020 compared to distributions of $ 5.8 million ( $ 0.025 per share ) during the prior year as detailed in note 19equity transactions in the notes to our consolidated financial statements contained in item 8 of this annual report . acquisitions and divestitures the operating results of our business acquisitions and asset purchases are included in our consolidated results of operations from their respective closing date or the date that we began operating them under an lma or tba . the operating results of business and asset divestitures are excluded from our consolidated results of operations from their respective closing date or the date that a third-party began operating them under an lma or tba . on september 15 , 2020 , we acquired the hyper pixels media website and related assets for $ 1.1 million in cash .
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through our diversified family of businesses , we leverage core competencies in advanced , enabling technology ; health care data ; information and intelligence ; and clinical care delivery , management and coordination to help meet the demands of the health system . these core competencies are deployed within our two distinct , but strategically aligned , business platforms : health benefits operating under unitedhealthcare and health services operating under optum . we have four reportable segments across our two business platforms , unitedhealthcare and optum : unitedhealthcare , which includes unitedhealthcare employer & individual , unitedhealthcare medicare & retirement , unitedhealthcare community & state and unitedhealthcare global ; optumhealth ; optuminsight ; and optumrx . further information on our business and reportable segments is presented in part i , item 1 , “ business ” and in note 13 of notes to the consolidated financial statements included in part ii , item 8 , “ financial statements. ” business trends our businesses participate in the united states , south america and certain other international health markets . in the united states , health care spending has grown consistently for many years and comprises approximately 18 % of gross domestic product . we expect overall spending on health care to continue to grow in the future , due to inflation , medical technology and pharmaceutical advancement , regulatory requirements , demographic trends in the population and national interest in health and well-being . the rate of market growth may be affected by a variety of factors , including macro-economic conditions and regulatory changes , which have impacted and could further impact our results of operations . pricing trends . to price our health care benefit products , we start with our view of expected future costs . we frequently evaluate and adjust our approach in each of the local markets we serve , considering all relevant factors , such as product positioning , price competitiveness and environmental , competitive , legislative and regulatory considerations , including minimum mlr thresholds . we will continue seeking to balance growth and profitability across all of these dimensions . the commercial risk market remains highly competitive in both the small group and large group segments . we expect broad-based competition to continue as the industry adapts to individual and employer needs amid reform changes . the aca included an annual , nondeductible insurance industry tax ( health insurance industry tax ) to be levied proportionally across the insurance industry for risk-based health insurance products . a provision in the 2016 federal budget imposed a one year moratorium for 2017 on the collection of the health insurance industry tax . pricing for contracts that cover a portion of calendar year 2018 reflected the impact of the returning health insurance industry tax . conversely , the industry has continued to experience favorable medical cost trends due to moderated utilization , which has impacted the competitive pricing environment . medicare advantage funding continues to be pressured , as discussed below in “ regulatory trends and uncertainties. ” we expect continued medicaid revenue growth due to anticipated increases in the number of people we serve ; we also believe that the payment rate environment creates the risk of downward pressure on medicaid margin percentages . we continue to take a prudent , market-sustainable posture for both new business and maintenance of existing relationships . we advocate for actuarially sound rates that are commensurate with our medical cost trends and we remain dedicated to partnering with those states that are committed to the long-term viability of their programs . medical cost trends . our medical cost trends primarily relate to changes in unit costs , health system utilization and prescription drug costs . we endeavor to mitigate those increases by engaging physicians and consumers with information and helping them make clinically sound choices , with the objective of helping them achieve high quality , affordable care . delivery system and payment modernization . the health care market continues to change based on demographic shifts , new regulations , political forces and both payer and patient expectations . health plans and care providers are being called upon to work together to close gaps in care and improve overall care quality , improve the health of populations and reduce costs . we continue to see a greater number of people enrolled in plans with underlying incentive-based care provider payment models that reward high-quality , affordable care and foster collaboration . we work together with clinicians to leverage our data and analytics to provide the necessary information to close gaps in care and improve overall health outcomes for patients . we are increasingly rewarding care providers for delivering improvements in quality and cost-efficiency . as of december 31 , 2017 , we served nearly 16 million people through some form of aligned contractual arrangement , including full-risk , shared- 26 risk and bundled episode-of-care and performance incentive payment approaches . as of december 31 , 2017 , our contracts with value-based elements total nearly $ 65 billion in annual spending . this trend is creating needs for health management services that can coordinate care around the primary care physician , including new primary care channels , and for investments in new clinical and administrative information and management systems , which we believe provide growth opportunities for our optum business platform . regulatory trends and uncertainties following is a summary of management 's view of the trends and uncertainties related to some of the key provisions of the aca and other regulatory matters . for additional information regarding the aca and regulatory trends and uncertainties , see part i , item 1 “ business - government regulation ” and item 1a , “ risk factors. ” medicare advantage rates . story_separator_special_tag the following table presents a summary of the reportable segment financial information : replace_table_token_4_th 29 unitedhealthcare the following table summarizes unitedhealthcare revenues by business : replace_table_token_5_th the following table summarizes the number of individuals served by our unitedhealthcare businesses , by major market segment and funding arrangement : replace_table_token_6_th in the commercial group market , broad-based growth was across group sizes and regions , led by gains in services to small groups and resulted in the overall increase in people served through risk-based benefit plans . fee-based commercial group business declined due to the non-renewal of one public sector customer . membership in individual business decreased due to our reduced participation in aca-compliant products in 2017. medicare advantage increased year-over-year due to growth in people served through individual and employer-sponsored group medicare advantage plans . medicaid growth was driven by the combination of new state-based awards and growth in established programs . medicare supplement growth reflected strong customer retention and new sales . unitedhealthcare 's revenue increase was due to growth in the number of individuals served across its businesses and price increases for underlying medical cost trends , which were partially offset by the reduction of people served in aca-compliant individual products and the impact of the health insurance industry tax moratorium . the increase in unitedhealthcare 's earnings from operations was led by diversified growth and increased operating margin . the 2016 results included losses in aca-complaint individual products and guaranty fund assessments . optum total revenues and earnings from operations increased as each segment reported increased revenues and earnings from operations as a result of the factors discussed below . the results by segment were as follows : optumhealth revenue and earnings from operations increased at optumhealth primarily due to organic and acquisition-related growth in care delivery . 30 optuminsight revenue and earnings from operations at optuminsight increased primarily due to growth in revenue management services and business process services . optumrx revenue and earnings from operations at optumrx increased primarily due to client and consumer growth . in 2017 , optumrx fulfilled 1.3 billion adjusted scripts compared to 1.2 billion in 2016 . 2016 results of operations compared to 2015 results our results of operations were affected by our acquisition of catamaran in the third quarter of 2015. story_separator_special_tag a.m. best ratings outlook ratings outlook ratings outlook ratings outlook senior unsecured debt a3 stable a+ negative ( a ) a- stable bbb+ stable commercial paper p-2 n/a a-1 n/a f1 n/a amb-2 n/a ( a ) in january 2018 , s & p global affirmed our ratings and changed our outlook to stable . the availability of financing in the form of debt or equity is influenced by many factors , including our profitability , operating cash flows , debt levels , credit ratings , debt covenants and other contractual restrictions , regulatory requirements and economic 33 and market conditions . for example , a significant downgrade in our credit ratings or adverse conditions in the capital markets may increase the cost of borrowing for us or limit our access to capital . share repurchase program . as of december 31 , 2017 , we had board authorization to purchase up to 42 million shares of our common stock . for more information on our share repurchase program , see note 10 of notes to the consolidated financial statements included in part ii , item 8 , “ financial statements. ” dividends . in june 2017 , our board increased our quarterly cash dividend to shareholders by 20 % to an annual dividend rate of $ 3.00 per share . for more information on our dividend , see note 10 of notes to the consolidated financial statements included in part ii , item 8 , “ financial statements. ” contractual obligations and commitments the following table summarizes future obligations due by period as of december 31 , 2017 , under our various contractual obligations and commitments : replace_table_token_8_th ( a ) includes interest coupon payments and maturities at par or put values . the table also assumes amounts are outstanding through their contractual term . see note 8 of notes to the consolidated financial statements included in part ii , item 8 , “ financial statements ” for more detail . ( b ) includes fixed or minimum commitments under existing purchase obligations for goods and services , including agreements that are cancelable with the payment of an early termination penalty and remaining capital commitments for venture capital funds and other funding commitments . excludes agreements that are cancelable without penalty and excludes liabilities to the extent recorded in our consolidated balance sheets as of december 31 , 2017 . ( c ) includes obligations associated with contingent consideration and other payments related to business acquisitions , certain employee benefit programs , amounts accrued for guaranty fund assessments , unrecognized tax benefits , and various other long-term liabilities . due to uncertainty regarding payment timing , obligations for employee benefit programs , charitable contributions , future settlements and other liabilities have been classified as “ thereafter. ” ( d ) includes commitments for redeemable shares of our subsidiaries . when the timing of the redemption is indeterminable , the commitment has been classified as “ thereafter. ” pending acquisitions . in december 2017 , we entered into agreements to acquire two companies in the health care sector for a total of approximately $ 7.7 billion , which are not reflected in the table above . one of the acquisitions closed in january 2018 ; the other is expected to close later in 2018 , subject to regulatory approval and other customary closing conditions . we do not have other significant contractual obligations or commitments that require cash resources . however , we continually evaluate opportunities to expand our operations , which include internal development of new products , programs and technology applications and may include acquisitions .
| consolidated financial results revenues the increases in revenues were primarily driven by organic growth in the number of individuals served across our unitedhealthcare benefits businesses and growth across all of our optum services businesses . medical costs medical costs increased due to risk-based membership growth and medical cost trends , partially offset by medical management initiatives . income tax rate our effective tax rate decreased primarily due to the adoption of “ compensation-stock compensation ( topic 718 ) : improvements to employee share-based payment accounting , ” which we adopted in the first quarter of 2016. reportable segments unitedhealthcare unitedhealthcare 's revenue growth was due to growth in the number of individuals served across its businesses and price increases for underlying medical cost trends . unitedhealthcare 's operating earnings increased due to diversified growth , offset by guaranty fund assessments recorded in the fourth quarter of 2016. optum total revenues and operating earnings increased as each reporting segment increased revenues and earnings from operations by double-digit percentages as a result of the factors discussed below . the results by segment were as follows : optumhealth revenue and earnings from operations increased at optumhealth primarily due to growth in its health care delivery businesses as well as expansion of behavioral services into new medicaid markets . strong performance in business supporting unitedhealthcare partially offset by investments in the health care delivery business drove the increase in earnings from operations . optuminsight revenue and earnings from operations at optuminsight increased primarily due to growth in revenue management , business process outsourcing and technology services . optumrx revenue and earnings from operations at optumrx increased primarily due to the full-year impact of catamaran and organic growth . in 2016 , optumrx fulfilled 1.2 billion adjusted scripts compared to 932 million in 2015 . 31 liquidity , financial condition and capital resources liquidity introduction we manage our liquidity and financial position in the context of our overall business strategy .
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the federal and state loss carryforwards expire in various years between 2013 and 2032 , and 2013 and 2032 , respectively . at june 30 , 2012 , we have research and experimentation credit carryforwards of approximately $ 1,147,000 for federal tax purposes that expire in various years between 2013 and 2032 , and $ 1,244,000 for state income tax purposes that do not have an expiration date . 57 thermogenesis corp. notes to consolidated financial statements ( continued ) 9. income taxes ( continued ) significant components of the company 's deferred tax assets and liabilities for federal and state income taxes are as follows : replace_table_token_29_th the valuation allowance decreased by approximately $ 202,000 in 2012 and increased $ 455,000 and $ 1,950,000 in 2011 and 2010 , respectively . as of june 30 , 2012 , we have a benefit of approximately $ 1,852,000 related to stock option deductions , which will be credited to paid-in capital when realized , of which $ 1,624,000 is included in the valuation allowance . because of the “ change of ownership ” provisions of the tax reform act of 1986 , a portion of the company 's federal net operating loss and credit carryovers may be subject to an annual limitation regarding their utilization against taxable income in future periods . 10. employee retirement plan we sponsor an employee retirement plan , generally available to all employees , in accordance with section 401 ( k ) of the internal revenue code . employees may elect to contribute up to the internal revenue service annual contribution limit . under this plan , at the discretion of the board of directors , we may match a portion of the employees ' contributions . we made no discretionary or matching contributions to the plan for the years ended june 30 , 2012 , 2011 and 2010 . 58 thermogenesis corp. notes to consolidated financial statements ( continued ) 11. unaudited quarterly financial data the following tables provide quarterly data for fiscal years ended june 30 , 2012 and 2011. replace_table_token_30_th replace_table_token_31_th 59 item 9. changes in and disagreements with accountants on accounting and financial disclosu re none . item 9a . controls and procedure s we carried out an evaluation , under the supervision and with the participation of the company 's management , including the company 's principal executive officer who is also the company 's principal financial officer , of the effectiveness of the design of the company 's disclosure controls and procedures ( as defined by exchange act rule 13a-15 ( e ) and 15a-15 ( e ) ) as of the end of the company 's fiscal year pursuant to exchange act rule 13a-15 . based upon that evaluation , the company 's principal executive and financial officer concluded that the company 's disclosure controls and procedures are effective . management 's report on internal control over financial reporting the report of management required under 9a is considered in item 8 part ii of this annual report on form 10-k under the heading “ management 's report on internal control over financial reporting . ” attestation report of independent registered public accounting firm none . changes in internal control over financial reporting there were no changes in the company 's internal controls over financial reporting that occurred during the fiscal quarter ended june 30 , 2012 , that have materially affected , or are reasonably likely to materially affect its internal controls over financial reporting . we believe that a control system , no matter how well designed and operated , can not provide absolute assurance that the objectives of the control system are met , and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud , if any , within any company have been detected . item 9b . other informa tion none . 60 part iii item 10. directors , executive officers and corporate governa nce the information required by this item will be included in and is hereby incorporated by reference from our proxy statement for the 2012 annual meeting of stockholders . we have adopted a code of ethics applicable to all employees including our ceo and cfo . a copy of the code of ethics is available at www.thermogenesis.com . item 11. executive compe nsation the information required by this item will be included in and is hereby incorporated by reference from our proxy statement for the 2012 annual meeting of stockholders . item 12. security ownership of certain beneficial owners and management and related stockholder matt ers the information required by this item will be included in and is hereby incorporated by reference from our proxy statement for the 2012 annual meeting of stockholders . item 13. certain relationships and related transactions , and director independen ce the information required by this item will be included in and is hereby incorporated by reference from our proxy statement for the 2012 annual meeting of stockholders . item 14. principal accounting fees and serv ices the information required by this item will be included in and is hereby incorporated by reference from our proxy statement for the 2012 annual meeting of stockholders . 61 part iv item 15. exhibits and financial statement schedu les the following documents are filed as a part of this report on form 10-k. replace_table_token_32_th management 's report on internal control over financial reporting is contained as part of this report under item 9a “ controls and procedures . ” ( a ) ( 2 ) financial statement schedules financial statement schedules have been omitted because they are not required . story_separator_special_tag estimated selling prices are determined using vendor specific objective evidence of value ( ‘ vsoe ' ) , when available , or an estimate of selling price when vsoe is not available for a given unit of accounting . significant inputs for the estimates of the selling price of separate units of accounting include market and pricing trends and a customer 's geographic location . we account for training and installation , and service agreements as separate units of accounting . service revenue generated from contracts for providing maintenance of equipment is amortized over the life of the agreement . all other service revenue is recognized at the time the service is completed . for licensing agreements pursuant to which the company receives up-front licensing fees for products or technologies that will be provided by the company over the term of the arrangements , the company defers the up-front fees and recognizes the fees as revenue on a straight-line method over the term of the respective license . for license agreements that require no continuing performance on the company 's part , license fee revenue is recognized immediately upon grant of the license . shipping and handling fees billed to customers are included in net revenues , while the related costs are included in cost of revenues . stock-based compensation : the company calculates stock-based compensation on the date of the grant using the black scholes-merton option-pricing formula . the compensation expense is then amortized over the vesting period . the company uses the black-scholes-merton option-pricing formula in determining the fair value of the company 's options at the grant date and applies judgment in estimating the key assumptions that are critical to the model such as the expected term , volatility and forfeiture rate of an option . the company 's estimate of these key assumptions is based on historical information and judgment regarding market factors and trends . if any of the key assumptions change significantly , stock-based compensation expense for new awards may differ materially in the future from that recorded in the current period . warranty : the company provides for the estimated cost of product warranties at the time revenue is recognized . while the company engages in extensive product quality programs and processes , including actively monitoring and evaluating the quality of its component suppliers , the company 's warranty obligation is affected by product failure rates , material usage and service delivery costs incurred in correcting a product failure . should actual product failure rates , material usage or service delivery costs differ from the company 's estimates , revisions to the estimated warranty liability could have a material impact on the company 's financial position , cash flows or results of operations . inventory reserve : the company states inventories at lower of cost or market value determined on a first-in , first-out basis . the company provides inventory allowances when conditions indicate that the selling price could be less than cost due to physical deterioration , obsolescence , changes in price levels , or other causes , which it includes as a component of cost of product and other revenues . additionally , the company provides reserves for excess and slow-moving inventory on hand that are not expected to be sold to reduce the carrying amount of slow-moving inventory to its estimated net realizable value . the reserves are based upon estimates about future demand from our customers and distributors and market conditions . because some of the company 's products are highly dependent on government and third-party funding , current customer use and validation , and completion of regulatory and field trials , there is a risk that we will forecast incorrectly and purchase or produce excess inventories . as a result , actual demand may differ from forecasts and the company may be required to record additional inventory reserves that could adversely impact our gross margins . conversely , favorable changes in demand could result in higher gross margins when products previously reserved are sold . 30 ( b ) story_separator_special_tag for the year ended june 30 , 2011 as compared to the year ended june 30 , 2010 net revenues : net revenues for the year ended june 30 , 2011 were $ 23,400,000 compared to $ 23,088,000 for the year ended june 30 , 2010 , an increase of $ 312,000 or 1 % . our revenues have remained consistent with the prior year as our increase in revenues from res-q disposables was offset by a decrease in revenues from axp and bioarchive disposables . res-q disposables increased as our distributor , celling technologies , significantly increased their volume as fiscal 2010 was the initial year of sales . cord blood collection rates in the u.s. and europe declined during the year due to the economic recession . in turn , we experienced a decline in sales of our bioarchive and automated ( axp ) cord blood processing set . sales analysis for the year ended june 30 : replace_table_token_7_th the following represents the company 's cumulative bioarchive system placements in the following geographies : replace_table_token_8_th gross profit : the company 's gross profit was $ 8,837,000 or 38 % of net revenues for the year ended june 30 , 2011 , as compared to $ 7,445,000 or 32 % for the year ended june 30 , 2010. the higher gross profit was primarily due to lower warranty costs of $ 500,000 and a decrease in overhead costs as we reduced headcount , achieved more efficient manufacturing and benefited from lower material costs through improved sourcing .
| results of opera tions the following is management 's discussion and analysis of certain significant factors which have affected the company 's financial condition and results of operations during the periods included in the accompanying consolidated financial statements . results of operations for the year ended june 30 , 2012 as compared to the year ended june 30 , 2011 net revenues : net revenues for the year ended june 30 , 2012 were $ 19,023,000 compared to $ 23,400,000 for the year ended june 30 , 2011 , a decrease of $ 4,377,000 or 19 % . bioarchive device revenues decreased $ 2,600,000 as there were fewer devices sold in fiscal 2012 than in the prior year . the global economy has tightened capital budgets and lowered collection volumes which have impacted our bioarchive device sales . we have also experienced a $ 740,000 decrease in our thermoline device revenues as we have stopped manufacturing devices due to our decision to divest or discontinue the product line and a minimum of sales resources are devoted to the remaining devices in inventory . these decreases were offset by an increase in cryoseal device and spare part revenues of $ 790,000 as we shipped a final device order of 25 units to asahi during fiscal 2012. sales analysis for the year ended june 30 : replace_table_token_5_th 31 the following represents the company 's cumulative bioarchive system placements in the following geographies : replace_table_token_6_th gross profit : the company 's gross profit was $ 6,333,000 or 33 % of net revenues for the year ended june 30 , 2012 , as compared to $ 8,837,000 or 38 % for the year ended june 30 , 2011. the lower gross profit is primarily due to the mix of products sold and an increase in inventory and warranty reserves . we delivered a final order to asahi of 25 cryoseal devices , at cost .
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110 michael w. hanson mr. hanson was elected a vice president of enterprise gp in april story_separator_special_tag for the years ended december 31 , 2020 , 2019 and 2018 the following discussion and analysis of our financial condition , results of operations and related information for the years ended december 31 , 2020 and 2019 , including applicable year-to-year comparisons , should be read in conjunction with our consolidated financial statements and accompanying notes included under part ii , item 8 of this annual report . our financial statements have been prepared in accordance with generally accepted accounting principles ( “ gaap ” ) in the united states ( “ u.s. ” ) . discussion and analysis of matters pertaining to the year ended december 31 , 2018 and year-to-year comparisons between the years ended december 31 , 2019 and 2018 are not included in this form 10-k , but can be found under part ii , item 7 of our annual report on form 10-k for the year ended december 31 , 2019 that was filed on february 28 , 2020. key references used in this management 's discussion and analysis unless the context requires otherwise , references to “ we , ” “ us ” or “ our ” within this annual report are intended to mean the business and operations of enterprise products partners l.p. and its consolidated subsidiaries . references to the “ partnership ” mean enterprise products partners l.p. on a standalone basis . references to “ epo ” mean enterprise products operating llc , which is an indirect wholly owned subsidiary of the partnership , and its consolidated subsidiaries , through which the partnership conducts its business . we are managed by our general partner , enterprise products holdings llc ( “ enterprise gp ” ) , which is a wholly owned subsidiary of dan duncan llc , a privately held texas limited liability company . the membership interests of dan duncan llc are owned by a voting trust , the current trustees ( “ dd llc trustees ” ) of which are : ( i ) randa duncan williams , who is also a director and chairman of the board of directors ( the “ board ” ) of enterprise gp ; ( ii ) richard h. bachmann , who is also a director and vice chairman of the board of enterprise gp ; and ( iii ) w. randall fowler , who is also a director and the co-chief executive officer and chief financial officer of enterprise gp . ms. duncan williams and messrs. bachmann and fowler also currently serve as managers of dan duncan llc . references to “ epco ” mean enterprise products company , a privately held texas corporation , and its privately held affiliates . the outstanding voting capital stock of epco is owned by a voting trust , the current trustees ( “ epco trustees ” ) of which are : ( i ) ms. duncan williams , who serves as chairman of epco ; ( ii ) mr. bachmann , who serves as the president and chief executive officer of epco ; and ( iii ) mr. fowler , who serves as an executive vice president and the chief financial officer of epco . ms. duncan williams and messrs. bachmann and fowler also currently serve as directors of epco . we , enterprise gp , epco and dan duncan llc are affiliates under the collective common control of the dd llc trustees and the epco trustees . epco , together with its privately held affiliates , owned approximately 32.2 % of the partnership 's common units outstanding and 30.2 % of its series a cumulative convertible preferred units ( “ preferred units ” ) outstanding at december 31 , 2020. as generally used in the energy industry and in this annual report , the acronyms below have the following meanings : /d = per day mmbbls = million barrels bbtus = billion british thermal units mmbpd = million barrels per day bcf = billion cubic feet mmbtus = million british thermal units bpd = barrels per day mmcf = million cubic feet mbpd = thousand barrels per day tbtus = trillion british thermal units 64 cautionary statement regarding forward-looking information this annual report on form 10-k for the year ended december 31 , 2020 ( our “ annual report ” ) contains various forward-looking statements and information that are based on our beliefs and those of our general partner , as well as assumptions made by us and information currently available to us . when used in this document , words such as “ anticipate , ” “ project , ” “ expect , ” “ plan , ” “ seek , ” “ goal , ” “ estimate , ” “ forecast , ” “ intend , ” “ could , ” “ should , ” “ would , ” “ will , ” “ believe , ” “ may , ” “ scheduled , ” “ potential ” and similar expressions and statements regarding our plans and objectives for future operations are intended to identify forward-looking statements . although we and our general partner believe that our expectations reflected in such forward-looking statements ( including any forward-looking statements/expectations of third parties referenced in this annual report ) are reasonable , neither we nor our general partner can give any assurances that such expectations will prove to be correct . forward-looking statements are subject to a variety of risks , uncertainties and assumptions as described in more detail under part i , item 1a of this annual report . if one or more of these risks or uncertainties materialize , or if underlying assumptions prove incorrect , our actual results may vary materially from those anticipated , estimated , projected or expected . you should not put undue reliance on any forward-looking statements . the forward-looking statements in this annual report speak only as of the date hereof . story_separator_special_tag also , in the early stages of the pandemic , disputes between members of the organization of the petroleum exporting countries ( “ opec ” ) and russia ( collectively , the “ opec+ ” group ) over crude oil production levels led to unprecedented volatility in global energy markets and a historic collapse in crude oil prices in april 2020. although the opec+ group and other producers subsequently reached agreements to gradually reduce the oversupply of crude oil through production cuts , the downturn in the energy industry caused by lower demand and prices negatively impacted us , the producers we work with and our other customers to varying degrees . 66 supply side observations ongoing production cuts within the opec+ group , along with market-driven cuts in u.s. , brazilian and canadian supplies , continue to provide much- needed support for international energy markets in coping with the ongoing weakness in hydrocarbon demand attributable to the pandemic . in april 2020 , the opec+ group resolved their production dispute by agreeing to reduce their combined crude oil production by 9.7 mmbpd in may and june 2020 , 9.6 mmbpd in july 2020 , 7.7 mmbpd from august through december 2020 , and 5.8 mmbpd from january 2021 to april 2022. in december 2020 , the opec+ group revised their post-2020 production curtailments in light of current market dynamics and agreed to reduce their combined crude oil production by 7.2 mmbpd beginning in january 2021. the group will also hold monthly meetings to sign off on production adjustments for the following month , which would be no more than a 0.5 mmbpd increase . in addition , saudi arabia , the world 's biggest oil exporter , said it would voluntarily reduce its production by 1.0 mmbpd in february and march in recognition of demand uncertainty related to the pandemic . the duration of market-driven production cuts by non-opec countries such as the u.s. , brazil and canada will depend on supply and demand fundamentals . according to the february 2021 steo , the eia estimates that global production of petroleum and related liquids averaged 94.2 mmbpd in 2020 , which represents a decline of 6.4 mmbpd when compared to 2019 , and expects an average of 97.3 mmbpd in 2021 and 100.8 mmbpd in 2022. as a result of the current business environment , most crude oil producers in north america have significantly reduced their drilling and completion of new wells compared to prior years . baker hughes reported that the total number of drilling rigs working in the continental u.s. ( combined crude oil and natural gas rigs ) declined from 805 at december 27 , 2019 to 265 at june 26 , 2020. the u.s. drilling rig count stood at 266 on october 2 , 2020 , but increased to 392 by february 5 , 2021 due to strengthening energy fundamentals . in its february 2021 steo , the eia estimates that u.s. crude oil production averaged 11.3 mmbpd in 2020 , which is down from an average of 12.3 mmbpd in 2019. according to the february 2021 steo , the eia expects u.s. crude oil production to decline to an average of 10.9 mmbpd in the second quarter of 2021 since near-term drilling and completion activity will not generate enough production to offset declines from existing wells . the eia expects drilling activity to rise later in 2021 , contributing to u.s. crude oil production returning to an average of 11.2 mmbpd in the fourth quarter of 2021 and 11.0 mbpd for 2021. the eia forecasts u.s. crude oil production to average 11.5 mmbpd in 2022. in its february 2021 steo , the eia estimates that u.s. natural gas production averaged 91.3 bcf/d in 2020 , which is down from an average of 93.1 bcf/d in 2019. the eia forecasts natural gas production to average 90.5 bcf/d in 2021 and 91.0 bcf/d in 2022. with the expected increase in u.s. crude oil production in late-2021 , the eia expects associated natural gas production from crude oil-directed wells to increase , especially in the permian basin region , and to average 90.5 bcf/d in the fourth quarter of 2021. demand side observations across the globe , downstream demand for petroleum products such as gasoline and jet fuel has recovered from the lows of the second quarter of 2020 , but remains depressed due to the effects of the pandemic and refiners have reduced their utilization rates in response . many countries have eased their covid-19 containment measures and central banks and governments have instituted fiscal measures in an effort to stimulate economic activity . as a result , hydrocarbon demand has started to recover ; however , a continuation of this trend remains dependent on successful containment of the disease , the efficacy and distribution of approved vaccines on covid-19 and its emerging variants , and proven therapeutics . in its february 2021 steo , the eia estimates that global demand for petroleum and related liquids averaged 92.3 mmbpd in 2020 , and expects an average of 97.7 mmbpd in 2021 and 101.2 mmbpd in 2022. by contrast , the eia estimates that global demand for petroleum and related liquids averaged 101.2 mmbpd in 2019 ( pre-pandemic ) . 67 the decrease in hydrocarbon demand attributable to covid-19 and the resulting oversupply situation caused a significant decrease in crude oil prices .
| income statement highlights the following table summarizes the key components of our consolidated results of operations for the years indicated ( dollars in millions ) : replace_table_token_14_th revenues the following table presents each business segment 's contribution to consolidated revenues for the years indicated ( dollars in millions ) : replace_table_token_15_th 73 total revenues for 2020 decreased $ 5.59 billion when compared to 2019 primarily due to a net $ 5.15 billion decrease in marketing revenues . revenues from the marketing of crude oil and natural gas decreased $ 4.14 billion year-to-year primarily due to lower average sales prices , which accounted for a $ 3.27 billion decrease , and lower sales volumes , which accounted for an additional $ 867.8 million decrease . revenues from the marketing of ngls decreased a net $ 1.96 billion year-to-year primarily due to lower average sales prices , which accounted for a $ 3.16 billion decrease , partially offset by the effects of higher sales volumes , which resulted in a $ 1.2 billion increase . revenues from the marketing of petrochemicals and refined products increased a net $ 957.4 million year-to-year primarily due to higher sales volumes , which accounted for a $ 2.05 billion increase , partially offset by lower average sales prices , which resulted in a $ 1.1 billion decrease . revenues from midstream services for 2020 decreased $ 441.4 million when compared to 2019. revenues from our natural gas processing facilities decreased $ 229.9 million year-to-year primarily due to lower market values for the equity ngls we receive as non-cash consideration for processing services . revenues from our midland-to-echo 2 pipeline , which commenced limited service in february 2019 and full service in april 2019 and midland-to-echo 3 pipeline , which commenced service in october 2020 , increased a combined $ 49.6 million year-to-year .
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replace_table_token_29_th replace_table_token_30_th 12. subsequent events on february 7 , 2019 , the company completed an ipo through issuing and selling 9,739,541 shares of common stock at a public offering price of $ 19.00 per share , including 489,541 shares sold pursuant to the underwriters ' story_separator_special_tag financial condition and results of operations . you should read the following discussion and analysis of our financial condition and results of operations together with the section entitled “ selected consolidated financial data ” and our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties , including those described in the section titled “ special note regarding forward looking statements. ” our actual results and the timing of selected events could differ materially from those discussed below . factors that could cause or contribute to such differences include , but are not limited to , those identified below and those set forth under the section titled “ risk factors ” included elsewhere in this report . overview we are a clinical stage biopharmaceutical company pioneering immuno-neurology , a novel therapeutic approach for the treatment of neurodegeneration . immuno-neurology targets immune dysfunction as a root cause of multiple pathologies that are drivers of degenerative brain disorders . we are developing therapies designed to simultaneously counteract these pathologies by restoring healthy immune function to the brain . supporting our scientific approach , our discovery platform enables us to advance a broad portfolio of product candidates , validated by human genetics , which we believe will improve the probability of technical success over shorter development timelines . as a result , in the last five years , we have identified over forty immune system targets , progressed over ten programs into preclinical research , and advanced three product candidates , al001 and al002 , into clinical development . in the first quarter of 2019 , the dosing of the single ascending dose phase 1a in healthy subjects was completed for al001 , initially aimed at treating ftd-grn patients . there were no drug-related serious adverse events or dose limiting adverse events reported in the study , achieving the primary endpoint . moreover , statistically significant increases in plasma and csf pgrn levels relative to baseline were also observed , successfully demonstrating proof-of-mechanism for al001 in the central nervous systems of healthy subjects . we plan to advance al001 into a phase 1b study with proof-of-mechanism data in ftd-grn patients expected in the first half of 2019 and into a phase 2 study with proof-of-concept data in ftd-grn patients expected in the first half of 2020. in the second half of 2018 , we initiated dosing of healthy subjects in the ascending dose phase 1a study for al002 , a product candidate for alzheimer 's disease . in addition , in the first half of 2019 , we plan to initiate clinical trials with al003 , a product candidate for alzheimer 's disease , in an ascending dose phase 1a study in healthy subjects . in the second half of 2019 , we expect to initiate a phase 1 study with al101 , a product candidate for multiple neurodegenerative disorders . we were originally formed in may 2013 as a delaware limited liability company under the name alector llc . in october 2017 , we completed a reorganization whereby we converted from a delaware limited liability company to a delaware corporation under the name alector , inc. ( the conversion ) . in conjunction with the conversion , ( i ) all of our outstanding common units converted on a 1-for-1 basis into shares of common stock , par value $ 0.0001 per share ; ( ii ) all of our outstanding preferred units converted on a 1-for-1 basis into shares of convertible preferred stock , par value $ 0.0001 per share ; and ( iii ) our 202,924 unvested restricted units converted on a 1-for-1 basis into shares of unvested restricted common stock . prior to the conversion , we had issued profit interest units to employees . our vested profit interest units converted on a net issuance basis into shares of common stock and our unvested profit interest units converted on a net issuance basis into restricted common stock . fractional shares related to the conversion of profit interest grants were settled in cash . all vesting provisions remained the same following the conversion . to date , we have not had any products approved for sale and have not generated any revenue from product sales nor been profitable . further , we do not expect to generate revenue from product sales until such time , if ever , that we are able to successfully complete the development and obtain marketing approval for one of our product candidates . we will continue to require additional capital to develop our product candidates and fund operations for the foreseeable future . we have incurred net losses in each year since inception and expect to continue to incur net losses for the foreseeable future . our ability to generate product revenue will depend on the successful development and eventual commercialization of one or more of our product candidates . our net losses were $ 52.2 million , $ 32.5 million , and $ 15.1 million for the years ended december 31 , 2018 , 2017 , and 2016 , respectively . as of december 31 , 2018 , we had an accumulated deficit of $ 114.4 million . substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and 94 administrative costs associated with our operations . story_separator_special_tag general and administrative expenses also include legal fees relating to intellectual property and corporate matters , professional fees paid for accounting , auditing , consulting , and tax services , insurance costs , and facility costs not otherwise included in research and development expenses . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our programs . we also anticipate that we will incur increased expenses as a result of operating as a public company , including expenses related to compliance with the rules and regulations of the sec and those of the nasdaq stock market on which our securities are traded , legal , auditing , additional insurance expenses , investor relations activities , and other administrative and professional services . other income , net other income , net consists of interest earned on our cash equivalents and marketable securities and foreign currency transaction gains and losses incurred during the period . 96 story_separator_special_tag to the conversion , abbvie agreement , and the growth in our operations , a $ 1.8 million increase in personnel-related expenses , including stock-based compensation , due to the increase in headcount , and a $ 0.3 million increase in consulting expense to support our information technology , human resources , and other administrative functions . other income , net other income , net was $ 0.2 million for the year ended december 31 , 2017 , compared to $ 22,000 for the year ended december 31 , 2016. the increase of $ 0.2 million was due to interest income earned on investments made from the proceeds of our series d convertible preferred stock financing , in the fourth quarter of 2016. liquidity and capital resources since our inception through december 31 , 2018 , our operations have been financed primarily by net proceeds of $ 210.5 million from sales of our preferred units and convertible preferred stock and through the $ 205.0 million in upfront payments from the abbvie agreement . as of december 31 , 2018 , we had $ 290.4 million of cash , cash equivalents , and marketable securities . as of december 31 , 2018 , we had an accumulated deficit of $ 114.4 million . on february 7 , 2019 , we completed our ipo through issuing and selling 9,739,541 shares of common stock at a public offering price of $ 19.00 per share , including 489,541 shares sold pursuant to the underwriters ' partial exercise of their option to purchase additional shares . we received aggregate net proceeds from the offering , net of underwriting discounts and commissions and estimated offering expenses , of $ 168.2 million . future funding requirements our primary uses of cash are to fund our operations , which consist primarily of research and development expenditures related to our programs , and to a lesser extent , general and administrative expenditures . we expect our expenses to continue to increase in connection with our ongoing activities , in particular as we continue to advance our product candidates and our discovery programs . in addition , we expect to incur additional costs associated with operating as a public company . 99 based on our current operating plan , we believe that our existing cash , cash equivalents , and marketable securities will enable us to fund our operating expenses and capital expenditure requirements through at least the next 12 months from the filing date of this annual report on form 10-k. we have based this estimate on assumptions that may prove to be wrong , and we could utilize our available capital resources sooner than we currently expect . we may also choose to seek additional financing opportunistically . we expect to need to obtain substantial additional funding in the future for our research and development activities and continuing operations . if we were unable to raise capital when needed or on favorable terms , we would be forced to delay , reduce , or eliminate our research and development programs or future commercialization efforts . our future capital requirements will depend on many factors , including : the timing and progress of preclinical and clinical development activities ; the number and scope of preclinical and clinical programs we decide to pursue ; successful enrollment in and completion of clinical trials ; our ability to establish agreements with third-party manufacturers for clinical supply for our clinical trials and , if our product candidates are approved , commercial manufacturing ; our ability to maintain our current research and development programs and establish new research and development programs ; addition and retention of key research and development personnel ; our efforts to enhance operational , financial , and information management systems , and hire additional personnel , including personnel to support development of our product candidates ; negotiating favorable terms in any collaboration , licensing , or other arrangements into which we may enter and performing our obligations in such collaborations ; the timing and amount of milestone and other payments we may receive under our collaboration arrangements ; our eventual commercialization plans for our product candidates ; the costs involved in prosecuting , defending , and enforcing patent claims and other intellectual property claims ; and the costs and timing of regulatory approvals . a change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate . furthermore , our operating plans may change in the future , and we may need additional funds to meet operational needs and capital requirements associated with such operating plans . cash flows the following table summarizes our cash flows for the periods indicated ( in thousands ) : replace_table_token_7_th operating activities for the year ended december 31 , 2018 , cash provided by operating activities was $ 127.5 million . the net cash inflow from operations primarily resulted from the receipt of a $ 200.0
| results of operations comparison of the years ended december 31 , 2018 and 2017 replace_table_token_3_th revenue total revenue was $ 27.7 million for the year ended december 31 , 2018 , compared to $ 3.7 million for the year ended december 31 , 2017. the increase of $ 23.9 million was primarily due to collaboration revenue recognized from the upfront payments under the abbvie agreement , which was entered into in the fourth quarter of 2017 , offset by a $ 0.7 million reduction related to grant revenue from the u.s. government . research and development expenses research and development expenses were $ 73.0 million for the year ended december 31 , 2018 , compared to $ 29.9 million for the year ended december 31 , 2017. the increase of $ 43.1 million was driven by an increase in expenses for four product candidates that we are preparing for or have entered into phase 1 clinical trials and related increase in activities for the manufacturing of clinical materials , including $ 10.6 million for al001 , $ 3.2 million for al101 , $ 12.4 million for al002 , and $ 9.2 million for al003 . in addition , we had an increase in research and development expenses of $ 3.3 million related to other preclinical programs currently in development .
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other information not applicable part iii certain information required by part iii is incorporated by reference from hawkins ' definitive proxy statement for the annual meeting of shareholders to be held on august 2 , 2011 ( the 2011 proxy statement ) . except for those portions specifically incorporated in this form 10-k by reference to hawkins ' proxy statement , no other portions of the 2011 proxy statement are deemed to be filed as part of this form 10-k. item 10. directors , executive officers , and corporate governance our executive officers , their ages and offices held , as of may 31 , 2011 are set forth below : name age office patrick h. hawkins 40 chief executive officer and president kathleen p. pepski 56 vice president , chief financial officer , and treasurer mark a. beyer 49 vice president operations richard g. erstad 47 vice president , general counsel and secretary theresa r. moran 48 vice president quality and support keenan a. paulson 61 vice president water treatment group john r. sevenich 53 vice president industrial group patrick h. hawkins was appointed to serve as our chief executive officer and president in march 2011. he had previously been promoted to the position of president in march 2010 as part of the board 's succession planning efforts . he joined the company in 1992 and served as the business director food and pharmaceuticals , a position he held from 2009 to 2010. previously he served as business manager food and co-extrusion products from 2007 to 2009 and sales representative food ingredients from 2002 to 2007. he previously served the company in various other capacities , including plant manager , quality director and technical director . kathleen p. pepski has been the company 's vice president , chief financial officer and treasurer since february 2008 and was secretary from february 2008 to november 2008. she was the executive vice president and chief financial officer of pna holdings , llc and katun corporation , a supplier of business equipment parts , from 2003 to 2007 , the vice president of finance of hoffman enclosures , a manufacturer of systems enclosures and a subsidiary of pentair , inc. , from 2002 to 2003 , senior vice president and chief financial officer of bmc industries , inc. , a manufacturer of lenses and aperture masks , from 2000 to 2001 , and vice president and controller at valspar corporation , a paint and coatings manufacturer , from 1994 to 2000 . 45 mark a. beyer has been the company 's vice president of operations since september 2009. mr. beyer previously held operations leadership positions with boston scientific corporation , a medical device manufacturer , and general mills , inc. , a diversified food company . he was self-employed as a consultant from january 2005 to september 2009. richard g. erstad has been the company 's vice president , general counsel and secretary since november 2008. he was general counsel and secretary of buca , inc. , a restaurant company , from 2005 to 2008. mr. erstad had previously been story_separator_special_tag the following is a discussion and analysis of our financial condition and results of operations for our fiscal years ended april 3 , 2011 , march 28 , 2010 , and march 29 , 2009. this discussion should be read in conjunction with the financial statements and notes to financial statements included in item 8 of this annual report on form 10-k. overview we derive substantially all of our revenues from the sale of bulk and specialty chemicals to our customers in a wide variety of industries . we began our operations primarily as a distributor of bulk chemicals with a strong customer focus . over the years we have maintained the strong customer focus and have expanded our business by increasing our sales of value-added specialty chemical products , including repackaging , blending and manufacturing certain products . in recent years , we significantly expanded the sales of our higher-margin blended and manufactured products , including our food-grade products . we expect this specialty chemical portion of our business to continue to grow . we have continued to invest in growing our business . on january 14 , 2011 , we completed the acquisition of substantially all of the assets of vertex chemical corporation ( vertex ) , for approximately $ 27.2 million . in addition to the manufacture of sodium hypochlorite bleaches , vertex distributes and provides terminal services for bulk liquid inorganic chemicals , and contract and private label packaging for household chemicals . we believe the acquisition strengthens our market position in the midwest . vertex had revenues of approximately $ 39 million in calendar 2010. while vertex 's margins have historically been somewhat lower than ours , we expect that the acquisition will be accretive to earnings . operating results of vertex are included in our consolidated results of operations from the date of acquisition in this annual report on form 10-k as part of our industrial segment . see note 2 to the consolidated financial statements for further information . in fiscal 2009 and fiscal 2010 , we invested in two new facilities to expand our ability to service our customers and facilitate growth within our industrial group . our facility in centralia , illinois began operations in july 2009 and primarily serves our food-grade products business . we closed our linden , new jersey food-grade production facility in september 2009 and transferred these operations to our centralia facility . also in fiscal 2009 , we built a facility in minneapolis , minnesota to handle bulk chemicals sold to pharmaceutical manufacturers . story_separator_special_tag this was partially offset by higher sales of manufactured and specialty chemical products . water treatment segment . water treatment segment sales decreased $ 0.6 million , or 0.7 % , to $ 82.2 million for fiscal 2010. increased sales of manufactured and specialty chemical products were offset by decreases in selling prices for commodity chemicals due to lower commodity chemical costs in fiscal 2010 compared to the prior year . gross profit gross profit was $ 64.4 million , or 25.1 % of sales , for fiscal 2010 , as compared to $ 62.4 million , or 22.0 % of sales , for fiscal 2009. the lifo method of valuing inventory increased gross profit by $ 12.6 million for fiscal 2010 due to decreases in certain raw material costs , whereas lifo decreased gross profit by $ 10.0 million in the prior year due to increases in certain raw material costs during that period . the increase in gross profit as a percentage of sales was primarily driven by our ability to maintain relatively stable margin dollars on lower selling prices compared to the prior year , in addition to an increase in sales of higher margin manufactured and specialty chemical products and the lifo reserve adjustments . industrial segment . gross profit for the industrial segment was $ 37.3 million , or 21.3 % of sales , for fiscal 2010 , as compared to $ 41.5 million , or 20.6 % of sales , for fiscal 2009. in fiscal 2009 , the gross profit dollars were significantly higher than historical levels due to the sale of lower-cost inventory on hand during that period of rapidly escalating commodity chemical prices as well as an increase in profits realized on certain products where we had inventory available to meet escalated demand during a period of constrained supply . by contrast , in fiscal 2010 , market conditions returned to levels more in line with our historical experience and , as a result , our gross profit dollars were lower for that period . increased operational overhead costs , primarily related to the two new facilities , also contributed to the lower gross profit levels in the industrial segment . the reductions were partially offset by higher profits realized from the sale of manufactured and specialty chemical products . the increase in gross profit margin as a percent of sales was primarily driven by our ability to maintain relatively stable margin dollars on lower selling prices compared to the prior year . the lifo method of valuing inventory positively impacted gross profit in this segment by $ 10.2 million in fiscal 2010 , as compared to negatively impacting gross profit by $ 6.9 million in fiscal 2009 . 17 water treatment segment . gross profit for the water treatment segment was $ 27.2 million , or 33.0 % of sales , for fiscal 2010 , as compared to $ 21.0 million , or 25.3 % of sales , for fiscal 2009. the higher gross profit dollars were primarily driven by a favorable product mix change as sales of higher-margin manufactured and specialty chemical products increased , and we experienced favorable weather conditions in the first quarter of fiscal 2010 as compare to the first quarter of fiscal 2009. the increase in gross profit margin as a percent of sales was primarily driven by our ability to maintain relatively stable margin dollars on lower selling prices compared to the prior year . additionally , the lifo method of valuing inventory positively impacted gross profit in this segment by $ 2.4 million in fiscal 2010 , as compared to negatively impacting gross profit by $ 3.1 million in fiscal 2009. selling , general and administrative expenses sg & a expenses were $ 25.6 million , or 10.0 % of sales , for fiscal 2010 , as compared to $ 25.1 million , or 8.8 % of sales , for fiscal 2009. the increase in sg & a expenses was primarily the result of higher equity incentive plan , variable pay plan and medical insurance costs partially offset by lower bad debt expense . the increase as a percentage of sales was primarily the result of the decrease in sales from fiscal 2009. operating income operating income was $ 38.8 million , or 15.1 % of sales , for fiscal 2010 , as compared to $ 37.3 million , or 13.1 % of sales , for fiscal 2009. a $ 6.1 million increase in operating income for the water treatment segment , which was driven by higher sales volumes for manufactured and specialty chemical products , was partially offset by a $ 4.6 million decrease in operating income for the industrial segment . both segments benefited from the lifo method of valuing inventory in fiscal 2010. investment income investment income was $ 0.3 million for fiscal 2010 and fiscal 2009. investment income remained flat year-over-year primarily due to lower yields on investments as compared to the prior year . provision for income taxes our effective income tax rate was 39.3 % for fiscal 2010 compared to 37.8 % for fiscal 2009. the higher effective tax rate for fiscal 2010 was primarily due to decreased permanent tax differences that served to reduce the effective tax rate in fiscal 2009. liquidity and capital resources cash provided by operations in fiscal 2011 was $ 28.5 million compared to $ 38.8 million in fiscal 2010 and $ 24.4 million in fiscal 2009. the decrease in cash provided by operating activities in fiscal 2011 from fiscal 2010 was primarily due to a decrease in net income , fluctuations in working capital balances and lower deferred tax liabilities .
| results of operations the following table sets forth certain items from our statement of income as a percentage of sales from period to period : replace_table_token_4_th 15 fiscal 2011 compared to fiscal 2010 sales sales increased $ 40.5 million , or 15.8 % , to $ 297.6 million for fiscal 2011 , as compared to sales of $ 257.1 million for fiscal 2010. the sales increase was primarily driven by higher sales of manufactured and specialty chemical products and somewhat higher selling prices for bulk chemicals due to increasing commodity chemical costs . sales of these bulk products were approximately 20 % of sales compared to approximately 19 % in the previous year . additionally , the acquisition of vertex , which closed in the fourth quarter of fiscal 2011 , contributed $ 9.2 million in revenue . industrial segment . industrial segment sales increased $ 33.8 million , or 19.3 % , to $ 208.7 million for fiscal 2011. the sales increase was primarily attributable to higher sales of manufactured and specialty chemical products and somewhat higher selling prices for commodity bulk chemicals due to increased commodity chemical costs . in addition , vertex revenues of $ 9.2 million are included in fiscal 2011 industrial segment sales . water treatment segment . water treatment segment sales increased $ 6.7 million , or 8.2 % , to $ 88.9 million for fiscal 2011. the sales increase was primarily attributable to increased sales of manufactured and specialty chemical products . gross profit gross profit was $ 61.9 million , or 20.8 % of sales , for fiscal 2011 , as compared to $ 64.4 million , or 25.1 % of sales , for fiscal 2010. the lifo method of valuing inventory negatively impacted gross profit by $ 3.9 million for fiscal 2011 due to increased raw material costs and higher volumes of inventory at year end maintained to meet customer requirements during an anticipated flood .
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in conjunction with our consolidated financial statements and related notes and the information contained elsewhere in this form 10-k under the headings “ risk factors , ” “ selected financial data , ” and “ business. ” overview we provide expedition sailing and adventure travel experiences that include itineraries featuring up-close encounters with wildlife and nature , history and culture and promote guest empowerment and interactivity . our mission is to offer life-changing adventures and wildlife experiences around the world and pioneer innovative ways to allow our guests to connect with exotic and remote places . many of these expeditions involve travel to remote places , such as voyages to the arctic , antarctic , the galapagos islands , alaska , baja 's sea of cortez , the south pacific , costa rica and panama , polar bear tours in churchill , canada and alaskan grizzly bear tours and african safaris . we currently operate a fleet of nine owned expedition ships and five seasonal charter vessels under the lindblad brand . we have a strategic business alliance with national geographic founded on a shared interest in exploration , research , technology and conservation . this relationship includes a co-selling , co-marketing and branding arrangement whereby our owned vessels carry the national geographic name and national geographic sells our expeditions through its internal travel division . we collaborate with national geographic on voyage planning to enhance the guest experience by having national geographic experts , including photographers , writers , marine biologists , naturalists , field researchers and film crews , join our expeditions . guests have the ability to interface with these experts through lectures , excursions , dining and other experiences throughout their voyage . we deploy chartered vessels for various seasonal offerings and continually seek to optimize our charter fleet to balance our inventory with demand and maximized yields . we use our charter inventory as a mechanism to both increase travel options of our existing and prospective guests and also to test demand for certain areas and seasons to understand the potential for longer term deployments and additional vessel needs . management considers investments in new ships to be an important step to meet increasing demand for our expedition cruise offerings . the national geographic quest launched in 2017 and operates in alaska , british columbia and the pacific northwest during the summer months and voyages to the channel islands , belize , columbia , costa rica and panama to provide expeditions for the northern hemisphere winter season . the national geographic venture launched in 2018 and operates primarily in the channel islands , baja california and the sea of cortez during the northern hemisphere winter seasons and alaska , british columbia and the pacific northwest during the summer . the national geographic endurance launched in 2020 and will operate primarily in the arctic and antarctic . our new polar ice class vessel , the national geographic resolution , is scheduled to be delivered in the fourth quarter of 2021 and will operate primarily in the arctic and antarctic . covid-19 business update due to the spread of the covid-19 virus and the effects of travel restrictions around the world , we have suspended or rescheduled the majority of our expeditions departing march 16 , 2020 through may 31 , 2021. we have been working with guests to amend travel plans and refund payments , as applicable . our ships are currently being maintained with minimally required crew on-board to ensure they comply with all necessary regulations and can be fully put back into service quickly as needed . in accordance with local regulations , we closed our offices and most employees are working remotely to maintain general business operations , to provide assistance to existing and potential guests and to maintain information technology systems . we moved quickly to implement a comprehensive plan to mitigate the impact of covid-19 and preserve and enhance our liquidity position . we are employing a variety of cost reduction and cash preservation measures , while accessing available capital under our existing debt facilities and through the issuance of preferred stock , while exploring additional sources of capital and liquidity . these measures include the following operating expense and capital expenditure reductions : ● significantly reduced ship and land-based expedition costs including crew payroll , land costs , fuel and food . all ships have been safely laid up . ● lowered expected annual maintenance capital expenditures by over $ 15 million , savings of more than 70 % from originally planned levels . ● meaningfully reduced general and administrative expenses through staff furloughs , payroll reductions and the elimination of all non-essential travel , office expenses and discretionary spending . ● suspended the majority of planned advertising and marketing spend . 35 ● suspended all repurchases of common stock under the stock repurchase plan . bookings trends we were off to a strong start to the year with lindblad segment bookings at the end of february up 25 % for the full year 2020 as compared to the same point a year ago for 2019 , and had sold 86 % of our originally projected guest ticket revenues for the year . since that point , we have experienced a substantial impact from the covid-19 virus including elevated cancellations and softness in near-term demand . despite the covid-19 impact , we still have substantial advanced bookings for future travel . bookings for the second half of 2021 are 1 % ahead of bookings for 2020 as of the same date a year ago , despite less available guest nights , and 33 % ahead of bookings for 2019 as of the same date two years ago . bookings for the full year 2022 are 32 % ahead of the bookings for 2021 as of the same date a year ago . we continue to see new bookings for future travel including over $ 110.0 million since march 1 , 2020 , and we are receiving deposits and final payments for future travel . story_separator_special_tag the most notable is the size of our owned and operated vessels which range from 48 to 148 passengers , allowing for a highly controlled environment that includes stringent cleaning protocols . the small nature of our ships should also allow us to efficiently and effectively test our guests and crew prior to boarding . on average , we estimate it will only take a few thousand tests a month to ensure all guests and crew across our entire fleet have been tested . additionally , the majority of our expeditions take place in remote locations where human interactions are limited , so there is less opportunity for external influence . we also have the ability to be flexible with regards to existing itineraries and are actively investigating additional itinerary opportunities both internationally and domestically . lastly , our guests are explorers by nature , eager to travel and have historically been very resilient following periods of uncertainty . financial presentation the discussion and analysis of our results of operations and financial condition are organized as follows : ● a description of certain line items and operational and financial metrics we utilize to assist us in managing our business ; ● a comparable discussion of our consolidated and segment results of operations for the years ended december 31 , 2020 , 2019 and 2018 ; ● a discussion of our liquidity and capital resources , including future capital and contractual commitments and potential funding sources ; and ● a review of our critical accounting policies . description of certain line items tour revenues tour revenues consist of the following : ● guest ticket revenues recognized from the sale of guest tickets ; and ● other tour revenues from the sale of pre- or post-expedition excursions , hotel accommodations and land-based expeditions ; air transportation to and from the ships , goods and services rendered onboard that are not included in guest ticket prices , trip insurance and cancellation fees . cost of tours cost of tours includes the following : ● direct costs associated with revenues , including cost of pre- or post-expedition excursions , hotel accommodations and land-based expeditions , air and other transportation expenses and cost of goods and services rendered onboard ; ● payroll costs and related expenses for shipboard and expedition personnel ; ● food costs for guests and crew , including complimentary food and beverage amenities for guests ; 37 ● fuel costs and related costs of delivery , storage and safe disposal of waste ; and ● other tour expenses , such as land costs , port costs , repairs and maintenance , equipment expense , drydock , ship insurance and charter hire costs . selling and marketing selling and marketing expenses include commissions , royalties and a broad range of advertising and promotional expenses . general and administrative general and administrative expenses include the cost of shoreside vessel support and other administrative functions , including salaries and related benefits , credit card commissions , professional fees and rent . operational and financial metrics we use a variety of operational and financial metrics , including non-gaap financial measures , such as adjusted ebitda , net yield , occupancy and net cruise cost , to enable us to analyze our performance and financial condition . we utilize these financial measures to manage our business on a day-to-day basis and believe that they are the most relevant measures of performance . some of these measures are commonly used in the cruise and tourism industry to evaluate performance . we believe these non-gaap measures provide expanded insight to assess revenue and cost performance , in addition to the standard gaap-based financial measures . there are no specific rules or regulations for determining non-gaap measures , and as such , our non-gaap financial measures may not be comparable to measures used by other companies within the industry . the presentation of non-gaap financial information should not be considered in isolation or as a substitute for , or superior to , the financial information prepared and presented in accordance with gaap . you should read this discussion and analysis of our results of operations and financial condition together with the consolidated financial statements and the related notes thereto also included in item 8 of this annual report on form 10-k. adjusted ebitda is net income ( loss ) excluding depreciation and amortization , net interest expense , other income ( expense ) , income tax ( expense ) benefit , ( gain ) loss on foreign currency , ( gain ) loss on transfer of assets , reorganization costs , and other supplemental adjustments . other supplemental adjustments include certain non-operating items such as stock-based compensation , executive severance costs , the national geographic fee amortization , debt refinancing costs , acquisition-related expenses and other non-recurring charges . we believe adjusted ebitda , when considered along with other performance measures , is a useful measure as it reflects certain operating drivers of the business , such as sales growth , operating costs , selling and administrative expense , and other operating income and expense . we believe adjusted ebitda helps provide a more complete understanding of the underlying operating results and trends and an enhanced overall understanding of our financial performance and prospects for the future . adjusted ebitda is not intended to be a measure of liquidity or cash flows from operations or a measure comparable to net income as it does not take into account certain requirements , such as unearned passenger revenues , capital expenditures and related depreciation , principal and interest payments , and tax payments . our use of adjusted ebitda may not be comparable to other companies within the industry . the following metrics apply to our lindblad segment : adjusted net cruise cost represents net cruise cost adjusted for non-gaap other supplemental adjustments which include certain non-operating items such as stock-based compensation , the national geographic fee amortization and acquisition-related expenses .
| general and administrative expenses general and administrative expenses for the year ended december 31 , 2020 decreased $ 17.2 million to $ 45.5 million compared to $ 62.7 million for the year ended december 31 , 2019. at the lindblad segment , general and administrative expenses decreased $ 10.6 million from the prior year primarily due to reduced personnel costs and credit card commissions related to the disruption of operations due to covid-19 . at the natural habitat segment , general and administrative expenses decreased $ 6.6 million primarily due to a decrease in personnel costs related to the disruption of operations due to covid-19 . selling and marketing expenses selling and marketing expenses decreased $ 34.6 million , or 63 % , to $ 20.2 million for the year ended december 31 , 2020 compared to $ 54.8 million for the year ended december 31 , 2019. at the lindblad segment , selling and marketing expenses decreased $ 30.9 million , primarily due to lower commission expenses related to the impact of covid-19 on revenue and decreased advertising expenditures . at the natural habitat segment , selling and marketing expenses decreased $ 3.7 million , primarily driven by a decrease in advertising expenditures .
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the fair value of the hedging instruments was based on the actively quoted tba mortgage backed securities story_separator_special_tag overview the following discussion presents information about our consolidated results of operations , financial condition , liquidity and capital resources and should be read in conjunction with our consolidated financial statements and the notes thereto included in item 8 of this report . our principal operating subsidiary is pacific mercantile bank ( the “ bank ” ) , which is a california state chartered bank . the bank accounts for substantially all of our consolidated revenues , expenses and income and our consolidated assets and liabilities . accordingly , the following discussion focuses primarily on the bank 's results of operations and financial condition . as of december 31 , 2014 , our total assets , net loans ( which exclude loans held for sale ) and total deposits were $ 1.1 billion , $ 824 million and $ 916 million , respectively . the bank , which is headquartered in orange county , california , approximately 40 miles south of los angeles , conducts a commercial banking business in orange , los angeles , san bernardino and san diego counties in southern california . the bank is also a member of the federal reserve system and its deposits are insured , to the maximum extent permitted by law , by the federal deposit insurance corporation ( the “ fdic ” ) . for the years ended december 31 , 2014 and 2013 , we operated as one reportable segment , commercial banking , and one non-reportable segment , discontinued operations . for the year ended december 31 , 2012 , we operated as two reportable segments : commercial banking and mortgage banking . unless the context otherwise requires , the “ company , ” “ we , ” “ our , ” “ ours , ” and “ us ” refer to pacific mercantile bancorp and its consolidated subsidiaries . current developments during the fourth quarter of 2013 , we announced our decision to exit the mortgage banking business . during the third quarter of 2014 , we completed our exit from the mortgage banking business . at december 31 , 2014 , the bank had no remaining employees in the mortgage division , down from 77 employees at december 31 , 2013 . in april 2014 , the bank also finalized arrangements to sell its portfolio of mortgage servicing rights in two separate transactions , each of which closed on april 30 , 2014 and are described in more detail below in item 8 of this report under note 16 , discontinued operations . in early 2014 , we launched an asset based lending ( “ abl ” ) group , which originates loans primarily secured by general corporate assets with a borrowing formula primarily based on accounts receivables and inventory . as of december 31 , 2014 and december 31 , 2013 , the bank had $ 46.1 million and $ 15.8 million , respectively , of abl facilities outstanding . effective november 20 , 2014 the federal reserve board terminated the written agreement entered into with the company and the bank on august 31 , 2010. see “ supervision and regulation—regulatory action by the frbsf and cdbo ” in item 1. business of this report for additional information . termination of the written agreement is expected to reduce management time and associated expense related to regulatory reporting requirements , and eliminates one barrier to the bank 's ability to effectively compete for loan and deposit business . story_separator_special_tag > investments , including our federal funds sold and interest-bearing deposits , was $ 233 thousand and $ 278 thousand for the years ended december 31 , 2013 and 2012 , respectively , yielding 0.25 % in each year on average balances of $ 93.1 million and $ 109.7 million , respectively . the average balances of short-term investments decreased as a result of a reduction in our funds held at the frbsf . as a result , total interest income on investments decreased $ 660 thousand which was due to a $ 615 thousand decrease in securities available-for-sale and stock partially and a $ 45 thousand decrease in short-term investments . interest expense 2014 vs. 2013 . total interest expense increased 9.6 % to $ 5.8 million for the year ended december 31 , 2014 from $ 5.3 million for the year ended december 31 , 2013 . the increase was primarily due to an increase in average interest-bearing liabilities from $ 616.4 million at december 31 , 2013 to $ 707.7 million at december 31 , 2014 , with a cost of funds of 0.82 % and 0.86 % , respectively , which consisted of deposits , borrowings and junior subordinated debentures . the increase in interest expense was partially offset by a decrease in the rates of interest paid on certificates of deposit . interest expense on our certificates of deposit for the year ended december 31 , 2014 and 2013 was $ 4.1 million and $ 3.8 million , respectively , with a cost of funds of 0.96 % and 1.06 % on average balances of $ 431.8 million and $ 354.7 million , respectively . 2013 vs. 2012 . total interest expense decreased 33.9 % to $ 5.3 million for the year ended december 31 , 2013 from $ 8.0 million for the year ended december 31 , 2012 . the decrease was primarily due to a decrease in average interest-bearing liabilities from $ 674.5 million at december 31 , 2012 to $ 616.4 million at december 31 , 2013 , yielding a cost of funds of 0.86 % and 1.19 % , respectively , which consisted of deposits , borrowings and junior subordinated debentures . story_separator_special_tag this would have the effect of reducing reportable income or , in the most extreme circumstance , creating a reportable loss . in addition , the federal reserve bank and the california department of business oversight ( “ cdbo ” ) , as an integral part of their regulatory oversight , periodically review the adequacy of our alll . these agencies may require us to make additional provisions for perceived potential loan losses , over and above the provisions that we have already made , the effect of which would be to reduce our income or increase any losses we might incur . the provision for loan and lease losses decreased $ 3.0 million , or 66.7 % , for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 , primarily as a result of improving asset quality evidenced by declining loan delinquencies , lower levels of classified loans , net loan recoveries and generally positive asset quality trends which more than offset the growth in our loan portfolio . see `` —financial condition—nonperforming loans and the allowance for loan and lease losses '' below in this item 7 for additional information regarding the alll . 32 noninterest income the following table identifies the components of and the percentage changes in noninterest income in the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_12_th 2014 vs. 2013 . during the year ended december 31 , 2014 , noninterest income increased by $ 3.2 million , or 266.3 % , to $ 4.4 million from $ 1.2 million for the year ended december 31 , 2013 , primarily as a result of : an increase of $ 2.1 million in net gain on sale of sba loans ; and no sales of non-sba loans in the year ended december 31 , 2014 as compared to a net loss on the sale of non-sba loans of $ 448 thousand included in other noninterest income during the year ended december 31 , 2013 . 2013 vs. 2012 . during the year ended december 31 , 2013 , noninterest income decreased by $ 2.6 million , or 68.3 % , to $ 1.2 million from $ 3.8 million for the year ended december 31 , 2012 , primarily as a result of : a $ 2.1 million , or 97.9 % , decrease in net gains on sales of securities available for sale ; and a net loss on sale of non-sba loans of $ 448 thousand included in other noninterest income during the year ended december 31 , 2013 as compared to no sales of non-sba loans during the year ended december 31 , 2012 . noninterest expense the following table sets forth the principal components and the amounts of , and the percentage changes in , noninterest expense in the years ended december 31 , 2014 , 2013 and 2012 . 33 replace_table_token_13_th ( 1 ) other operating expenses primarily consist of telephone , investor relations , promotional , regulatory expenses , and correspondent bank fees . 2014 vs. 2013 . during the year ended december 31 , 2014 , noninterest expense increased by $ 462 thousand , or 1.3 % , to $ 36.8 million from $ 36.3 million for the year ended december 31 , 2013 , primarily as a result of : an increase of $ 3.0 million in salaries and employee benefits primarily related to the hiring of key employees during 2013 and 2014 and an increase in the year-end incentive compensation accrual for the year ended december 31 , 2014 ; partially offset by a decrease of $ 1.3 million in oreo expenses attributable to the reduction in oreo properties during the year ended december 31 , 2014 ; a decrease of $ 1.1 million in professional fees related to decreased legal expenses due to the resolution of certain lawsuits and other disputes and a decline in legal costs related to nonperforming loans ; a decrease of $ 433 thousand in our fdic expense as a result of lower insurance required based upon improvement in the bank 's financial condition ; and no expense or recoveries related to our provision for contingencies as a result of settlements of legal disputes during the year ended december 31 , 2014 as compared to recoveries during the year ended december 31 , 2013 . 2013 vs. 2012 . during the year ended december 31 , 2013 , noninterest expense increased by $ 124 thousand , or 0.3 % , to $ 36.3 million from $ 36.5 million for the year ended december 31 , 2012 , primarily as a result of : an increase of $ 4.6 million in salaries and employee benefits related to the hiring of a new ceo and other key employees , increases in health care insurance costs , and increases in workers ' compensation premiums ; an increase of $ 390 thousand in occupancy expenses related to the expansion of leased spaces at two of the bank 's financial centers ; an increase of $ 501 thousand in other operating expenses attributable to increases in investor related expenses and insurance coverage premiums ; partially offset by a decrease of $ 550 thousand in fdic insurance expense related to a decline in deposit accounts and a reduction in premium rates ; a decrease of $ 3.7 million in oreo expenses related to the continued decline of the bank 's oreo inventory ; a decrease of $ 830 thousand in professional fees due to the settlement of certain lawsuits and a decline in nonperforming loans ; and a $ 576 thousand reduction in contingency reserves due to the entry of a favorable judgment in one lawsuit which resulted in a recovery .
| results of operations discontinued operations in connection with our exit from the mortgage banking business described above , the revenues and expenses of our mortgage banking division have been classified as discontinued operations for all periods presented . as a result , all comparisons below reflect results from continuing operations . income from discontinued operations was $ 1.2 million for the year ended december 31 , 2014 , while our loss from discontinued operations was $ 7.3 million for the year ended december 31 , 2013 . during the year ended december 31 , 2014 , we recorded a gain in the amount of $ 558 thousand on the sale of the mortgage servicing rights that we sold in april 2014 , which is included in income from discontinued operations in the consolidated statements of operations . this compares to a loss of $ 7.3 million for the year ended december 31 , 2013 from the mortgage banking operations as a result of the decision to discontinue the mortgage banking business . for additional information , see note 16 , discontinued operations , in our accompanying audited consolidated financial statements for the year ended december 31 , 2014 included in part ii item 8 of this annual report . operating results for the years ended december 31 , 2014 , 2013 , and 2012 28 our operating results for the year ended december 31 , 2014 , compared to december 31 , 2013 , and for the year ended december 31 , 2013 , compared to december 31 , 2012 , were as follows : replace_table_token_9_th interest income 2014 vs. 2013 . total interest income increased 7.4 % to $ 38.3 million for the year ended december 31 , 2014 from $ 35.7 million for the year ended december 31 , 2013 .
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53 rd week our year end date for financial reporting purposes is the sunday closest to december 31. as a result , we occasionally have a 53 rd week in a fiscal year . our year ended january 3 , 2016 includes a 53 rd week of activity . additionally , the 2013 successor period and the unaudited predecessor period from december 24 , 2012 through june 7 , 2013 combined is equal to 53 weeks of activity . integration and restructuring expenses related to integration and restructuring , we recorded expenses of $ 1.0 billion in the year ended january 3 , 2016 , expenses of $ 637 million in the year ended december 28 , 2014 , expenses of $ 411 million in the 2013 successor period , a benefit of $ 6 million in the 2013 predecessor period , and expenses of $ 1 million in fiscal 2013. these expenses include our multi-year $ 1.9 billion integration program which we announced following the 2015 merger . the costs primarily include organization costs , including cash and non-cash severance , footprint costs to exit facilities , and other costs incurred as a direct result of restructuring activities related to the 2015 merger . additionally , we anticipate capital expenditures of approximately $ 1.1 billion related to the integration program and have recognized $ 225 million in the year ended january 3 , 2016. the integration program is designed to reduce costs , integrate and optimize our combined organization and is expected to achieve $ 1.5 billion of pre-tax savings by 2017 , primarily benefiting the united states and canada segments . we realized approximately $ 125 million of pre-tax savings in the year ended january 3 , 2016. these expenses also include costs associated with other restructuring activities focused primarily on work-force reductions and factory closures and consolidations in relation to the 2013 merger . see note 3 , integration and restructuring expenses , to the consolidated financial statements for additional information . results of continuing operations for year ended january 3 , 2016 compared to year ended december 28 , 2014 : due to the size of kraft 's business relative to the size of heinz 's business prior to the 2015 merger , and for purposes of comparability , the results of continuing operations for year ended january 3 , 2016 compared to year ended december 28 , 2014 include certain unaudited pro forma results adjusted to assume that kraft and heinz were a combined company for both periods presented , which includes combining historical results , reflecting preliminary purchase accounting adjustments , and aligning accounting policies for both historical periods presented . these pro forma adjustments impacted the consolidated results as well as our united states and canada segments . in addition , we include certain non-gaap financial measures derived from these unaudited pro forma results . these pro forma adjustments and non-gaap financial measures assist management in comparing our performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect our core operations . for additional information and reconciliations from our consolidated financial statements , see supplemental unaudited pro forma condensed combined financial information and non-gaap financial measures . consolidated results of continuing operations year ended january 3 , 2016 compared to year ended december 28 , 2014 : summary of results replace_table_token_4_th 21 net sales replace_table_token_5_th net sales increased 67.9 % to $ 18.3 billion in the year ended january 3 , 2016 compared to the year ended december 28 , 2014 , primarily driven by the 2015 merger . pro forma net sales decreased 5.8 % in the year ended january 3 , 2016 compared to the year ended december 28 , 2014 , due primarily to the unfavorable impacts of foreign currency ( 5.2 pp ) and divestitures ( 0.2 pp ) , partially offset by the favorable impact of a 53 rd week of shipments ( 1.2 pp ) . excluding these impacts , pro forma organic net sales ( 1 ) declined 1.6 % as unfavorable volume/mix ( 2.6 pp ) was partially offset by higher net pricing ( 1.0 pp ) . unfavorable volume/mix was driven primarily by lower shipments in refreshment beverages , frozen meals , foodservice and boxed dinners in our united states and canada segments , partially offset by growth in rest of world . higher net pricing in nearly all segments was reduced by the negative impact ( approximately 1.0 pp ) of lower overall key commodity costs ( dairy , meat , coffee and nuts ) in the united states and canada . ( 1 ) pro forma organic net sales is a non-gaap financial measure . see the non-gaap financial measures section at the end of this item . operating income replace_table_token_6_th ( 2 ) adjusted pro forma ebitda is a non-gaap financial measure . see the non-gaap financial measures section at the end of this item . operating income increased 68.3 % to $ 2.6 billion for the year ended january 3 , 2016 , driven primarily by the 2015 merger . in addition to the 2015 merger , we also recognized a benefit from a 53 rd week of shipments partially offset by integration and restructuring expenses , the impact of non-cash costs related to the fair value adjustment of kraft 's inventory in purchase accounting , the unfavorable impact of foreign currency , merger costs , a nonmonetary loss to write down inventory at our venezuelan subsidiary , and higher depreciation and amortization expense . adjusted pro forma ebitda increased 3.3 % to $ 6.7 billion in the year ended january 3 , 2016 compared to the year ended december 28 , 2014 , driven primarily by savings from integration and restructuring activities and other ongoing productivity efforts , favorable pricing net of commodity costs , and the benefit ( approximately 1.0 pp ) of the 53 rd week of shipments , partially offset by the unfavorable impact of foreign currency ( 6.3 pp ) and unfavorable volume/mix . story_separator_special_tag pro forma net sales decreased 1.8 % , despite a benefit ( 1.2 pp ) from the 53 rd week of shipments . pro forma organic net sales decreased 3.0 % , due primarily to unfavorable volume/mix ( 3.0 pp ) . pricing was neutral as higher net pricing across most categories was offset by the negative impact ( approximately 1.5 pp ) of lower overall key commodity costs ( dairy , meat , coffee and nuts ) . unfavorable volume/mix was driven by lower shipments in ready-to-drink beverages , powdered beverages and boxed dinners that reflected category trends and the volume loss associated with higher net pricing , category and market share declines in frozen meals , and lower foodservice shipments . these declines were partially offset by favorable volume/mix primarily from innovation in refrigerated meal combinations and coffee . segment adjusted ebitda increased 6.3 % , driven by favorable pricing net of commodity costs , savings from integration and restructuring activities and the favorable impact of the 53 rd week of shipments , partially offset by unfavorable volume/mix . canada replace_table_token_12_th net sales increased 127.7 % to $ 1.4 billion , primarily driven by the 2015 merger . pro forma net sales decreased 15.1 % , due primarily to the unfavorable impact of foreign currency ( 13.4 pp ) , partially offset by the benefit ( 1.1 pp ) of the 53 rd week of shipments . pro forma organic net sales decreased 2.8 % , due primarily to unfavorable volume/mix ( 5.0 pp ) , partially offset by higher net pricing ( 2.2 pp ) . unfavorable volume/mix reflected lower shipments in foodservice , refreshment beverages and infant nutrition and the volume impact of higher net pricing in on-demand coffee and boxed dinners . higher net pricing in most categories reflected pricing actions related to higher input costs in local currency that was partially offset by the negative impact ( approximately 0.5 pp ) of lower key commodity costs ( dairy , meat , coffee and nuts ) . segment adjusted ebitda decreased 12.0 % , due primarily to the unfavorable impact of foreign currency ( 14.6 pp ) . excluding currency , savings from integration and restructuring activities , lower marketing spending and the favorable impact of the 53 rd week of shipments were partially offset by unfavorable volume/mix and higher input costs in local currency . europe replace_table_token_13_th net sales decreased 16.4 % , including the unfavorable impacts of foreign currency ( 11.4 pp ) and divestitures ( 2.1 pp ) , partially offset by the benefit ( 0.9 pp ) of the 53 rd week of shipments . pro forma organic net sales decreased 3.8 % as unfavorable volume/mix ( 4.5 pp ) was partially offset by higher net pricing ( 0.7 pp ) . higher net pricing reflected lower promotional spending in beans and price increases in ketchup . unfavorable volume/mix was driven primarily by the volume impact of higher net pricing in beans and ketchup , declines in infant nutrition in italy and increased competitive activity in soup , partially offset by growth in frozen potatoes . 25 segment adjusted ebitda increased 1.2 % , driven by lower input costs , savings from restructuring activities and other ongoing productivity efforts , favorable product mix and the benefit of the 53 rd week of shipments , partially offset by the unfavorable impact of foreign currency ( 14.3 pp ) and increased marketing investments . rest of world replace_table_token_14_th net sales decreased 11.1 % , due to the unfavorable impact of foreign currency ( 21.8 pp , including 7.1 pp from the devaluation of the venezuelan bolivar ) , partially offset by the benefit ( 1.5 pp ) of the 53 rd week of shipments . pro forma organic net sales increased 9.2 % , driven by both higher net pricing ( 6.3 pp ) and favorable volume/mix ( 2.9 pp ) . higher net pricing reflected the effects of the hyper-inflationary venezuelan economy prior to our june 28 , 2015 currency devaluation as well as pricing actions related to higher input costs in local currencies . favorable volume/mix was driven primarily by growth in ketchup and condiments across all businesses as well as sauces in asia , partially offset by declines in nutritional beverages in india . segment adjusted ebitda decreased 2.8 % , due primarily to the unfavorable impact of foreign currency ( 31.0 pp , including the impact of the devaluation of the venezuelan bolivar ) and higher local input costs . this decrease was partially offset by savings from restructuring activities and other ongoing productivity efforts as well as the favorable impact of the 53 rd week of shipments . results of continuing operations for year ended december 28 , 2014 compared to the 2013 successor period and the unaudited predecessor period from december 24 , 2012 through june 7 , 2013 : the following discussion presents the operating results for the year ended december 28 , 2014 , as compared to the 2013 successor period , and the unaudited predecessor period from december 24 , 2012 through june 7 , 2013. we believe this is the most appropriate way to compare our full year 2014 results to a comparable prior year period . the results for the year ended december 28 , 2014 and the twenty-nine weeks from february 8 through december 29 , 2013 are derived from our audited consolidated financial statements . all data for the unaudited predecessor period december 24 , 2012 to june 7 , 2013 is derived from our unaudited consolidated financial information , which is presented in the tables below , and represents a different period than the predecessor period april 29 , 2013 to june 7 , 2013 included in item 8 , financial statements and supplementary data .
| summary of results replace_table_token_15_th 26 net sales successor predecessor ( h. j. heinz company ) ( unaudited ) december 28 , 2014 ( 52 weeks ) february 8 - december 29 , 2013 ( 29 weeks ) december 24 , 2012 - june 7 , 2013 ( 24 weeks ) ( in millions ) net sales $ 10,922 $ 6,240 $ 5,204 net sales decreased 4.6 % to $ 10.9 billion for the year ended december 28 , 2014 , compared to the sum of $ 6.2 billion for the 2013 successor period , and $ 5.2 billion for the unaudited predecessor period from december 24 , 2012 to june 7 , 2013. this decrease included the negative impacts of unfavorable foreign exchange rates ( 2.0 pp ) , a 53 rd week of shipments in the 2013 successor period to align to the new year-end ( 1.4 pp ) and divestitures ( 0.2 pp ) . excluding these impacts , organic net sales ( 1 ) decreased 1.0 % , due to unfavorable volume/mix ( 4.0 pp ) , partially offset by higher net pricing ( 3.0 pp ) . unfavorable volume/mix was due primarily to frozen nutritional meals category declines and share losses in our frozen potatoes , meals and snacks businesses in united states consumer products , reduced trade promotions in u.s. foodservice products , raw material and packaging supply constraints in venezuela , and global product rationalization . higher net pricing was driven by price increases in united states consumer products and rest of world , as well as reduced trade promotions in u.s. foodservice products and canada , partially offset by increased promotional activity in europe . ( 1 ) organic net sales is a non-gaap financial measure . see the non-gaap financial measures section at the end of this item . operating income replace_table_token_16_th ( 2 ) adjusted ebitda is a non-gaap financial measure . see the non-gaap financial measures section at the end of this item .
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additionally , the company will downsize its corporate functions by approximately 25 percent , relocate to story_separator_special_tag general management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is designed to provide information that is supplemental to , and should be read together with , our consolidated financial statements and the accompanying notes . information in this item is intended to assist the reader in obtaining an understanding of our consolidated financial statements , the changes in certain key items in those financial statements from year-to-year , the primary factors that accounted for those changes , any known trends or uncertainties that we are aware of that may have a material effect on our future performance , as well as how certain accounting principles affect our consolidated financial statements . in addition , this item provides information about our business segments and how the results of those segments impact our financial condition and results of operation as a whole . executive summary the slow rates of global economic growth experienced in 2013 continued throughout 2014. the year began with the imf estimating 2014 growth at a rate of 3.7 % , which was revised downward throughout the year to 3.3 % . the world steel association noted that steel production , excluding china , increased 1.3 % in 2014. this slow economic growth and stagnation in steel production year over year exerted continued downward pressure on prices for our industrial materials products during the year , which negatively impacted our profitability in 2014. our industrial materials rationalization initiatives have begun to yield cost savings which will be further realized in 2015. we anticipate that the price drop in the global oil markets experienced in the second half of 2014 will improve our graphite electrode cost structure in 2015. our engineered solutions segment had decreased sales and margins in 2014 resulting primarily from our advanced consumer electronics products experiencing pricing pressure and decreased demand throughout 2014. in the second quarter of 2014 , we announced that we were ceasing production of our isomolded product group within agm and undertaking rationalization initiatives to reduce costs and increase our global competitiveness . we experienced growth in one of our agm product group lines , however , the unexpected bankruptcy of our primary customer in that field gives uncertainty to future sales . in the third quarter of 2014 we announced rationalization initiatives to the company 's operating and management structure in order to streamline , simplify and decentralize the organization . while the company incurred costs during 2014 related to these rationalization plans , we believe they will better position us for profitability in the future . we have seven major product categories : graphite electrodes , refractory products , needle coke products , advanced graphite materials , advanced composite materials , advanced electronics technologies and advanced materials . reportable segments . our businesses are reported in the following segments : industrial materials , which consists of graphite electrodes , refractory products and needle coke products . engineered solutions , which includes advanced graphite materials , advanced composite materials , advanced electronics technologies , and advanced materials . reference is made to the information under “ part i ” for background information on our businesses , industry and related matters . global economic conditions and outlook 2015 outlook . we are impacted in varying degrees , both positively and negatively , as global , regional or country conditions fluctuate . our discussions about market data and global economic conditions below are based on or derived from published industry accounts and statistics . in its january 19 , 2015 report , the international monetary fund ( imf ) , reduced its estimate for 2015 global gdp growth to 3.5 percent , 0.3 percentage points lower than its october 2014 forecast . the report states that lower oil prices will likely boost global growth but that negative factors including investment weakness have reduced growth expectations in many advanced and emerging economies . the report goes on to state that the united states is the only major economy for which growth expectations have been raised . 42 steel customer sentiment remains cautiously optimistic in north america , although there are concerns given high import levels , reduced demand from the oil and gas and related service sectors and the instability of global growth . customers outside of the north america are generally less optimistic as weakness has been observed in basic materials sectors . the 2015 graphite electrode order book continues to be built , with approximately 60 percent of targeted 2015 order volumes confirmed . of the completed orders booked , 2015 graphite electrode prices are on average lower than 2014 year-end pricing . pricing for products in the engineered solutions segment are also under pressure . the company 's previously announced cost savings programs remain on track , however will largely be offset by lower pricing . while the company expects to benefit from falling oil prices in its needle coke and graphite electrode businesses , lower graphite electrode operating rates are expected to largely offset this benefit over the near term as the company continues its previously announced inventory reductions . in summary , the company 's expectations , excluding the impact of special charges , are as follows : first half 2015 ebitda * target of $ 45 million to $ 55 million ; first half 2015 operating cash flow of approximately $ 40 million to $ 50 million ( after approximately $ 15 million to $ 20 million of cash rationalization charges ) ; full year 2015 inventory reduction of approximately $ 50 million ; and full year 2015 capital expenditures of approximately $ 60 million to $ 70 million . our outlook could be significantly affected by , among other things , factors described under `` item 1a - risk factors '' and `` item 1a - forward looking statements '' in this report . story_separator_special_tag on april 20 , 2012 , as permitted by section 9.19 of the october 7 , 2011 credit agreement , we entered into an amended and restated credit agreement pursuant to which , on august 28 , 2012 , graftech luxembourg ii s.à.r.l . ( “ luxembourg holdco ” ) replaced swissco as a borrower . swissco is no longer entitled to borrow loans under the revolving facility although it is entitled to request letters of credit thereunder only for its own use . the interest rate applicable to the revolving facility is , at graftech 's option , either libor plus a margin ranging from 1.50 % to 2.25 % ( depending on our total net leverage ratio and or senior unsecured rating ) or , in the case of dollar denominated loans , the alternate base rate plus a margin ranging from 0.50 % to 1.25 % ( depending upon such ratio ) . the alternate base rate is the highest of ( i ) the prime rate announced by jpmorgan chase bank , n.a. , ( ii ) the federal fund effective rate plus one-half of 1.0 % and ( iii ) the london interbank offering rate ( as adjusted ) for a one-month period plus 1.0 % . the borrowers pay a per annum fee ranging from 0.25 % to 0.40 % ( depending on such ratio ) on the undrawn portion of the commitments under the revolving facility . the financial covenants require us to maintain a minimum cash interest coverage ratio of 3.00 to 1.00 and a maximum senior secured leverage ratio of 2.25 to 1.00 , subject to adjustment for certain events . as of december 31 , 2014 , we were in compliance with all financial and other covenants contained in the revolving facility , as applicable . 44 under the revolving facility we have additional flexibility for investments , capital expenditures , acquisitions and restricted payments and we can issue letters of credit under the revolving credit facility in an amount not to exceed $ 50 million . we are permitted to pay dividends and repurchase our common stock in an aggregate amount ( cumulative from october 2011 ) up to $ 75 million ( or $ 500 million , if certain leverage ratio requirements are satisfied ) , plus , each year , an aggregate amount equal to 50 % of the consolidated net income in the prior year . on april 23 , 2014 , graftech and certain of its subsidiaries entered into an amended and restated credit agreement for the revolving facility that provides for , among other things , a five-year tenor , reduced borrowing spreads and greater financial flexibility . the revolving credit facility had a maximum borrowing capacity of $ 470 million principal and matures in april 2019. on november 19 , 2014 , we initiated an amendment to our credit agreement with the lenders party thereto and jpmorgan chase bank , n.a. , as administrative agent , collateral agent , issuing bank and swingline lender . the amendment includes modification to the definition of ebitda to exclude certain restructuring costs , increasing availability of borrowings thereunder , and modification of the maximum principal amount to $ 400 million . on february 27 , 2015 , graftech and certain of its subsidiaries entered into an amended and restated credit agreement that provides for , among other things , greater financial flexibility and a new $ 40 millio n senior secured delayed draw term loan facility . see note 18 to the financial statements for additional details . as of december 31 , 2014 , we had outstanding borrowings of $ 40.0 million and outstanding letters of credit of $ 5.3 million under this revolving facility . senior subordinated notes on november 30 , 2010 , in connection with the acquisitions of seadrift and c/g , we issued senior subordinated notes for an aggregate total face amount of $ 200 million . these senior subordinated notes are non-interest bearing and mature in 2015. because the senior subordinated notes are non-interest bearing , we were required to record them at their present value ( determined using an interest rate of 7 % ) . the difference between the face amount of the senior subordinated notes and their present value is recorded as debt discount . the debt discount will be amortized to income using the interest method , over the life of the senior subordinated notes . the loan balance , net of unamortized discount , was $ 188.0 million as of december 31 , 2014 and will be $ 200.0 million at maturity in 2015. on occasion we have sold accounts receivable without recourse to a third party . we did not sell any receivables during 2013 or 2014. see “ liquidity and capital resources ” below for further discussion . realizability of net deferred tax assets and valuation allowances as of december 31 , 2014 we had $ 179.8 million of gross deferred income tax assets , of which $ 95.7 million required a valuation allowance . in addition , we had $ 74.3 million of gross deferred income tax liabilities . our valuation allowance means that we do not believe that these assets are more likely than not to be realized . until we determine that it is more likely than not that we will generate sufficient taxable income to realize our deferred income tax assets , income tax benefits in each current period will be fully reserved . our valuation allowance , which is predominately in the u.s. tax jurisdiction , does not affect our ability and intent to utilize the deferred income tax assets as we generate sufficient future profitability . we are executing current strategies and developing future strategies , to improve sales , reduce costs and improve our capital structure in order to improve u.s. taxable income of the appropriate character to a level sufficient to fully realize these benefits in future years . 45 customer base we are a global company and sell our products in every major geographic market .
| results of operations and segment review 2014. the slow rates of global economic growth continued throughout 2014. the year began with the imf estimating 2014 growth at a rate of 3.7 % , which was revised downward throughout the year to 3.3 % . the world steel association noted that steel production , excluding china , increased 1.3 % in 2014. this slow economic growth and stagnation in steel production year over year exerted continued downward pressure on prices for our industrial materials products during the year , which negatively impacted our profitability in 2014. our industrial materials rationalization initiatives have begun to yield cost savings which will be further realized in 2015. we anticipate that the price drop in the global oil markets experienced in the second half of 2014 will improve our graphite electrode cost structure in 2015. our engineered solutions segment experienced 2014 sales growth in one of our agm product group lines , however , the unexpected bankruptcy of our primary customer in that field gives uncertainty to future sales . our advanced consumer electronics products experienced pricing pressure and decreased demand throughout 2014 which decreased margins and sales . in the second quarter of 2014 , we announced that we were ceasing production of our isomolded product group within agm and undertaking rationalization initiatives to reduce costs and increase our global competitiveness . in the third quarter of 2014 we announced rationalization initiatives to the company 's operating and management structure in order to streamline , simplify and decentralize the organization . while the company incurred significant costs during 2014 related to these rationalization plans , we believe they will better position us for profitability in the future .
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within 90 days following receipt of the company 's final report demonstrating poc , pfizer may exercise its option for an exclusive , worldwide license to develop and commercialize the latanoprost product in return for a $ 20.0 million payment , double-digit sales-based royalties and additional development , regulatory and sales performance milestone payments of up to $ 146.5 million . if the company elects to cease development of the latanoprost product after one year , but prior to completion of phase ii clinical trials , pfizer would still have the right to exercise an option for an exclusive worldwide license to develop and commercialize the latanoprost product upon payment of a lesser option fee , with comparable reductions in future sales-based royalties and other designated milestones . if pfizer does not exercise its option , the restated pfizer agreement will automatically terminate provided , however , that the company will retain the right to develop and commercialize the latanoprost product on its own or with a partner . based upon the significant changes to the terms of the original pfizer agreement , which included ( i ) changes in the consideration payable by pfizer ; ( ii ) changes in the deliverables ; and ( iii ) changes in the research program , which now is story_separator_special_tag the following discussion and analysis of financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes beginning on page f-1 of this annual report on form 10-k. this discussion contains forward-looking statements , based on current expectations and related to future events and our future financial performance , that involve risks and uncertainties . our actual results may differ significantly from those anticipated or implied in these forward-looking statements as a result of many important factors , including , but not limited to , those set forth under item 1a , risk factors , and elsewhere in this report . overview we develop tiny , sustained-release , drug delivery products designed to deliver drugs at a controlled and steady rate for months or years . we are focused on treatment of chronic diseases of the back of the eye utilizing our core technology platforms , durasert and biosilicon . we currently have three approved products and two principal product candidates under development , which represent successive generations of our durasert technology platform . we have developed three of the four sustained release devices for treatment of retinal diseases currently approved in the u.s. or the european union ( eu ) . iluvien . our most recently approved product iluvien ® is an injectable , sustained-release micro-insert delivering the corticosteroid fluocinolone acetonide ( fac ) over a period of up to 3 years for the treatment of vision impairment associated with chronic diabetic macular edema ( dme ) considered insufficiently responsive to available therapies . iluvien is being developed by our licensee alimera sciences , inc. ( alimera ) . iluvien has received marketing authorization in the united kingdom , austria , france , germany and portugal , and marketing authorization is pending in italy and spain . the international diabetes federation has estimated that approximately 19.1 million people in these seven countries have diabetes , of which alimera has estimated that approximately 1.1 million suffer from vision loss associated with dme . alimera has announced its intention to proceed with the direct commercialization of iluvien in germany , the u.k. and france in 2013. to date , alimera has not received marketing approval for iluvien in the u.s. following receipt of a complete response letter in november 2011 ( 2011 crl ) from the u.s. food and drug administration ( fda ) , and based on a meeting with the fda in june 2012 , alimera has reported that it intends to resubmit its new drug application ( nda ) for iluvien for dme in early 2013. alimera further reported that it intends to include additional analysis of the benefits and risks of iluvien based upon the clinical data from its two previously completed pivotal phase iii clinical trials ( fame study ) and to focus on the population of patients for which regulatory approval has been granted in the various eu countries . product development . we are pursuing the treatment of chronic non-infectious uveitis affecting the posterior segment of the eye ( posterior uveitis ) as another indication for the same injectable micro-insert used in iluvien . we did not license this indication to alimera . the fda has cleared our investigational new drug application ( ind ) , permitting us to move directly to two phase iii trials for this indication without the necessity of first conducting phase i or phase ii trials . the fda has agreed that the primary end point in these trials will be recurrence of uveitis within 12 months and that we can reference much of the data , including the clinical safety data , from the clinical trials for iluvien for dme . we plan to enroll a total of approximately 300 patients in our clinical trials and to utilize an inserter with a different design and a smaller gauge needle than the planned commercial inserter for iluvien for dme . because this micro-insert delivers the same drug as our approved retisert ® product for posterior uveitis , we expect these trials will show efficacy . further , as the same micro-insert was used in the iluvien trials , we expect to observe a side-effect profile in uveitis patients comparable to that seen in dme patients . as a result , we are optimistic that this micro-insert will be efficacious for posterior uveitis with a favorable risk/benefit profile and fewer side effects compared to retisert . an investigator-sponsored phase i/ii study of the safety and efficacy of this micro-insert for the treatment of posterior uveitis is ongoing . 34 we are developing a bioerodible , injectable micro-insert delivering latanoprost ( the latanoprost product ) to treat glaucoma and ocular hypertension . story_separator_special_tag our deliverables under the restated pfizer agreement include conducting the research and development program for the latanoprost product through completion of phase ii ( the r & d program ) and participation on a joint steering committee ( jsc ) . we concluded that the pfizer exercise option for the worldwide exclusive license is not a deliverable of the arrangement , due to it being a substantive option and not being priced at a significant and incremental discount . we determined that the jsc does not have standalone value from the r & d program and therefore we combined these deliverables into a single unit of accounting . the total arrangement consideration of the restated pfizer agreement totaled $ 10.05 million , which consisted of the $ 7.75 million of deferred revenue on our balance sheet at the effective date plus the $ 2.3 million upfront payment . the difference between the total arrangement consideration and the estimated selling price of the combined deliverables , or $ 3.3 million , was recognized as collaborative research and development revenue in the quarter ended june 30 , 2011 , the period of the modification . to determine the estimated selling price of the combined deliverable , we applied an estimated margin to our cost projections for the combined deliverable . a change in the estimated margin or our cost projections would have directly impacted the amount of revenue recognized during fiscal 2011. an increase of 10 % in our estimated selling price of the combined deliverables would have reduced revenue recognized in fiscal 2011 by $ 670,000 and would have increased the amount of deferred revenue recognized in fiscal 2012 by 10 % , or $ 75,000. valuation of intangible assets at december 31 , 2011 , we recorded a $ 14.8 million intangible asset impairment write-down of our durasert and biosilicon technology systems . following the november 2011 public announcement of the 2011 crl , there 36 was a significant decline in the company 's share price , resulting in a decrease of the company 's market capitalization from $ 82.0 million to $ 23.1 million at december 31 , 2011. the combination of the 2011 crl and the decline in the company 's share price were determined to be impairment indicators of the company 's finite-lived intangible assets . to assess the recoverability of the combined intangible assets ( which had a carrying value of $ 19.4 million at december 31 , 2011 ) , we used a combination of market-based and income-based valuation methodologies . using the market-based approach as the primary indicator of fair value , an enterprise value of $ 4.4 million ( market capitalization less existing capital resources ) was adjusted for an estimated control premium and for other working capital items to derive an implied fair value of the intangible assets of $ 4.6 million . under the income-based approach , the forecasted cash flows expected for the intangible assets were discounted using after-tax cost of capital rates taking into account company-specific risks . the resulting fair value under this approach supported the conclusions of the market-based approach . based on these analyses , the fair value of the combined intangible assets was allocated to each intangible based on values determined under the income-based approach , resulting in an $ 11.7 million write-down of the biosilicon intangible and a $ 3.1 million write-down of the durasert intangible . at june 30 , 2012 , we reported $ 4.2 million of intangible assets , net of accumulated amortization , which consisted of $ 2.9 million related to durasert and $ 1.3 million related to biosilicon . we amortize these intangible assets using the straight-line method over their estimated economic lives , which currently extend through calendar year 2017 and is expected to result in a charge to operations of approximately $ 770,000 per year . we believe that the carrying value of our intangible assets will be recouped primarily through expected net cash flows from our existing collaboration agreements described under license and collaboration agreements above or through other licensing or commercialization . we will continue to review our intangible assets for impairment whenever events or changes in business circumstances indicate that the asset carrying value may not be fully recoverable or that the useful life of the asset is no longer appropriate . factors that could trigger an impairment review include the following : change relative to historical or projected future operating results , modification or termination of our existing collaboration agreements , factors affecting the development of products utilizing the intangible assets , changes in the expected use of the intangible assets or the strategy for the overall business , and industry or economic trends and developments . if an impairment trigger is identified , we determine recoverability of an intangible asset by comparing projected undiscounted net cash flows to be generated by the asset to its carrying value . if the carrying value is not recoverable , an impairment charge is recorded equal to the excess of the asset 's carrying value over its fair value , and the carrying value is adjusted . estimated future undiscounted cash flows , which relate to existing contractual agreements as well as projected cash flows from future research and development collaboration agreements utilizing the underlying technology systems , require management 's judgment regarding future events and probabilities . actual results could vary from these estimates . future adverse changes or other unforeseeable factors could result in an impairment charge with respect to some or all of the carrying value of our intangible assets . such an impairment charge could materially impact future results of operations and financial position in the reporting period identified . a significant change in the estimation of the projected undiscounted net cash flows for the products and product candidates utilizing the durasert or biosilicon technology systems , among other things , could result in the further impairment of the carrying value of the respective assets .
| results of operations years ended june 30 , 2012 and 2011 replace_table_token_6_th revenues we recognized total revenue of $ 3.5 million for fiscal 2012 as compared to $ 5.0 million for fiscal 2011. the decrease in revenue was primarily due to a $ 1.5 million decrease in collaborative research and development revenue , partially offset by a $ 93,000 increase in royalty income . collaborative research and development revenue for fiscal 2012 of $ 2.1 million consisted primarily of recognition of $ 754,000 related to the june 2011 restated pfizer agreement and $ 1.1 million resulting from the termination of a field-of-use license . this compares to $ 3.6 million of collaborative research and development revenue for fiscal 2011 , which was predominantly associated with the restated pfizer agreement . at the effective date of the restated pfizer agreement , we had $ 7.75 million of deferred revenue from the original pfizer agreement on our balance sheet , and we received $ 2.3 million of upfront consideration . the $ 6.7 million balance of pfizer deferred revenue at june 30 , 2011 , after initial revenue recognition of $ 3.3 million , is being recognized as revenue using the proportional performance method over the estimated period of our performance obligations ( the latanoprost product research program ) under the restated pfizer agreement . of the remaining pfizer deferred revenue balance of $ 6.0 million at june 30 , 2012 , approximately $ 2.2 million is currently expected to be recognized as revenue during fiscal 2013. substantially all of our royalty income in fiscal 2012 and fiscal 2011 was from sales of retisert .
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subsequent events in january 2019 , we entered into a lease agreement for 25,332 square feet of additional general administrative office space located at 10935 vista sorrento parkway , san diego , california . subject to limited exceptions , the initial lease term is expected to commence on the later of ( i ) march 1 , 2019 , or ( ii ) the date on which the landlord substantially completes certain specified work related to tenant improvements , such date , the commencement date , and will expire 42 months from the first day of the first full month following the commencement date . we also have a one-time option to extend the term of the lease for a period of five years by delivering prior written notice to the landlord in accordance with the terms of the lease . components of results of operations sales we offer products for people with insulin-dependent diabetes . we commenced commercial sales of our original t : slim insulin pump platform in the united states in the third quarter of 2012 and continued to launch various iterations of that platform the following years . in october 2016 , we began shipping our flagship pump platform , the t : slim x2 insulin pump . the t : slim x2 hardware platform , which includes remote software update capabilities , now represents 100 % of our new pump shipments . accordingly , in the third quarter of 2018 we discontinued new sales of all prior platform versions . our products also include disposable cartridges and infusion sets . in addition , we offer accessories including protective cases , belt clips , and power adapters , although such sales are not significant . we primarily sell our products through national and regional distributors in the united states on a non-exclusive basis . these distributors are generally providers of medical equipment and supplies to individuals with diabetes . our primary end customers are people with insulin-dependent diabetes . similar to other durable medical equipment , the primary payor is generally a third-party insurance carrier and the customer is usually responsible for any medical insurance plan copay or coinsurance requirements . we believe our existing sales , clinical , and marketing infrastructure will allow us to continue to increase sales by allowing us to promote our products to a greater number of potential customers , caregivers and healthcare providers . in the third quarter of 2018 , we commenced commercial sales of t : slim x2 with g5 in select international geographies . with the exception of canada where we intend to market with a direct sales force , we expect that most of our commercial sales outside the united states will initially be to independent distributors who will perform all sales , customer support and training in their respective territories . historically , we have experienced consistent levels of reimbursement for our products in the united states , but the average sales price will vary in international markets based on a number of factors , such as the nature of the reimbursement environment , government regulations and the extent to which we rely on distributor relationships to provide sales , clinical and marketing support . in general , in the united states we have experienced , and expect to continue to experience , product shipments being weighted heavily towards the second half of the year , with the highest percentage of product shipments expected in the fourth quarter of the year due to the nature of the reimbursement environment . consistent with our historical seasonality , we also expect domestic product shipments from the fourth quarter to the following first quarter to decrease significantly . internationally , we do not expect this same impact from seasonality . however , the opportunity for the transition of former animas customers in 2019 may also impact our quarterly sales trends worldwide . in addition , our quarterly sales have fluctuated , and may continue to fluctuate , substantially in the periods surrounding anticipated and actual regulatory approvals and commercial launches of new products by us or our competitors . for instance , customers may defer a purchasing decision if they believe that a new product may be launched in the future . additionally , upon the announcement of fda approval or commercial launch of a new product , either by us or one of our competitors , potential new customers may reconsider their purchasing decision or take additional time to consider the anticipated or new approval or product launch in their purchasing decision . however , we are not able to quantify the extent of the impact of these or similar events on future purchasing decisions . 68 cost of sales we manufacture our pumps and disposable cartridges at our manufacturing facility in san diego , california . infusion sets and pump accessories are manufactured by third-party suppliers . cost of sales includes raw materials , labor costs , manufacturing overhead expenses , product training costs , reserves for expected warranty costs , freight , scrap and inventory excess and obsolescence . manufacturing overhead expenses include expenses relating to quality assurance , manufacturing engineering , material procurement , inventory control , facilities , equipment , information technology and operations supervision and management . we anticipate that our cost of sales will continue to increase as our products gain broader market acceptance and our product sales increase . we expect our overall gross margin percentage , which for any given period is calculated as sales less cost of sales divided by sales , to improve over the long-term , as our sales increase and our overhead costs are spread over larger production volumes . we expect we will be able to leverage our manufacturing cost structure across our products that utilize the same proprietary technology platform and manufacturing infrastructure , and will be able to further reduce costs with increased automation , process improvements and raw materials cost reductions story_separator_special_tag subsequent events in january 2019 , we entered into a lease agreement for 25,332 square feet of additional general administrative office space located at 10935 vista sorrento parkway , san diego , california . subject to limited exceptions , the initial lease term is expected to commence on the later of ( i ) march 1 , 2019 , or ( ii ) the date on which the landlord substantially completes certain specified work related to tenant improvements , such date , the commencement date , and will expire 42 months from the first day of the first full month following the commencement date . we also have a one-time option to extend the term of the lease for a period of five years by delivering prior written notice to the landlord in accordance with the terms of the lease . components of results of operations sales we offer products for people with insulin-dependent diabetes . we commenced commercial sales of our original t : slim insulin pump platform in the united states in the third quarter of 2012 and continued to launch various iterations of that platform the following years . in october 2016 , we began shipping our flagship pump platform , the t : slim x2 insulin pump . the t : slim x2 hardware platform , which includes remote software update capabilities , now represents 100 % of our new pump shipments . accordingly , in the third quarter of 2018 we discontinued new sales of all prior platform versions . our products also include disposable cartridges and infusion sets . in addition , we offer accessories including protective cases , belt clips , and power adapters , although such sales are not significant . we primarily sell our products through national and regional distributors in the united states on a non-exclusive basis . these distributors are generally providers of medical equipment and supplies to individuals with diabetes . our primary end customers are people with insulin-dependent diabetes . similar to other durable medical equipment , the primary payor is generally a third-party insurance carrier and the customer is usually responsible for any medical insurance plan copay or coinsurance requirements . we believe our existing sales , clinical , and marketing infrastructure will allow us to continue to increase sales by allowing us to promote our products to a greater number of potential customers , caregivers and healthcare providers . in the third quarter of 2018 , we commenced commercial sales of t : slim x2 with g5 in select international geographies . with the exception of canada where we intend to market with a direct sales force , we expect that most of our commercial sales outside the united states will initially be to independent distributors who will perform all sales , customer support and training in their respective territories . historically , we have experienced consistent levels of reimbursement for our products in the united states , but the average sales price will vary in international markets based on a number of factors , such as the nature of the reimbursement environment , government regulations and the extent to which we rely on distributor relationships to provide sales , clinical and marketing support . in general , in the united states we have experienced , and expect to continue to experience , product shipments being weighted heavily towards the second half of the year , with the highest percentage of product shipments expected in the fourth quarter of the year due to the nature of the reimbursement environment . consistent with our historical seasonality , we also expect domestic product shipments from the fourth quarter to the following first quarter to decrease significantly . internationally , we do not expect this same impact from seasonality . however , the opportunity for the transition of former animas customers in 2019 may also impact our quarterly sales trends worldwide . in addition , our quarterly sales have fluctuated , and may continue to fluctuate , substantially in the periods surrounding anticipated and actual regulatory approvals and commercial launches of new products by us or our competitors . for instance , customers may defer a purchasing decision if they believe that a new product may be launched in the future . additionally , upon the announcement of fda approval or commercial launch of a new product , either by us or one of our competitors , potential new customers may reconsider their purchasing decision or take additional time to consider the anticipated or new approval or product launch in their purchasing decision . however , we are not able to quantify the extent of the impact of these or similar events on future purchasing decisions . 68 cost of sales we manufacture our pumps and disposable cartridges at our manufacturing facility in san diego , california . infusion sets and pump accessories are manufactured by third-party suppliers . cost of sales includes raw materials , labor costs , manufacturing overhead expenses , product training costs , reserves for expected warranty costs , freight , scrap and inventory excess and obsolescence . manufacturing overhead expenses include expenses relating to quality assurance , manufacturing engineering , material procurement , inventory control , facilities , equipment , information technology and operations supervision and management . we anticipate that our cost of sales will continue to increase as our products gain broader market acceptance and our product sales increase . we expect our overall gross margin percentage , which for any given period is calculated as sales less cost of sales divided by sales , to improve over the long-term , as our sales increase and our overhead costs are spread over larger production volumes . we expect we will be able to leverage our manufacturing cost structure across our products that utilize the same proprietary technology platform and manufacturing infrastructure , and will be able to further reduce costs with increased automation , process improvements and raw materials cost reductions
| results of operations replace_table_token_6_th comparison of years ended december 31 , 2018 and 2017 sales . for the year ended december 31 , 2018 , sales were $ 183.9 million , which included $ 9.7 million from international sales that commenced in the third quarter of 2018. for the year ended december 31 , 2017 , sales were $ 107.6 million , which included incremental net pump sales of $ 5.0 million as a result of the technology upgrade program in place at that time . total sales increased $ 76.3 million in 2018 compared to 2017 , primarily driven by a 102 % increase in worldwide pump shipments to 34,493 in the year ended 2018 , compared to 17,061 in the year ended 2017. worldwide pump shipments were positively impacted by strong demand for our products following the august 2018 launch of t : slim x2 with basal-iq technology , the august 2017 launch of t : slim x2 with g5 integration , and the commencement of international sales in the third quarter of 2018. additionally , sales from pump-related supplies increased 66 % due to the september 2017 launch of infusion set products using the t : lock connector , as well as an overall increase in our installed customer base of customers reordering supplies . the ratio of the number of infusion sets shipped to the number of cartridges shipped increased to over 100 % in 2018 from 69 % in the year ended 2017 . sales to domestic distributors accounted for 78 % and 75 % of our total sales for the years ended december 31 , 2018 and 2017 , respectively . our percentage of sales to distributors versus individual customers is principally determined by the mix of customers ordering our products within the period and whether or not we have a contractual arrangement with their underlying third-party insurance payor .
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we enable buyers and sellers to transact in an efficient , online auction environment offering over 500 product categories . our marketplaces provide professional buyers access to a global , organized supply of surplus and salvage assets presented with customer focused information including digital images and other relevant product information along with services to efficiently complete the transaction . additionally , we enable our corporate and government sellers to enhance their financial return on excess assets by providing liquid marketplaces and value-added services that integrate sales and marketing , logistics and transaction settlement into a single offering . we organize our products into categories across major industry verticals such as consumer electronics , general merchandise , apparel , scientific equipment , aerospace parts and equipment , technology hardware , energy equipment , industrial capital assets , fleet and transportation equipment and specialty equipment . our online auction marketplaces are www.liquidation.com , www.govliquidation.com , www.govdeals.com , www.networkintl.com , www.truckcenter.com , and www.secondipity.com . we believe our ability to optimize our clients ' net recovery and supply chain for surplus and salvage assets generates a continuous flow of goods from our corporate and government sellers . this valuable and reliable flow of goods in turn attracts an increasing number of professional buyers to our marketplaces . during fiscal year 2011 , the number of registered buyers grew from approximately 1,403,000 to approximately 1,604,000 , or 14.3 % . during the past three fiscal years , we have conducted over 1,467,000 online transactions generating approximately $ 1.3 billion in gross merchandise volume or gmv . approximately 74 % of our initial listings have resulted in a completed cash sale during the past three fiscal years . we believe the continuous flow of goods in our marketplaces attracts a growing buyer base which creates a virtual cycle for our buyers and sellers . our history . we were incorporated in delaware in november 1999 as liquidation.com , inc. and commenced operations in early 2000. during 2000 , we developed our online auction marketplace platform and began auctioning merchandise primarily for small commercial sellers and government agencies . in 2001 , we changed our name to liquidity services , inc. in june 2001 , we were awarded our first major dod contract , the surplus contract . under this agreement , we became the exclusive contractor with the dla disposition services , for the sale of usable dod surplus assets in the united states . in june 2005 , we were awarded an additional exclusive contract with the dla disposition services to manage and sell substantially all dod scrap property . during 2005 , we opened our first distribution center in dallas , texas and began serving the reverse logistics needs of top 100 retailers . recent initiatives . on october 1 , 2011 , lsi completed its acquisition of the assets of jacobs trading , llc ( jacobs ) . the acquisition price includes an upfront cash payment of $ 80.0 million , a seller subordinated 5 % unsecured note of $ 40.0 million , stock consideration of $ 24.5 million and an earn-out payment . under the terms of the agreement , the earn-out is based on ebitda earned by jacobs during the trailing 12 months ending december 31 , 2012 and 2013. the company 's estimate of the fair value of the earn-out as of october 1 , 2011 is $ 8.2 million out of a possible total earn out payment of $ 30.0 million . jacobs is a leading remarketer for the sale of surplus and returned consumer goods . 35 jacobs conducts its sales on a purchase model basis using its marketplace , an extensive global buyer base and product domain expertise . on june 1 , 2011 , the company acquired the assets of truckcenter.com , llc . ( tc ) for approximately $ 15,989,000. the acquisition price includes an upfront cash payment of $ 9,000,000 and an earn-out payment . under the terms of the agreement , the earn-out is based on ebitda earned by tc during the trailing 12 months ending august 31 , 2012 , and the revenue earned by tc during each of the two 12 month periods after the closing date of the acquisition through may 31 , 2013. the company 's estimate of the fair value of the earn-out as of september 30 , 2011 is $ 6,989,000 out of a possible total earn out payment of $ 9,000,000. tc is a leading marketplace for the sale of idle , surplus and used fleet and transportation equipment . tc conducts sales of client assets on a consignment basis using its marketplace , an extensive global buyer base and product domain expertise . our revenue . we generate substantially all of our revenue by retaining a percentage of the proceeds from the sales we manage for our sellers . we offer our sellers three primary transaction models : a profit-sharing model , a consignment model and a purchase model . profit-sharing model . under our profit-sharing model , we purchase inventory from our suppliers and share with them a portion of the profits received from a completed sale in the form of a distribution . distributions are calculated based on the value received from the sale after deducting direct costs , such as sales and marketing , technology and operations and other general and administrative costs . because we are the primary obligor , and take general and physical inventory risks and credit risk under this transaction model , we recognize as revenue the sale price paid by the buyer upon completion of a transaction . revenue from our profit-sharing model accounted for approximately 40.7 % , 26.0 % and 25.5 % of our total revenue for the fiscal years ended september 30 , 2009 , 2010 and 2011 , respectively . the merchandise sold under our profit-sharing model accounted for approximately 27.0 % , 17.4 % and 15.4 % of our gmv for the fiscal years ended september 30 , 2009 , 2010 and 2011 , respectively . consignment model . story_separator_special_tag revenue from our scrap contract ( including buyer premiums ) accounted for approximately 21.5 % , 25.0 % and 25.5 % of our total revenue for the fiscal years ended september 30 , 2009 , 2010 and 2011 , respectively . the property sold under our scrap contract accounted for approximately 14.2 % , 16.7 % and 15.4 % of our gmv for the fiscal years ended september 30 , 2009 , 2010 and 2011 , respectively . we were required to pay $ 5.7 million to the dod in fiscal 2005 for the right to manage the operations and remarket scrap material in connection with the scrap contract . the 37 scrap contract base term expires in august 2012 , subject to dod 's right to extend it for three additional one-year terms . the dod has exercised the first renewal option . under the original surplus contract , as amended , we were obligated to purchase all dod surplus property at set prices representing a percentage of the original acquisition cost , which varied depending on the type of surplus property being purchased . we were entitled to 39.5 % of the profits of sale ( defined as gross proceeds of sale less allowable operating expenses ) under the original surplus contract . under the scrap contract , we acquire scrap property at a per pound price . we refer to these disbursement payments to dod as profit-sharing distributions . as a result of these arrangements , we recognize as revenue the gross proceeds from these sales . dod also reimburses us for actual costs incurred for packing , loading and shipping property under the scrap and original surplus contracts that we are obligated to pick up from non-dod locations . under the new surplus contract , which was executed on december 18 , 2008 , we are not required to distribute any portion of the profits realized under the contract , as the new contract contains a higher fixed percentage price of 1.8 % of the dla disposition services ' acquisition value to be paid for the property . the dod has broad discretion to determine what property will be made available for sale to us under the new surplus contract and may retrieve or restrict property previously sold to us for national security reasons or if the property is otherwise needed to support the mission of the dod . under the scrap contract , we also have a small business performance incentive based on the number of scrap buyers that are small businesses that would allow us to receive up to an additional 2 % of the profit sharing distribution . on may 21 , 2007 , we entered into a bilateral contract modification under which the dod agreed to increase the profit-sharing distribution for the scrap contract from 20 % to 23 % effective june 1 , 2007 , in exchange for our agreement to implement additional inventory assurance processes and procedures with respect to the mutilation of demilitarized scrap property sold . our commercial agreements . during fiscal year 2010 , we had over 500 corporate clients who each sold in excess of $ 10,000 of surplus and salvage assets in our marketplaces . our agreements with these clients are generally terminable at will by either party . key business metrics our management periodically reviews certain key business metrics for operational planning purposes and to evaluate the effectiveness of our operational strategies , allocation of resources and our capacity to fund capital expenditures and expand our business . these key business metrics include : gross merchandise volume . gross merchandise volume , or gmv , is the total sales value of all merchandise sold through our marketplaces during a given period . we review gmv because it provides a measure of the volume of goods being sold in our marketplaces and thus the activity of those marketplaces . gmv also provides a means to evaluate the effectiveness of investments that we have made and continue to make , including in the areas of customer support , value-added services , product development , sales and marketing , and operations . the gmv of goods sold in our marketplace during fiscal year 2011 totaled $ 558.5 million . completed transactions . completed transactions represents the number of auctions in a given period from which we have recorded revenue . similar to gmv , we believe that completed transactions is a key business metric because it provides an additional measurement of the volume of activity flowing through our marketplaces . during the fiscal year ended september 30 , 2011 , we completed approximately 475,000 transactions . total registered buyers . we grow our buyer base through a combination of marketing and promotional efforts . a person becomes a registered buyer by completing an online registration process on one of our marketplaces . as part of this process , we collect business and personal information , 38 including name , title , company name , business address and contact information , and information on how the person intends to use our marketplaces . each prospective buyer must also accept our terms and conditions of use . following the completion of the online registration process , we verify each prospective buyer 's e-mail address and confirm that the person is not listed on any banned persons list maintained internally or by the u.s. federal government . after the verification process , which is completed generally within 24 hours , the registration is approved and activated and the prospective buyer is added to our registered buyer list . total registered buyers , as of a given date , represents the aggregate number of persons or entities who have registered on one of our marketplaces . we use this metric to evaluate how well our marketing and promotional efforts are performing . total registered buyers excludes duplicate registrations , buyers who are suspended from utilizing our marketplaces and those buyers who have voluntarily removed themselves from our registration database .
| results of operations the following table sets forth , for the periods indicated , selected statement of operations data expressed as a percentage of revenue . these results of operations for the years ended september 30 , 2010 and 2009 have been recast so that the basis of presentation is consistent with that of the results of operations for the year ended september 30 , 2011. this recast reflects the financial condition , results of operations and cash flows of liquidity services , ltd. , as discontinued operations . replace_table_token_6_th year ended september 30 , 2011 compared to year ended september 30 , 2010 revenue . revenue increased $ 54.4 million , or 19.9 % , to $ 327.4 million for the year ended september 30 , 2011 from $ 273.0 million for the year ended september 30 , 2010. this increase was 43 primarily due to ( 1 ) a 20.0 % increase , or $ 14.4 million , in our scrap business , which utilizes the profit sharing model , as a result of increasing commodity prices and a higher mix of high value metals ; ( 2 ) a 20.1 % increase , or $ 18.3 million , in our u.s. commercial business as a result of several new purchase model programs for large retailers ; ( 3 ) a 19.1 % increase , or $ 16.4 million , in our surplus business , as a result of increasing property flow from the dod and a higher mix of high value capital assets such as rolling stock , and ( 4 ) an increase of 24.4 % or $ 5.8 million in our consignment business due in part to the acquisitions of network international , completed on june 15 , 2010 , and truckcenter.com , completed on june 1 , 2011. the amount of gmv transacted through our marketplaces increased $ 132.2 million , or 31.8 % , to $ 548.6 million for the year ended september 30 , 2011 from $ 416.3 million for the year ended september 30 , 2010 , primarily due to ( 1 ) the growth in
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total net loose jewel inventories at june 30 , 2019 , june 30 , 2018 and december 31 , 2017 story_separator_special_tag md & a , when financial results for the fiscal year ended june 30 , 2019 are compared to financial results for the prior year period , the results compare the twelve-month period ended june 30 , 2019 to the unaudited results for the twelve-month period ended june 30 , 2018. when financial results for the transition period ended june 30 , 2018 are compared to financial results for the prior year period , the results compare the six-month period ended june 30 , 2018 to the unaudited results for the six-month period ended june 30 , 2017. in the opinion of management , while we adopted new revenue recognition guidance , as required , on january 1 , 2018 , the unaudited results for the twelve months ended june 30 , 2018 and the six months ended june 30 , 2017 are comparative for purposes of this analysis since there was no change in the timing or measurement of revenues . additionally , management believes these unaudited results for the periods presented reflect all adjustments necessary to present the financial position and results of operations as of and for both periods in accordance with the accounting principles generally accepted in the united states of america , or u.s. gaap . a detailed discussion of our financial results for the calendar year ended december 31 , 2017 is included in item 7 , “ management 's discussion and analysis of financial condition and results of operations ” , in our transition report on form 10-kt filed with the sec on september 7 , 2018. the following table shows the months included within the various comparison periods in our md & a : fiscal year-end 2019 results compared with prior year period 2018 results 2019 ( twelve-month , audited ) 2018 ( twelve-month , unaudited ) july 2018 – june 2019 july 2017 – june 2018 transition period ended june 30 , 2018 results compared with prior year period 2017 results transition period ended june 30 , 2018 ( six-month , audited ) prior year period 2017 ( six-month , unaudited ) january 2018 – june 2018 january 2017 – june 2017 overview at charles & colvard , we believe luxury can be both beautiful and conscientious . with innovative technology and sustainable practices , our goal is to lead a revolution in the jewelry industry – delivering a brilliant product at extraordinary value balanced with environmental and social responsibility . charles & colvard , ltd. , a north carolina corporation founded in 1995 , manufactures , markets and distributes charles & colvard created moissanite ® and finished jewelry featuring our proprietary moissanite gemstone for sale in the worldwide jewelry market . our unique differentiator , moissanite – the world 's most brilliant gem ® – is core to our ambition to create a movement around beautiful , environmentally and socially responsible fine jewelry and fashion jewelry . charles & colvard is the originator of lab-created moissanite , and we believe that we are leading the way in delivering the premium moissanite brand through technological advances in gemstone manufacturing , cutting , polishing and setting . by coupling what we believe to be unprecedented gemstones with responsibly-sourced precious metals , we are delivering a uniquely-positioned product line for the conscientious consumer . 31 we sell loose moissanite jewels and finished jewelry through two operating segments : our online channels segment , which comprises our charlesandcolvard.com website , e-commerce outlets , including marketplaces , drop-ship customers , and other pure-play , exclusively e-commerce customers ; and our traditional segment , which consists of domestic and international distributors and retail customers . for more information about our operating segments , see note 3 to our consolidated financial statements in item 8 , “ financial statements and supplementary data ” , of this annual report on form 10-k . we believe our expanding application of an omni-channel sales strategy across the jewelry trade and to the end consumer with gemstones and branded finished jewelry featuring charles & colvard moissanite positions our goods at the many touchpoints where consumers are when they are making their buying decisions – thereby creating greater exposure for our brand and increasing consumer demand . highlights of the fiscal year ended june 30 , 2019 during the fiscal year ended june 30 , 2019 , we delivered on several key initiatives , which we believe further solidified the charles & colvard brand . we also believe that we are well poised for future growth as we move forward into the fiscal year ending june 30 , 2020. these accomplishments in fiscal year ended june 30 , 2019 , include the following : completed an underwritten public offering of our common stock – in june 2019 , we completed an underwritten public offering of 6,250,000 shares of our common stock at a price of $ 1.60 per share , which , together with the partial exercise of the underwriters ' over-allotment option for an additional 630,500 shares in july , resulted in aggregate net proceeds of approximately $ 9.99 million , net of the underwriting discount and fees and expenses , which we intend to use for marketing and for general corporate and working capital purposes . accordingly , with these funds we plan to expand our brand 's reach primarily through digital marketing efforts . we believe that investments in top-of-funnel marketing activities , such as social media advertising , influencer marketing programs , and international campaigns , will increase the overall awareness of charles & colvard . we also intend to expand our opted-in target market and drive top line growth . we believe that with these funds being secured in the june and july timeframe , this opportunity provides us the ability to positively impact the 2019 calendar year-end holiday season and ultimately accelerate our growth potential . story_separator_special_tag the annual borrowing fees associated with our new white oak credit facility are lower than those in connection with our previous credit facility , and moreover , we believe the borrowing terms and financial covenants underlying the new white oak credit facility are less restrictive than those under our previous credit arrangement . accordingly , we believe the new white oak credit facility will empower us to be more nimble when executing our strategic plans . as we continue to execute our strategy to build and reinvest resources in our business , significant expenses and investment of cash will continue to be required ahead of the revenue streams we expect in the future . while this strategy resulted in some unprofitable reporting periods during 2017 and the transition period ended june 30 , 2018 , we had four consecutive quarters of net income during the fiscal year ended june 30 , 2019. accordingly , we will continue to analyze each investment decision with the ongoing intent to grow our business while maintaining our goal of achieving positive financial results and cash flows . we believe that we will continue to generate or have access to sufficient working capital resources , including but not limited to the issuance of equity securities , to fund operations as we execute our plans to expand and grow the business . 33 the execution of our strategy to continue growing our company , with the ultimate goal of increasing consumer awareness and clearly communicating the value proposition of moissanite , is challenging and not without risk . as such , there can be no assurance that future results for each reporting period will exceed past results in sales , operating cash flow , and net income due to the challenging business environment in which we operate and our investment in various initiatives to support our growth strategies . in addition , sales in the retail jewelry industry are typically seasonal due to increased consumer purchasing patterns during the calendar year-end holiday season . we can also see the effect of seasonality due to the timing of orders we receive to support new or expanded distribution and the level of current inventory positions held by our customers . while the effect of seasonality on our business , particularly with respect to the impact of the year-end holiday season , was less pronounced during the transition period ended june 30 , 2018 , we expect to continue seeing these types of seasonal trends impact financial results in future fiscal year-end reporting periods . however , as we execute our growth strategy , we remain committed to our current priorities of generating positive cash flow and strengthening our financial position while both monetizing our existing inventory and manufacturing products that meet sales demand . we believe the results of these efforts will propel our revenue growth and profitability , and further enhance shareholder value in coming years – however , we continue to fully recognize the business and economic challenges that we face . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which we prepared in accordance with u.s. gaap . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues , and expenses and related disclosures of contingent assets and liabilities . “ critical accounting policies and estimates ” are defined as those most important to the financial statement presentation and that require the most difficult , subjective , or complex judgments . we base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . under different assumptions and or conditions , actual results of operations may materially differ . the most significant estimates impacting our consolidated financial statements relate to valuation and classification of inventories , accounts receivable reserves , deferred tax assets , uncertain tax positions , and revenue recognition . we also have other policies that we consider key accounting policies , but these policies typically do not require us to make estimates or judgments that are difficult or subjective . valuation and classification of inventories - inventories are stated at the lower of cost or net realizable value on an average cost basis . inventory costs include direct material and labor , inbound freight , purchasing and receiving costs , inspection costs , and warehousing costs . any inventory on hand at the measurement date in excess of our current requirements based on historical and anticipated levels of sales is classified as long-term on our consolidated balance sheets . our classification of our inventory as either short- or long-term inventory requires us to estimate the portion of on-hand inventory that can be realized over the next 12 months and does not include precious metal , labor , and other inventory purchases expected to be both purchased and realized in cost of goods sold over the next 12 months . our work-in-process inventories include raw sic crystals on which processing costs , such as labor and sawing , have been incurred and components , such as metal castings and finished good moissanite jewels , that have been issued to jobs in the manufacture of finished jewelry . our moissanite jewel manufacturing process involves the production of intermediary shapes , called “ preforms , ” that vary depending upon the size and shape of the finished jewel . to maximize manufacturing efficiencies , preforms may be made in advance of current finished inventory needs but remain in work-in-process inventories . as of june 30 , 2019 , june 30 , 2018 and december 31 , 2017 , work-in-process inventories issued to active production jobs approximated $ 1.23 million , $ 2.45 million , and $ 2.99 million , respectively .
| results of operations fiscal year ended june 30 , 2019 and twelve months ended june 30 , 2018 ( unaudited ) the following table sets forth certain consolidated statements of operations data for the fiscal year ended june 30 , 2019 and twelve-month period ended june 30 , 2018 ( unaudited ) : replace_table_token_2_th consolidated net sales consolidated net sales for the fiscal year ended june 30 , 2019 and twelve months ended june 30 , 2018 ( unaudited ) comprise the following : replace_table_token_3_th 39 consolidated net sales were $ 32.24 million for the fiscal year ended june 30 , 2019 compared to $ 27.91 million for the twelve months ended june 30 , 2018 ( unaudited ) , an increase of $ 4.34 million , or 16 % . the increase in consolidated net sales for the fiscal year ended june 30 , 2019 was due primarily to strong seasonal sales for both valentine 's day and the calendar year-end holiday as well as increased consumer awareness and demand for our moissanite gemstones and jewelry . these results were evidence of both strong finished jewelry product net sales and higher loose jewel net sales during the fiscal year ended june 30 , 2019 in our online channels segment . the increases in our online channels segment and traditional segment net sales in the fiscal year ended june 30 , 2019 were partially offset by lower finished jewelry product sales in our traditional segment . sales of finished jewelry represented 48 % and 47 % of total consolidated net sales for the fiscal year ended june 30 , 2019 and the twelve-month period ended june 30 , 2018 ( unaudited ) , respectively . for the fiscal year ended june 30 , 2019 , finished jewelry sales were $ 15.46 million compared to $ 13.00 million for the twelve months ended june 30 , 2018 ( unaudited ) , an increase of $ 2.46 million , or 19 % .
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we operate our business in a manner that will permit us to maintain our exclusion from the definition of investment company under the investment company act of 1940 , as amended ( the 1940 act ) . our objective is to provide attractive risk-adjusted returns to our shareholders , primarily through dividends and secondarily through capital appreciation . to achieve this objective , we primarily invest in the following : agency rmbs , which are residential mortgage-backed securities , for which a u.s. government agency such as the government national mortgage association ( ginnie mae ) or a federally chartered corporation such as the federal national mortgage association ( fannie mae ) or the federal home loan mortgage corporation ( freddie mac ) guarantees payments of principal and interest on the securities ; non-agency rmbs , which are rmbs that are not issued or guaranteed by a u.s. government agency or a federally chartered corporation ; cmbs , which are commercial mortgage-backed securities ; and residential and commercial mortgage loans . we finance the majority of our investments in agency rmbs , non-agency rmbs and cmbs through short-term borrowings structured as repurchase agreements . we have also financed our investments in certain non-agency rmbs , cmbs and residential and commercial mortgage loans by contributing capital to the invesco imrf fund that received financing under the u.s. government 's pipp , established and managed by our manager or one of its affiliates , which , in turn , invests in our target assets . 42 public offerings on july 26 , 2012 , we completed a public offering of an initial issuance of 5.4 million shares of 7.75 % series a cumulative redeemable preferred stock , or the series a preferred stock , at the price of $ 25.00 per share . on august 2 , 2012 , the underwriters exercised their over-allotment option in part to purchase an additional 200,000 shares of the series a preferred stock , at the price of $ 25.00 per share . total proceeds were $ 135.4 million , net of issuance costs of $ 4.6 million . during the year ended december 31 , 2012 , we issued 787,882 shares of common stock at an average price of $ 20.94 under the share repurchase feature of our dividend reinvestment and share purchase plan ( drspp ) with total proceeds of $ 16.4 million , net of issuance costs of $ 73,000. story_separator_special_tag style= '' margin-top:12px ; margin-bottom:0px ; text-indent:4 % '' > during the twelve months ended december 31 , 2012 , we purchased $ 9.3 billion ( 2011 : $ 13.3 billion ) of mortgage-backed securities . the average yield on these purchases as of december 31 , 2012 is 3.0 % ( 2011 : 3.8 % ) . 44 portfolio characteristics the table below represents the vintage of our credit assets as of december 31 , 2012 : replace_table_token_7_th ( 1 ) for re-remic seniors , the table reflects the year in which the resecuritizations were issued . the vintage distribution of the securities that collateralize the company 's re-remic senior investments is 10.7 % 2005 , 38.4 % 2006 and 50.9 % 2007. additionally , 5.5 % of our re-remic holdings are not senior classes . the tables below represent the geographic concentration of the underlying collateral for our mbs portfolio as of december 31 , 2012 : replace_table_token_8_th the vintage and geographic concentrations have not significantly changed since december 31 , 2011. financing and other liabilities . we enter into repurchase agreements to finance the majority of our agency rmbs , non-agency rmbs and cmbs . these agreements are secured by our agency rmbs , non-agency rmbs and cmbs and bear interest at rates that have historically moved in close relationship to the london interbank offer rate ( libor ) . as of december 31 , 2012 , we had entered into repurchase agreements totalling $ 15.7 billion ( 2011 : $ 12.3 billion ) . the increase in the amount of the repurchase agreement balance was due to leveraging additional equity received during the year . we also committed to invest up to $ 100.0 million in the invesco mortgage recovery feeder fund l.p. managed by the company 's manager ( invesco imrf fund ) and invesco mortgage recovery loans aiv , l.p. ( aiv ) , which , in turn , invests in our target assets . as of december 31 , 2012 , $ 82.9 million ( 2011 : $ 79.7 million ) of our commitment to the invesco imrf fund and aiv fund has been called and we are committed to fund $ 17.1 million in additional capital . the company records the liability for mortgage-backed securities purchased for which settlement has not taken place as an investment related payable . as of december 31 , 2012 and 2011 , the company had investment related payables of $ 63.7 million and $ 107.0 million , respectively , of which no items were outstanding greater than thirty days . the change in balance was primarily due to a decrease in mortgage-backed security purchases at the quarter ended december 31 , 2012 . 45 hedging instruments . we generally hedge as much of our interest rate risk as we deem prudent in light of market conditions . no assurance can be given that our hedging activities will have the desired beneficial impact on our results of operations or financial condition . our investment policies do not contain specific requirements as to the percentages or amount of interest rate risk that we are required to hedge . story_separator_special_tag 48 net income summary for the year ended december 31 , 2012 , our net income attributable to common shareholders was $ 334.5 million ( 2011 : $ 281.9 million ; 2010 : $ 98.4 million ) , or $ 2.89 ( 2011 : $ 3.27 ; 2010 : $ 3.78 ) basic and diluted net income per average share available to common shareholders . the increase to net income attributable to common shareholders for the year ended december 31 , 2012 versus 2011 is primarily attributable to the growth in our average investment portfolio resulting from our preferred stock and common stock offerings during 2012 and 2011. our average mbs portfolio increased $ 5.4 billion during 2012 over 2011. the increase to net income attributable to common shareholders for the year ended december 31 , 2011 versus 2010 is primarily attributable to the growth in our average investment portfolio resulting from our follow-on common stock offerings during 2011 and 2010. our average mbs portfolio increased $ 8.3 billion during 2011 over 2010. during 2011 , we completed three follow-on common stock offerings raising $ 1.3 billion in equity . interest income and average earning asset yield our primary source of income is interest earned on our investment portfolio . during 2012 , we had average earning assets of approximately $ 16.3 billion ( 2011 : $ 11.0 billion ; 2010 : $ 2.6 billion ) and earned interest income of $ 566.8 million ( 2011 : $ 453.4 million ; 2010 : $ 134.2 million ) . the yield on our average investment portfolio was 3.47 % ( 2011 : 4.14 % ; 2010 : 5.11 % ) . the change in our average assets and the portfolio yield for 2012 versus 2011 was primarily the result of the increase in our investment portfolio in connection with adding leverage and utilizing proceeds from our preferred stock offerings during 2012 and a change in our portfolio composition as we increased our equity allocation to agency rmbs at lower yields and higher leverage . the change in our average assets and the portfolio yield for 2011 versus 2010 was primarily the result of the increase in our investment portfolio in connection with adding leverage and utilizing proceeds from our follow-on common stock offerings during 2011 and a change in our portfolio composition as we allocated a higher amount of equity to agency rmbs at lower yields and higher leverage . our interest income is subject to interest rate risk . refer to item 7a . quantitative and qualitative disclosures about market risk for more information relating to interest rate risk and its impact on our operating results . 49 the cpr of our portfolio impacts the amount of premium and discount on the purchase of securities that is recognized into income . our agency and non-agency rmbs had a weighted average cpr of 14.6 and 14.3 for the three months ended december 31 , 2012 and september 30 , 2012 , respectively . the table below shows the three month cpr for our rmbs compared to bonds with similar characteristics ( cohorts ) : replace_table_token_11_th interest expense and the cost of funds our largest expense is the interest expense on borrowed funds . for 2012 , we had average borrowed funds of $ 14.2 billion ( 2011 : $ 9.5 billion ; 2010 : $ 2.1 billion ) and total interest expense of $ 237.4 million ( 2011 : $ 155.2 million ; 2010 : $ 29.6 million ) . the increase in average borrowed funds for 2012 versus 2011 was primarily the result of increasing the size of our investment portfolio in connection with the investment of the proceeds of our preferred stock offering . the increase in interest expense for 2012 versus 2011 was primarily the result of increasing the size of our investment portfolio and hedging costs from additional interest rate swaps . the increase in average borrowed funds for 2011 versus 2010 was primarily the result of increasing our investment portfolio in connection with the investment of the proceeds of our follow-on common stock offerings . the increase in interest expense for 2011 versus 2010 was primarily the result of a higher average borrowing balance outstanding and higher average cost of funds . for the year ended december 31 , 2012 , our average hedged cost of funds was 1.68 % ( 2011 : 1.64 % ; 2010 : 1.40 % ) . since a substantial portion of our repurchase agreements are short term , changes in market rates are directly reflected in our interest expense . interest expense includes borrowing costs under repurchase agreements , as well as any hedging costs . net interest income our net interest income , which equals interest income less interest expense , for the year ended december 31 , 2012 , totaled $ 329.4 million ( 2011 : $ 298.1 million ; 2010 : $ 104.7 million ) . our net interest rate margin for the year ended december 31 , 2012 , which equals the yield on our average assets for the period less the average cost of funds for the period , was 1.79 % ( 2011 : 2.50 % ; 2010 : 3.71 % ) . the increase in net interest income for 2012 versus 2011 was primarily the result of increasing our investment portfolio with the net proceeds of our preferred stock offering . the decrease in net interest margin was primarily due to a lower average earning asset yield . the increase in net interest income for 2011 versus 2010 was primarily the result of increasing our investment portfolio with the net proceeds of our follow-on common stock offerings . the decrease in net interest margin was primarily due to higher hedged cost of funds related to the increase in average borrowings and interest rate swaps . gain on sale of investments as part of our investment process , all of our mbs are reviewed on a monthly basis to determine if they continue to meet our risk and return targets .
| factors impacting our operating results our operating results can be affected by a number of factors and primarily depend on , among other things , the level of our net interest income , the market value of our assets and the supply of , and demand for , the target assets in which we invest . our net interest income , which includes the amortization of purchase premiums and accretion of purchase discounts , varies primarily as a result of changes in market interest rates and prepayment speeds , as measured by the constant prepayment rate ( cpr ) on our target assets . interest rates and prepayment speeds vary according to the type of investment , conditions in the financial markets , competition and other factors , none of which can be predicted with any certainty . market conditions beginning in the summer of 2007 , significant adverse changes in financial market conditions resulted in a deleveraging of the entire global financial system . as part of this process , residential and commercial mortgage markets in the united states experienced a variety of difficulties , including loan defaults , credit losses and reduced liquidity . as a result , many lenders tightened their lending standards , reduced lending capacity , liquidated significant portfolios or exited the market altogether , and therefore , financing with attractive terms was generally unavailable . in response to these unprecedented events , the u.s. government has taken a number of actions to stabilize the financial markets and encourage lending . significant measures include the enactment of the emergency economic stabilization act of 2008 to , among other things , establish the troubled asset relief program ( tarp ) , the enactment of the housing and economic recovery act of 2008 ( hera ) , which established a new regulator for fannie mae and freddie mac and the establishment of the term asset-backed securities loan facility ( talf ) and the ppip .
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the company and its subsidiaries have an undertaking from the governor-in-cabinet of the cayman islands , pursuant to the provisions of the tax concessions law , as amended , that , in the event that the cayman islands enacts any legislation that imposes tax on profits , income , gains or appreciations , or any tax in the nature of estate duty or inheritance tax , such tax will not be applicable to the company and its subsidiaries or their operations , or to the ordinary shares or related obligations , until april 23 , 2033 and may 17 , 2033 , respectively . the company and its subsidiaries intend to conduct substantially all of their operations in the cayman islands in a manner such that they will not be engaged in a trade or business in the u.s. however , because there is no definitive authority regarding activities that constitute being engaged in a trade or business in the u.s. for federal income tax purposes , the company can not assure that the u.s. internal revenue service will not contend , perhaps successfully , that the company or its subsidiaries are engaged in a trade or business in the u.s. a foreign corporation deemed to be so engaged would be story_separator_special_tag the following management discussion and analysis is intended to help the reader understand our business , financial condition , results of operations , liquidity and capital resources . you should read this discussion in conjunction with our consolidated financial statements and the related notes contained elsewhere in this annual report on form 10-k for the fiscal year ended december 31 , 2019. this discussion contains forward-looking statements that are not historical facts , including statements about our beliefs and expectations . these statements are based upon current plans , estimates and projections . our actual results may differ materially from those projected in these forward-looking statements as a result of various factors . see “ forward looking statements ” appearing at the beginning of this annual report on form 10-k and item 1a , “ risk factors . ” general the following is a discussion and analysis of our results of operations for the years ended december 31 , 2019 and 2018 and our financial condition as of december 31 , 2019 and 2018. the following discussion should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. references to “ we , ” “ us , ” “ our , ” “ our company , ” or “ the company ” refer to oxbridge re holdings limited and its wholly-owned subsidiaries , oxbridge reinsurance limited and oxbridge re ns , unless the context dictates otherwise . 30 overview and trends we are a cayman islands specialty property and casualty reinsurer that provides reinsurance solutions through our reinsurance subsidiaries , oxbridge reinsurance limited and oxbridge re ns . our more recently organized subsidiary , oxbridge re ns , was incorporated on december 22 , 2017 to function as a reinsurance sidecar which increases the underwriting capacity of oxbridge reinsurance limited . oxbridge re ns commenced operations on june 1 , 2018 and has since issued participating notes to third-party investors , the proceeds of which was utilized to collateralize a quota-share of oxbridge reinsurance limited 's reinsurance obligations . we focus on underwriting fully-collateralized reinsurance contracts primarily for property and casualty insurance companies in the gulf coast region of the united states , and globally through ilw 's . we specialize in underwriting medium frequency , high severity risks , where we believe sufficient data exists to analyze effectively the risk/return profile of reinsurance contracts . we underwrite reinsurance contracts on a selective and opportunistic basis as opportunities arise based on our goal of achieving favorable long-term returns on equity for our shareholders . our goal is to achieve long-term growth in book value per share by writing business that generates attractive underwriting profits relative to the risk we bear . unlike other insurance and reinsurance companies , we do not intend to pursue an aggressive investment strategy and instead will focus our business on underwriting profits rather than investment profits . however , we intend to complement our underwriting profits with investment profits on an opportunistic basis . our primary business focus is on fully collateralized reinsurance contracts for property catastrophes , primarily in the gulf coast region of the united states , as well as globally through ilw 's . within that market and risk category , we attempt to select the most economically attractive opportunities across a variety of property and casualty insurers . as our capital base grows , however , we expect that we will consider further growth opportunities in other geographic areas and risk categories . our level of profitability is primarily determined by how adequately our premiums assumed and investment income cover our costs and expenses , which consist primarily of acquisition costs and other underwriting expenses , claim payments and general and administrative expenses . one factor leading to variation in our operational results is the timing and magnitude of any follow-on offerings we undertake ( if any ) , and issuance of participating notes to third-party investors , as we are able to deploy new capital to collateralize new reinsurance treaties and consequently , earn additional premium revenue . in addition , our results of operations may be seasonal in that hurricanes and other tropical storms typically occur during the period from june 1 through november 30. further , our results of operations may be subject to significant variations due to factors affecting the property and casualty insurance industry in general , which include competition , legislation , regulation , general economic conditions , judicial trends , and fluctuations in interest rates and other changes in the investment environment . because we employ an opportunistic underwriting and investment philosophy , period-to-period comparisons of our underwriting results may not be meaningful . story_separator_special_tag as described below , loss and loss adjustment expenses are based on the claims reported by our company 's ceding insurers , and may include an actuarial analysis of the estimated losses , including losses incurred during the period and changes in estimates from prior periods . depending on the nature of the contract , loss and loss adjustment expenses may be paid over a period of years . policy acquisition costs and underwriting expenses policy acquisition costs and underwriting expenses consist primarily of brokerage fees , ceding commissions , premium taxes and other direct expenses that relate to our writing of reinsurance contracts . we amortize deferred acquisition costs over the related contract term . general and administrative expenses general and administrative expenses consist of salaries and benefits and related costs , including costs associated with our professional fees , rent and other general operating expenses consistent with operating as a public company . 33 results of operations the following table summarizes our results of operations for the years ended december 31 , 2019 and 2018 ( dollars in thousands , except per share amounts ) : replace_table_token_2_th 34 comparison of the year ended december 31 , 2019 to year ended december 31 , 2018 general . net loss for the year ended december 31 , 2019 was $ 305 thousand or ( $ 0.05 ) basic and diluted loss per share compared to a net loss of $ 5.7 million or ( $ 1.00 ) basic and diluted earnings per share for the year ended december 31 , 2018. the significant decrease in net loss is wholly due to no limit losses being suffered during the year ended december 31 , 2019 , when compared with the reinsurance portfolio that suffered limit losses during the year ended december 31 , 2018. premium income . net premiums earned typically reflects the pro-rata inclusion into income of premiums assumed ( net of loss experience refund and premiums ceded ) over the life of the reinsurance contracts . however , given the limit losses experienced on all our reinsurance contracts during the year ended december 31 , 2018 , premiums recognition has not been deferred through the remaining lives of those respective contracts and has been accelerated into the respective years , due to the fact that there is no possibility of any future treaty-year losses under such contracts . net premiums earned for the year ended december 31 , 2019 decreased $ 2.1 million , to $ 617 thousand , from $ 2.7 million for the year ended december 31 , 2018. the decrease is primarily due to the fact that lower capital was deployed during 2019 , when compared with the prior fiscal year . losses incurred . losses incurred for the year ended december 31 , 2019 decreased $ 10 million to $ 0 , from $ 10 million for the year ended december 31 , 2018. the decrease is primarily due to no losses incurred during 2019 when compared with the reinsurance portfolio that suffered limit losses during the year ended december 31 , 2018. policy acquisition costs and underwriting expenses . acquisition costs represent the amortization of the brokerage fees and federal excise taxes incurred on reinsurance contracts placed . policy acquisition costs and underwriting expenses for the year ended december 31 , 2019 decreased by $ 199 thousand , to $ 64 thousand from $ 263 thousand for the year ended december 31 , 2018. the decrease is primarily due to the decrease in net premiums earned during 2019 , when compared with the prior fiscal year . general and administrative expenses . general and administrative expenses for the year ended december 31 , 2019 decreased by $ 200 thousand to $ 1.1 million from $ 1.3 million for the year ended december 31 , 2018. the decrease is due to further cost savings initiatives implemented by the company . story_separator_special_tag style= '' width : 100 % ; margin-left : 0px ; text-indent : 0px ; margin-right : 0px '' > 36 liquidity and capital resources general we are organized as a holding company with substantially no operations at the holding company level . our operations are conducted through our reinsurance subsidiaries , oxbridge reinsurance limited and oxbridge re ns which underwrites risks associated with our property and casualty reinsurance programs . we have minimal continuing cash needs at the holding company level , with such expenses principally being related to the payment of administrative expenses , and shareholder dividends , if any . there are restrictions on oxbridge reinsurance limited 's and oxbridge re ns ' ability to pay dividends which are described in more detail below . sources and uses of funds our sources of funds primarily consist of premium receipts ( net of brokerage fees and federal excise taxes , where applicable ) and investment income , including interest , dividends and realized gains . we use cash to pay losses and loss adjustment expenses , other underwriting expenses , dividends , and general and administrative expenses . substantially all of our surplus funds , net of funds required for cash liquidity purposes , are invested in accordance with our investment guidelines . our investment portfolio is primarily comprised of cash and highly liquid securities , which can be liquidated , if necessary , to meet current liabilities . we believe that we have sufficient flexibility to liquidate any long-term securities that we own in a rising market to generate liquidity . as of december 31 , 2019 , we believe we had sufficient cash flows from operations to meet our liquidity requirements . we expect that our operational needs for liquidity will be met by cash , investment income and funds generated from underwriting activities . we have no plans to issue debt and expect to fund our operations for the foreseeable future from operating cash flows , as well as from potential future equity offerings .
| measurement of results we use various measures to analyze the growth and profitability of business operations . for our reinsurance business , we measure growth in terms of premiums assumed and we measure underwriting profitability by examining our loss , underwriting expense and combined ratios . we analyze and measure profitability in terms of net income and return on average equity . premiums assumed . we use gross premiums assumed to measure our sales of reinsurance products . gross premiums assumed also correlates to our ability to generate net premiums earned . see also the analysis above relating to the growth in premiums assumed . loss ratio . the loss ratio is the ratio of losses and loss adjustment expenses incurred to premiums earned and measures the underwriting profitability of our reinsurance business . the loss ratio decreased from 268.6 % for the year ended december 31 , 2018 to 0 % for the year ended december 31 , 2019. the decrease is due to no loss and loss adjustment expenses incurred during the year ended december 31 , 2019 compared with limit losses suffered during the prior fiscal year . 35 acquisition cost ratio . the acquisition cost ratio is the ratio of policy acquisition costs and other underwriting expenses to net premiums earned . the acquisition cost ratio measures our operational efficiency in producing , underwriting and administering our reinsurance business . the acquisition cost ratio increased from 9.6 % for the year ended december 31 , 2018 to 10.4 % for the year ended december 31 , 2019. the increase is due to the overall marginally higher weighted-average acquisition costs on reinsurance contracts in force during the year ended december 31 , 2019 , compared with the prior fiscal year . expense ratio . the expense ratio is the ratio of policy acquisition costs , other underwriting expenses and general and administrative expenses to net premiums earned . we use the expense ratio to measure our operating performance .
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2. other comprehensive income ( loss ) activity in accumulated other comprehensive income ( loss ) , net of tax , was as follows : replace_table_token_32_th the before and after tax amounts allocated to each component of other comprehensive income ( loss ) are presented in the table below for the periods indicated . f-76 replace_table_token_33_th 3. investment and mortgage-backed securities at december 31 , 2016 and 2015 , there were no holdings of investment securities of any one issuer in an amount greater than 10 % of stockholders ' equity . the following tables summarize the major categories of securities owned by the company ( excluding trading securities ) for the periods indicated : replace_table_token_34_th ( 1 ) amount represents the purchase story_separator_special_tag results of operations story_separator_special_tag text-align : justify '' > the discount rate is used to calculate the present value of the benefit obligations at the measurement date and the expense to be recorded in the next fiscal year . a lower discount rate assumption typically generates a higher benefit obligation and expense , while a higher discount rate assumption typically generates a lower benefit obligation and expense . discount rate assumptions are determined by reference to the citigroup pension discount curve ( a commonly utilized benchmark ) , adjusted for plan specific cash flows . these rates are reviewed for reasonableness and adjusted , as necessary , to reflect current market data and trends . in order to determine the expected long-term return on plan assets , the company reviews the long-term historical return information on plan assets , the mix of investments that comprise plan assets and the historical returns on indices comparable to the fund classes in which the plan invests . while the company 's management utilizes available information to estimate these key assumptions , future fluctuations may occur based on changes in the underlying benchmark data or other factors beyond management 's control . the company 's methods and assumptions utilized for its accounting for defined benefit plans are discussed in note 14 to the company 's consolidated financial statements . f-39 analysis of net interest income the company 's profitability , like that of most banking institutions , is dependent primarily upon net interest income . net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities , and the interest rate earned or paid on them . the following tables set forth certain information relating to the company 's consolidated statements of operations for the years ended december 31 , 2016 , 2015 and 2014 , and reflect the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated . such yields and costs are derived by dividing interest income or expense by the average balance of interest-earning assets or interest-bearing liabilities , respectively , for the periods indicated . average balances are derived from daily balances . the yields and costs include fees and charges that are considered adjustments to yields and costs . all material changes in average balances and interest income or expense are discussed in the section entitled `` net interest income '' in the comparisons of operating results commencing on page f-41 . replace_table_token_6_th ( 1 ) in computing the average balance of real estate loans , non-performing loans have been included . interest income on real estate loans includes loan fees . interest income on real estate loans also includes applicable prepayment fees and late charges totaling $ 9.0 million , $ 11.3 million and $ 12.5 million during the years ended december 31 , 2016 , 2015 and 2014 , respectively . ( 2 ) interest expense on borrowed funds includes $ 1.4 million of prepayment charge recognized during the year ended december 31 , 2015. there were no such fees during the years ended december 31 , 2016 or 2014. absent the prepayment charge , the average cost of borrowings would have been 2.01 % during the year ended december 31 , 2015 . ( 3 ) net interest spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities . ( 4 ) net interest margin represents net interest income as a percentage of average interest-earning assets . f-40 rate/volume analysis the following table represents the extent to which variations in interest rates and the volume of interest-earning assets and interest-bearing liabilities have affected interest income and interest expense during the periods indicated . information is provided in each category with respect to : ( i ) variances attributable to fluctuations in volume ( change in volume multiplied by prior rate ) , ( ii ) variances attributable to rate ( changes in rate multiplied by prior volume ) , and ( iii ) the net change . variances attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate . replace_table_token_7_th comparison of operating results for the years ended december 31 , 2016 , 2015 , and 2014 net income was $ 72.5 million in 2016 , compared to $ 44.8 million in 2015 , and $ 44.2 million in 2014. during 2016 , net interest income increased $ 14.9 million , the provision for loan losses increased by $ 3.4 million , non-interest income increased by $ 67.3 million and non-interest expense increased by $ 21.3 million . income tax expense increased $ 29.7 million in 2016 , as a result of $ 57.5 million of additional pre-tax income . net interest income increased $ 4.0 million in 2015. offsetting this increase , non-interest income declined $ 422,000 , non-interest expense increased $ 1.4 million , and 2015 earnings experienced a $ 542,000 lower benefit from the credit ( negative provision ) for loan losses than was experienced in 2014. income tax expense increased $ 1.1 million in 2015 , primarily as a result of $ 1.6 million of additional pre-tax income . story_separator_special_tag the increase of $ 3.9 million in interest expense on money market deposits reflected successful promotional activities that increased their average balance by $ 257.4 million and their average cost by 18 basis points in 2015. provision ( credit ) for loan losses the company recognized a provision for loan losses of $ 2.1 million in 2016 , a credit ( negative provision ) for loan losses of $ 1.3 million in 2015 , and a credit ( negative provision ) for loan losses of $ 1.9 million in 2014. the $ 2.1 million provision for loan losses recognized during 2016 resulted mainly from growth in the real estate portfolio in connection with the company 's growth strategy , offset by continued improvement in the overall credit quality of the loan portfolio . the credits recorded during the years ended both december 31 , 2015 and 2014 reflected continued improvement in the overall credit quality of the loan portfolio from october 1 , 2013 through december 31 , 2015. the credit recorded during 2015 also reflected a $ 1.5 million recovery of previously charged-off amounts from the favorable resolution of the bank 's largest problem loan , offset by growth of $ 577.8 million in the real estate loan portfolio during 2015. f-42 the following table sets forth activity in the bank 's allowance for loan losses at or for the dates indicated : replace_table_token_8_th non-interest income total non-interest income was $ 75.9 million in 2016 , $ 8.6 million in 2015 , and $ 9.0 million in 2014. during 2016 , non-interest income increased $ 67.3 million from 2015 , due primarily to a gain of $ 68.2 million recognized on the sale of real estate and $ 329,000 of increased income from boli during the year ended december 31 , 2016. partially offsetting these increases were a $ 1.3 million gain on the sale of mbs in 2015 , and a decline in service charges and other fees during the comparative period as a result of lower transaction volume . during 2015 , non-interest income declined $ 422,000 from 2014 , due primarily to a reduction of $ 328,000 in the net gain on the sale of securities and other assets during the comparative period , and a credit of $ 1.0 million recognized as additional mortgage banking income during 2014. the $ 1.0 million credit eliminated the liability in relation to loans sold to fnma on which the bank retained an obligation ( off-balance sheet contingent liability ) to absorb losses on loans that were re-acquired from fnma during 2014. partially offsetting the reductions were the following increases during 2015 : 1 ) $ 662,000 of income from boli , as the company increased its investment in boli commencing in october 2014 ; 2 ) $ 194,000 of additional loan application fee income during the comparative period that reflected higher loan origination activity ; and 3 ) $ 220,000 growth in inspection fee income reflecting the growth in the mortgage loan portfolio . non-interest expense non-interest expense was $ 83.8 million in 2016 , $ 62.5 million in 2015 , and $ 61.1 million in 2014. during 2016 , non-interest expense increased $ 21.3 million from 2015. contributing to the increase was a non-recurring $ 3.4 million reduction in salaries and employee benefits in 2015 from the curtailment of certain postretirement health benefits ( “ curtailment gain ” ) . excluding the impact of the curtailment gain , non-interest expense would have increased by $ 17.9 million during 2016. the increase was primarily the result of a one-time , non-cash , non-taxable expense of $ 11.3 million related to the prepayment of the outstanding balance of the employee stock ownership plan ( “ esop ” ) loan by the plan ( “ esop charge ” ) , in addition to increases of $ 1.6 million in occupancy and equipment expense , $ 1.4 million in marketing expense , $ 1.2 million in data processing expense , $ 734,000 in consulting expense , and $ 1.7 million in other operating expenses . the $ 1.6 million increase in occupancy expense was attributable to new leases related to de novo retail branches and a new corporate office . the $ 1.4 million increase in marketing costs was related to deposit gathering initiatives in line with the company 's growth strategy . the $ 1.2 million increase in data processing costs was the result of various technology enhancement initiatives related to customer banking services . the $ 734,000 increase in consulting expense was attributable to new consulting . during 2015 , non-interest expense increased $ 1.4 million from 2014. excluding the impact of the curtailment gain , non-interest expense would have increased by $ 4.8 million during the comparative period as a result of higher salaries and employee benefits , increased occupancy and equipment expenses from the accelerated depreciation of some automated teller machine equipment that was expected to be replaced sooner than anticipated , additional marketing expenses tied to both brand recognition and deposit gathering initiatives , and heightened data processing costs associated with both higher loan and deposit processing activities and several technological upgrades . f-43 non-interest expense as a percentage of average assets was 1.31 % in 2016 , excluding the esop charge , down from 1.41 % during in 2015 , excluding the curtailment gain , which was comparable to 1.42 % in 2014. the decrease during 2016 was primarily due to the $ 894.3 million of growth in average assets outweighing the growth in non-interest expense during 2016. the decrease during 2015 was primarily due to the $ 365.8 million of growth in average assets during the year ended december 31 , 2015. income tax expense income tax expense was $ 60.9 million in 2016 , $ 31.2 million in 2015 , and $ 30.1 million in 2014. during 2016 , income tax expense increased $ 29.7 million from 2015 , due primarily to an increase of $ 57.5 million in pre-tax income during the comparative period .
| executive summary the holding company 's primary business is the ownership of the bank . the company 's consolidated results of operations are dependent primarily on net interest income , which is the difference between the interest income earned on interest-earning assets , such as loans and securities , and the interest expense paid on interest-bearing liabilities , such as deposits and borrowings . the bank additionally generates non-interest income such as service charges and other fees , mortgage banking related income , and income associated with bank owned life insurance ( “ boli ” ) . non-interest expense primarily consists of employee compensation and benefits , federal deposit insurance premiums , data processing costs , occupancy and equipment , marketing and other operating expenses . the company 's consolidated results of operations are also significantly affected by general economic and competitive conditions ( particularly fluctuations in market interest rates ) , government policies , changes in accounting standards and actions of regulatory agencies . the bank 's primary strategy is generally to seek to increase its product and service utilization for each individual depositor , and increase its household and deposit market shares in the communities that it serves . in recent years , particular emphasis has been placed upon growing individual and small business commercial checking account balances . the bank also actively strives to obtain checking account balances affiliated with the operation of the collateral underlying its mortgage loans , as well as personal deposit accounts from its borrowers . the bank additionally utilizes an internet banking initiative , `` dime direct . '' to date , deposits gathered through dime direct have primarily been promotional money markets . given their nature , the dime direct deposits are anticipated to carry lower administrative servicing costs than the bank 's traditional retail deposits . the bank 's primary strategy additionally includes the origination of , and investment in , mortgage loans , with an emphasis on nyc multifamily residential and mixed-use real estate loans .
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risk-free rates are based on the u.s. treasury yield curve , as published by the u.s. treasury . the following table summarizes the weighted-average valuation assumptions and weighted-average grant date fair value of options granted during the periods shown below : replace_table_token_23_th 40 options activity and positions the following table summarizes activity and positions with respect to options for the periods shown below ( in thousands ) : replace_table_token_24_th no options were exercised during the year ended december 31 , 2019. the total grant date fair value of options vested during the years ended december 31 , 2020 and 2019 was $ 604,000 and $ 801,000 , respectively . as of december 31 , 2020 , our unrecognized share-based compensation was $ 376,000 related to options , which we plan to amortize over the next 1.2 years . in 2020 , we issued 111,000 rsus as new hire grants to non-executive employees . these shares were valued based on the closing price of our common stock on the dates of grant . these shares vest on the earlier of a change of control of the company or the one-year anniversary of the grant date . in june 2020 , we issued 1.2 million rsus to non-executive employees for retention purposes . these shares were valued based on the closing price of our common stock on the date of grant . these shares vest on the earlier of a change of control of the company or the one-year anniversary of the grant date . in the fourth quarter of 2019 , we issued 384,751 vested rsus to our executives in lieu of cash for payment of short-term incentive bonuses earned in 2018. on may story_separator_special_tag overview we are developing our 1st generation lidar sensor , which we call long range lidar , for oem and tier-1 automotive suppliers to be incorporated into automotive active collision avoidance systems and autonomous driving vehicles . this product will also be targeted for sales to technology companies focused on mobility as a service ( maas ) . maas customers are currently major users of automotive lidar sensors . though automotive lidar is our priority now , we have developed solutions for augmented reality , interactive displays , and consumer lidars . for the past few years , our strategy has been to sell ar displays or components , interactive displays , or consumer lidars to original equipment manufacturers ( oems ) and original design manufacturers ( odms ) for incorporation into their products . however , while we do have a well-known customer for one of these products which generates royalty income , the volume of sales and resulting royalties from that product are not significant , and we have been unable to secure additional customers to launch one of our products . as discussed above , we plan to focus our attention on strategic alternatives , including a potential sale or merger of the company , sale of part of the company , strategic minority investment , as well as licensing and other transactions . we have incurred substantial losses since inception and expect to incur a significant loss during the fiscal year ending december 31 , 2021. we have funded operations to date primarily through the sale of common stock , convertible preferred stock , warrants , the issuance of convertible debt and , to a lesser extent , from development contract revenues , product sales and licensing activities . there can be no assurance that additional capital will be available or that , if available , it will be available on terms acceptable to us on a timely basis . we can not be certain that we will succeed in commercializing our technology or products . impact of covid-19 on our business on march 11 , 2020 , the world health organization declared the outbreak of covid-19 as a pandemic , which continues to be spread throughout the united states and the world . the impact from the covid-19 outbreak is uncertain and may impact our business and results of operations and could impact our financial condition in the future . we are unable to accurately predict the full impact that covid-19 may have due to numerous uncertainties , including the severity , duration and spread of the outbreak , and actions that may be taken by governmental authorities . several of the suppliers of components in our lbs modules have experienced closures or have been operating at reduced capacity , resulting in lower than planned product shipments . continued disruptions to the supply chain could have a material impact on our future operating results . as a result of the covid-19 pandemic , including related governmental guidance or directives , we are still requiring most office-based employees to work remotely . we may experience reductions in productivity and disruptions to our 15 business routines while our remote work policy remains in place or if our employees become ill and are unable to work . this could have an adverse effect on the timing of our development activities , our ability to raise additional capital , our ability to enter into licensing agreements , or our ability to complete a potential sale or merger of the company . in april 2020 , we received funds in the amount of $ 1.6 million pursuant to a loan under the paycheck protection program of the 2020 cares act ( `` ppp '' ) administered by the small business administration . the loan has an interest rate of 0.98 % and a term of 24 months . no payments are due for the first 10 months following the 24-week covered period , although interest accrues during that period . thereafter , the loan is repayable in monthly installments over the next 18 months to retire the loan plus accrued interest . story_separator_special_tag leases significant judgment may be required when determining whether a contract contains a lease , the length of the lease term , the allocation of the consideration in a contract between lease and non-lease components , and the determination of the discount rate included in our office lease . we review the underlying objective of each contract , the terms of the contract , and consider our current and future business conditions when making these judgments . income taxes significant judgment is required in evaluating our tax position and in determining our provision for income taxes , our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets . we record a valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized . based on our history of losses since inception , the available objective evidence creates sufficient uncertainty regarding the realizability of the deferred tax assets . our actual tax exposure may differ from our estimates and any such differences may impact income our tax expense in the period in which such determination is made . the key accounting policies described above are not intended to be a comprehensive list of all of our accounting policies . in many cases , the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles , with no need for us to apply judgment or make estimates . there are also areas in which our judgment in selecting any available alternative would not produce a materially different result to our financial statements . additional information about our accounting policies , and other disclosures required by generally accepted accounting principles , are set forth in the notes to our financial statements . inflation has not had a material impact on our revenues or income from continuing operations over the three most recent fiscal years . story_separator_special_tag roman '' size= '' -1 '' > research and development expense $ 9,840 $ 18,661 $ ( 8,821 ) ( 47.3 ) research and development expense consists of compensation related costs of employees and contractors engaged in internal research and product development activities , direct material to support development programs , laboratory operations , outsourced development and processing work , and other operating expenses . we assign our research and development resources based on the business opportunity of the available projects , the skill mix of the resources available and the contractual commitments we have made to our customers . we believe that a substantial level of continuing research and development expense will be required to further develop our scanning technology . 19 the decrease in research and development expense during the year ended december 31 , 2020 compared to the same period in 2019 was attributable to reduced personnel-related compensation and benefits expenses and lower direct materials and subcontractor costs . sales , marketing , general and administrative expense 2020 2019 $ change % change ( in thousands ) sales , marketing , general and administrative expense $ 5,917 $ 8,133 $ ( 2,216 ) ( 27.2 ) sales , marketing , general and administrative expense includes compensation and support costs for marketing , sales , management and administrative staff , and for other general and administrative costs , including legal and accounting services , consultants and other operating expenses . the decrease in sales , marketing , general and administrative expense during the year ended december 31 , 2020 compared to the same period in 2019 was attributed to lower personnel-related compensation and benefits expenses and lower professional and outside services costs . at the end of 2020 there were no sales or marketing personnel with the company . income taxes no provision for income taxes has been recorded because we have experienced net losses from inception through december 31 , 2020. at december 31 , 2020 , we had net operating loss carryforwards of approximately $ 396.6 million for federal income tax reporting purposes . in addition , we have research and development tax credits of $ 8.8 million . during 2020 , $ 28.4 million federal net operating losses expired unused . a majority of the net operating loss carryforwards and research and development credits available to offset future taxable income , if any , will expire in varying amounts from 2021 to 2040 , if not previously used . in certain circumstances , as specified in the internal revenue code , a 50 % or more ownership change by certain combinations of our shareholders during any three-year period would result in a limitation on our ability to use a portion of our net operating loss carryforwards . we recognize interest accrued and penalties related to unrecognized tax benefits in tax expense . we did not have any unrecognized tax benefits at december 31 , 2020 or at december 31 , 2019. liquidity and capital resources we have incurred significant losses since inception . we have funded operations to date primarily through the sale of common stock , convertible preferred stock , warrants , the issuance of convertible debt and , to a lesser extent , from development contract revenues , product sales , and licensing activities . at december 31 , 2020 , we had $ 16.9 million in cash and cash equivalents . based on our current operating plan and including $ 61.4 million received in 2021 under at-the-market equity offering agreements with craig-hallum capital group , we anticipate that we have sufficient cash and cash equivalents to fund our operations for at least the next 12 months . we may require additional capital to fund our operating plan past that time . we may obtain additional capital through the issuance of equity or debt securities , and or licensing activities . there can be no assurance that additional capital will be available to us or , if available , will be available on terms acceptable to us or on a timely basis .
| results of operations year ended december 31 , 2020 compared to year ended december 31 , 2019. product revenue replace_table_token_1_th 17 product revenue is revenue from sales of our products which are lbs modules and their components . revenue is recognized when control of the goods passes to the customer . the decrease in product revenue for the year ended december 31 , 2020 compared to the same period in 2019 was primarily due to reduced product shipments to a major technology company . beginning in the third quarter of 2019 and through the end of february 2020 , we were selling components to a high definition display system that we developed for a customer under a development agreement . the volume and resulting revenue and gross profit from this business was fairly low . therefore , in march 2020 we transferred production of the components to the customer . starting in march 2020 , we earn a royalty from the customer for each unit shipped . product revenue in 2019 included $ 1.2 million related to the sale of display modules that had been produced for ragentek and delivered to our distributor in 2017. our distributor made payments in excess of revenue recognized and ragentek failed to meet their obligations under the march 2017 order . during 2019 , the remaining units held by our distributor were sold to other customers and we reached an agreement with our distributor on the final transaction price of the units shipped to them . product revenue backlog at december 31 , 2020 and 2019 was zero and $ 6.7 million , respectively . the december 31 , 2019 backlog was primarily due to the production orders received from a major technology company under the product supply agreement signed in april 2017. the reduction in product backlog was due to the transferring of production to our customer .
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117 gevo , inc. notes to consolidated financial statements ( continued ) the following sets forth the company 's obligations by year relating to its secured debt with triplepoint and the convertible notes at december 31 , 2012 ( in thousands ) . replace_table_token_26_th lighthouse as of december 31 , 2012 , the company had story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this report . in addition to historical financial information , the following discussion contains forward-looking statements that involve risks and uncertainties . our actual results may differ materially from those discussed below . factors that could cause or contribute to these differences include those discussed below and elsewhere in this report , particularly in risk factors. we are a renewable chemicals and next generation biofuels company . our overall strategy is to commercialize bio-based alternatives to petroleum-based products using a combination of synthetic biology and chemical technology . in order to implement this strategy , we are taking a building block approach . initially , we intend to produce and sell isobutanol from renewable feedstocks . isobutanol is a four carbon alcohol that can be sold directly for use as a specialty chemical in the production of solvents , paints , and coatings or as a value-added fuel blendstock . isobutanol can also be converted into butenes using straightforward dehydration chemistry deployed in the refining and petrochemicals industries today . the convertibility of isobutanol into butenes is important because butenes are primary hydrocarbon building blocks used in the production of lubricants , rubber , plastics , fibers , other polymers and hydrocarbon fuels . we believe that products derived from our isobutanol will be drop-in products , which means that our customers will be able to replace petroleum-based intermediate products with bio-isobutanol-based intermediate products without modification to their equipment or production processes . the final products produced from our bio-isobutanol-based intermediate products will be chemically and visually identical to those produced from petroleum-based intermediate products , except that they will contain carbon from renewable sources . customer interest in our isobutanol is primarily driven by our production route , which we believe will be cost-efficient , and our isobutanol 's potential to serve as a cost-effective , environmentally sensitive alternative to the petroleum-based intermediate products that they currently use . we believe that at every step of the value chain , renewable products that are chemically identical to the incumbent petrochemical products will have lower market adoption hurdles in contrast with other bio-industrial products because the infrastructure and applications for such products already exist . in addition , we believe that products made from bio-based isobutanol will be subject to less cost volatility than the petroleum-based products in use today based on the historical cost volatility of agricultural feedstocks compared to oil . in order to produce and sell isobutanol made from renewable sources , we have developed gift ® , an integrated technology platform for the efficient production and separation of isobutanol . gift ® consists of two components , proprietary biocatalysts , which convert sugars derived from multiple renewable feedstocks into isobutanol through fermentation , and a proprietary separation unit , which is designed to continuously separate isobutanol from water during the fermentation process . we developed our technology platform to be compatible with the existing approximately 23 billion gallons per year of global operating ethanol production capacity , as estimated by the renewable fuels association . gift ® is designed to allow relatively low capital expenditure retrofits of existing ethanol facilities , enabling a rapid route to isobutanol production from the fermentation of renewable feedstocks . we believe that our production route will be cost-efficient and will enable rapid deployment of our technology platform and allow our isobutanol and the products produced from it to be economically competitive with many of the petroleum-based products used in the chemicals and fuels markets today . we expect that the combination of our efficient proprietary technology , our marketing focus on providing drop-in substitutes for incumbent petrochemical products and our relatively low capital investment retrofit approach will mitigate many of the historical issues associated with the commercialization of renewable chemicals and fuels . in september 2009 , gevo , inc. formed gevo development to develop isobutanol production assets using gift ® . gevo development has a flexible business model and aims to secure access to existing ethanol capacity either through joint venture , licensing arrangements , tolling arrangements or direct acquisition . 76 agri-energy in september 2010 , we acquired the agri-energy facility , a 22 mgpy ethanol production facility in luverne , minnesota . the agri-energy facility is a traditional dry-mill facility , which means that it uses corn as a feedstock . in partnership with icm , we have developed a detailed retrofit design for this facility and began the retrofit in 2011. in may 2012 , we commenced initial startup operations for the production of isobutanol at this facility . during initial startup operations we produced approximately 100,000 gallons of bio-based isobutanol for sale and future customer testing . these initial startup operations included production of initial quantities of isobutanol produced at commercial scale , completion of initial commissioning of new equipment and development of operating discipline at commercial scale . in september 2012 , as a result of a lower than planned production rate of isobutanol , we made the strategic decision to pause isobutanol production at the agri-energy facility for a period of time to focus on optimizing specific parts of our technology to further enhance isobutanol production rates . factors that contributed to this strategic decision included , among others , that producing isobutanol at startup production rates while working to improve those production rates would result in operating the agri-energy facility at significantly below break-even cash flow level and that we believed that we had generated the necessary information required from our startup operations to work on enhancing our production rates at our testing laboratory in colorado . story_separator_special_tag research and development expense includes personnel costs ( including stock-based compensation ) , consultants and related contract research , facility costs , supplies , depreciation and amortization expense on property , plant and equipment used in product development , license fees paid to third parties for use of their intellectual property and patent rights and other overhead expenses incurred to support our research and development programs . research and development expenses also include upfront fees and milestone payments made under licensing agreements and payments for sponsored research and university research gifts to support research at academic institutions . selling , general and administrative selling , general and administrative expenses consist of personnel costs ( including stock-based compensation ) , consulting and service provider expenses ( including patent counsel-related costs ) , legal fees , marketing costs , corporate insurance costs , occupancy-related costs , depreciation and amortization expenses on property , plant and equipment not used in our product development programs or recorded in cost of goods sold , travel and relocation and hiring expenses . we also record selling , general and administrative expenses for the operations of the agri-energy facility that include administrative and oversight , certain personnel-related expenses , insurance and other operating expenses . 78 critical accounting policies and estimates the preparation of financial statements in conformity with accounting policies generally accepted in the united states of america ( u.s . gaap ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period . management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . management evaluates such estimates and judgments on an on-going basis and makes adjustments as deemed necessary . actual results could differ from these estimates using different estimates and assumptions , or if conditions are significantly different in the future . while our significant accounting policies are more fully described in note 1 to our consolidated financial statements included in this report , we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and reflect the more significant judgments and estimates that we use in the preparation of our consolidated financial statements . accounting for convertible debt and embedded derivatives in july 2012 , we sold $ 45.0 million in aggregate principal amount of convertible notes . terms of the convertible notes , include , among others : ( i ) rights to convert into shares of our common stock , including upon a fundamental change ; and ( ii ) a coupon make-whole payment in the event of a conversion by the holders of the convertible notes on or after january 1 , 2013 but prior to july 1 , 2017. we have determined that these specific terms are considered to be embedded derivatives in accordance with u.s. gaap . u.s. gaap requires embedded derivatives be separated from the host contract , the convertible notes , and carried at fair value when : ( a ) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract ; and ( b ) a separate , stand-alone instrument with the same terms would qualify as a derivative instrument . we have concluded that the embedded derivatives within the convertible notes meet these criteria and , as such , must be valued separate and apart from the convertible notes and recorded at fair value each reporting period . for purposes of accounting and financial reporting , we combine these embedded derivatives and value them together as one unit of accounting . at each reporting period , we record these embedded derivatives at fair value which is included as a component of the convertible notes on our consolidated balance sheets . we have used a binomial lattice model in order to estimate the fair value of the embedded derivative in the convertible notes . a binomial lattice model generates two probable outcomes one up and another down arising at each point in time , starting from the date of valuation until the maturity date . a lattice was initially used to determine if the convertible notes would be converted , called or held at each decision point . within the lattice model , the following assumptions are made : ( i ) the convertible notes will be converted early if the conversion value is greater than the holding value ; or ( ii ) the convertible notes will be called if the holding value is greater than both ( a ) the redemption price ( as defined in the indenture ) and ( b ) the conversion value plus the coupon make-whole payment at the time . if the convertible notes are called , then the holder will maximize their value by finding the optimal decision between ( 1 ) redeeming at the redemption price and ( 2 ) converting the convertible notes . using this lattice , we valued the embedded derivatives using the with-and-without method , where the value of the convertible notes including the embedded derivatives is defined as the with , and the value of the convertible notes excluding the embedded derivatives is defined as the without. this method estimates the value of the embedded derivatives by looking at the difference in the values between the convertible notes with the embedded derivatives and the value of the convertible notes without the embedded derivatives .
| result of operations comparison of the years ended december 31 , 2012 and 2011 ( in thousands ) replace_table_token_6_th n/mnot meaningful ethanol sales and related products , net . during fiscal year 2011 , our agri-energy facility produced and shipped ethanol and related products for the full year but , during fiscal year 2012 , the facility produced and shipped ethanol and related products only during the period from january 2012 through may 2012. the decrease in ethanol sales and related products was due to our commencement of initial start-up production of isobutanol at the agri-energy facility in may 2012. grant revenue , research and development program revenue and other revenue . the increase in grant revenue primarily resulted from agreements with the usaf and the u.s. department of agriculture that generated $ 2.1 million in revenue during 2012 compared with $ 0.7 million during 2011 as these contracts were either in place for the entire 2012 period or new to 2012. we also had an increase in revenue associated with our research and development contract with coca-cola which we entered into during the fourth quarter of 2011 and had other revenue in 2012 associated with the proceeds from sales of our corn inventory during the fourth quarter of 2012 . 83 cost of goods sold . our cost of goods sold during the year ended december 31 , 2012 primarily resulted from $ 22.0 million of costs related to the production of ethanol and distiller 's grains . we also incurred $ 6.6 million of start-up costs related to isobutanol production at our agri-energy facility . during the year ended december 31 , 2011 , our cost of goods sold related primarily to the production of ethanol and distiller 's grains . research and development .
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52 credit facility the company had a financing agreement ( the “ financing agreement ” ) with rosenthal & rosenthal , inc. that provides for a revolving loan with a maximum borrowing capacity of $ 3,500,000 . the financing agreement renewal date was august 31 , 2017 and will renew from year to year unless such financing agreement is terminated as set forth in the loan agreement . the amount outstanding under the financing agreement bore interest at a rate of the prime rate ( as defined in the financing agreement ) plus 3.25 % ( the “ effective rate ” ) or on over-advances ( as defined in the financing agreement ) , if any , at a rate of the effective rate plus 3 % . the financing agreement contained other financial and restrictive covenants , including , among others , covenants limiting the company 's ability to incur indebtedness , guarantee obligations , sell assets , make loans , enter into mergers and acquisition transactions and declare or make dividends . borrowings under the financing agreement are collateralized by substantially all the assets of the company . the financing agreement provided for advances against eligible accounts receivable and inventory balances based on prescribed formulas of raw materials and finished goods . on october 13 , 2017 , upon the sale of the dataram memory business , the buyer assumed the obligation under this financing agreement , therefore , liabilities related to this financing agreement was $ 0 as of april 30 , 2018. the following table sets forth for the year ended april 30 , 2018 , indicated selected financial data of the company 's discontinued operations of its memory product business from the date of merger to april 30 , 2018. replace_table_token_14_th the following table sets forth for the year ended april 30 , 2018 , indicated selected financial data of the company 's gain from sale of the dataram memory business . total consideration $ 900,000 direct legal and sales commission expenses related to the sale ( 201,510 ) dataram 's accrued expenses to be deducted from the sales proceeds ( 174,880 ) total carrying value of dataram memory business on date of sale * ( 429,125 ) net gain from sale of dataram memory business $ 94,485 current assets $ 3,271,426 other assets 33,320 current liabilities ( 2,866,660 ) liabilities – long term ( 8,961 ) * total carrying value of dataram memory business on date of sale $ 429,125 53 note 5 — related party transactions accounts payable to related party as of april 30 , 2018 and april 30 , 2017 was $ 2,431 , and was reflected as accounts payable – related party in the accompanying consolidated balance sheets . the related party is the managing partner of copper king llc who was a principal stockholder of gold king . in august 2017 , the company closed on a transaction under a purchase and sale agreement executed in june 2017 with nevada gold and u.s. gold acquisition corporation pursuant to which nevada gold sold and u.s. gold acquisition corporation purchased all right , title and interest in the gold bar north property , a gold development project located in eureka county , nevada ( see note 3 ) . the purchase price for the gold bar north property was : ( a ) cash payment in the amount of $ 20,479 which was paid in august 2017 and ( b ) 15,000 shares of common stock of the company which were issued in august 2017. mr. david mathewson , the company 's chief geologist , is a member of nevada gold . a director provided consulting services to the company over the past two years . the director was paid compensation in the amount of $ 1,800 and $ 3,600 during the years ended april 30 , 2018 and 2017 , respectively . note 6 — stockholders ' equity 2017 equity incentive plan in august 2017 , the company 's board of directors approved the company 's 2017 equity incentive plan including the reservation of 1,650,000 shares of common stock thereunder . series e convertible preferred stock on january 19 , 2018 , the company filed a certificate of designations of series e preferred with the secretary of state of nevada . the company designated 2,500 shares as series e preferred stock , par value $ 0.001 per share . each share of series e preferred stock is convertible into shares of the company 's common stock equal to the stated value of the preferred share , which is $ 2,000 , divided by the conversion price , which is $ 2.00 per share of common stock , subject to adjustment in the event of stock split , stock dividends , and recapitalization or otherwise . holders of shares of series e preferred stock shall be entitled to receive dividends when and as declared by the company 's board of directors , from time to time , and shall participate on an “ as converted ” basis with all dividends declared on the company 's common stock . story_separator_special_tag this item 7 , “ management 's discussion and analysis of financial condition and results of operations , ” and other parts of this form 10-k contain forward-looking statements , within the meaning of the private securities litigation reform act of 1995 , that involve risks and uncertainties . forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact . story_separator_special_tag and warrants for aggregate net proceeds of approximately $ 4.9 million in january 2018. the company is anticipating raising additional capital but there can be no assurance that it will be able to do so or if the terms will be favorable . the above financing transactions substantially lowered the company 's potential cash exposure . additionally , the company is able to control cash spending on its exploration activities . as a result , as of the date of the issuance of these consolidated financial statements , the company believes its current cash position and plans to raise additional capital have alleviated substantial doubt about its ability to sustain operations through at least the next 12 months . summary cash flows for the years ended april 30 , 2018 and 2017 : replace_table_token_8_th 35 cash used in operating activities net cash used in operating activities totaled approximately $ 7.0 million and $ 3.4 million for the years ended april 30 , 2018 and 2017 , respectively . net loss for the years ended april 30 , 2018 and 2017 totaled approximately $ 13.7 million and $ 4.1 million . the adjustments for the non-cash items increased from the year ended april 30 , 2017 to april 30 , 2018 due primarily an increase in stock based compensation expense of approximately $ 690,000 , benefit from income taxes of approximately $ ( 438,000 ) , an impairment expense of approximately $ 6.1 million , offset by gain from sale of business and extinguishment of liabilities of approximately $ 343,000. net changes in operating assets and liabilities are primarily due to net increases in prepaid expenses and other current assets of approximately $ 438,000 and increases in accounts payable from unrelated parties and accrued liabilities of approximately $ 190,000. cash provided by ( used in ) investing activities net cash provided by ( used in ) investing activities totaled approximately $ 306,000 and ( $ 539,000 ) for the years ended april 30 , 2018 and 2017 , respectively . during the year ended april 30 , 2018 cash provided by investing activities consisted of net proceeds received from the sale of the dataram memory business offset by the acquisition of mineral rights . during the year ended april 30 , 2017 , cash used in investing activities was used to purchase a note receivable and for the acquisition of mineral rights . cash provided by financing activities net cash provided by financing activities totaled approximately $ 7.5 million and $ 10.5 million for the years ended april 30 , 2018 and 2017 , respectively . during the year ended april 30 , 2018 , cash provided by financing activities consisted of net proceeds of approximately $ 2.6 million from the sale of common stock and net proceeds of approximately $ 4.9 million from the sale of preferred stock and warrants . during the year ended april 30 , 2017 , cash provided by financing activities was primarily attributable to net proceeds from the sale of preferred stock , net of issuance cost , offset by repayments on related party advances and note payable . off-balance sheet arrangements the company does not have , and do not have any present plans to implement , any off-balance sheet arrangements . recently issued accounting pronouncements refer to the notes to the consolidated financial statements . critical accounting policies the discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of our 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 . on an on-going basis , we evaluate our estimates based 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 that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . management believes the following critical accounting policies affect the significant judgments and estimates used in the preparation of the financial statements . 36 use of estimates and assumptions in preparing the consolidated financial statements , management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet , and revenues and expenses for the period then ended . actual results may differ significantly from those estimates . significant estimates made by management include , but are not limited to valuation of mineral rights , goodwill , stock-based compensation , the fair value of common stock issued and the valuation of deferred tax assets and liabilities . stock-based compensation stock-based compensation is accounted for based on the requirements of the share-based payment topic of asc 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award ( presumptively , the vesting period ) . asc 718 also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award . pursuant to asc topic 505-50 , for share-based payments to consultants and other third-parties , compensation expense is determined at the measurement date which is the grant date . the expense is recognized over the vesting period of the award . until the measurement date is reached , the total amount of compensation expense remains uncertain . mineral rights costs of lease , exploration , carrying and retaining unproven mineral lease properties are expensed as incurred . the company expenses all mineral
| results of operations the years ended april 30 , 2018 and 2017 net revenues the company is an exploration stage company with no operations , and we generated no revenues for the years ended april 30 , 2018 and 2017. operating expenses total operating expenses for the year ended april 30 , 2018 as compared to the year ended april 30 , 2017 , were approximately $ 8.3 million and $ 4.2 million , respectively . the approximate $ 4.1 million increase in operating expenses for the year ended april 30 , 2018 as compared to april 30 , 2017 is comprised of an increase of approximately $ 1.5 million in compensation as a result of officer bonuses , hiring of additional employees during the year ended april 30 , 2018 and payment of severance expense of approximately $ 700,000 to two former officers of the company pursuant to separation agreements and change in control in connection with the merger , a $ 1,108,000 increase in exploration expenses on our mineral properties specifically the keystone project due to an increase in exploration activities , increase in professional fees of approximately $ 1,000,000 due to increased investor relations , business advisory services , accounting , and legal services , and an increase of $ 445,000 in general and administrative expenses primarily attributable to an increase in public company expenses , transportation and travel expenses , and insurance expense . 32 operating loss from operations from continuing operations we reported operating losses from continuing operations of approximately $ 8.3 million and $ 4.1 million for the years ended april 30 , 2018 and 2017 , respectively . benefit from income taxes for the year ended april 30 , 2018 , benefit from income taxes was $ 435,345. this increase was due to a refundable alternative minimum tax credit carryforward .
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assets , including maintaining and renewing existing patent licenses , and providing software and services . f-16 digimarc corporation notes to consolidated financial statements ( continued ) ( in thousands , except share and per share data ) the payment terms extend beyond the company 's normal 30 to 60 day payment terms , thus the license revenue is being recognized when the installments are due , and the support services will be recognized as the services are performed . ( 6 ) segment information geographic information the company derives its revenue from a single reporting segment : media management solutions . revenue is generated in this segment through licensing of intellectual property , subscriptions to various products and services , and the delivery of services pursuant to contracts with various customers . the company markets its products in the u.s. and in non-u.s. countries through its sales and licensing personnel . revenue , based upon the bill-to location , by geographic area is as follows : replace_table_token_43_th major customers customers who accounted for more than 10 % of the company story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations contains forward-looking statements relating to future events or the future financial performance of digimarc , which involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements . please see the discussion regarding forward-looking statements included at the end of this discussion , under the caption forward-looking statements and item 1a , risk factors for a discussion of some of the uncertainties , risks and assumptions associated with these statements . the following discussion should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this annual report on form 10-k. all dollar amounts are in thousands , unless otherwise noted . overview digimarc corporation enables governments and enterprises around the world to give digital identities to media and objects that computers can sense and recognize and to which they can react . our technology provides the means to infuse persistent digital information , perceptible only to computers and digital devices , into all forms of media content . the unique digital identifier placed in media generally persists with it regardless of the distribution path and whether it is copied , manipulated or converted to a different format , and does not affect the quality of the content or the enjoyment or other traditional uses of it . our technology permits computers and digital devices to quickly identify relevant data from vast amounts of media content . our business has further expanded in e-commerce with our recent acquisition of attributor corporation ( attributor ) . digimarc guardian sm ( formerly attributor guardian ) software and services protect book revenue and authors ' rights by finding , reporting on , and assisting in removing pirated content found on the internet . online book piracy is a growing and global problem , and with emerging e-book standards and the growing popularity of ipads , kindles and other e-readers , book piracy is expected to grow dramatically . attributor is building a promising business in this high growth market , and possesses technical skills and market knowledge that will complement our existing organization . we expect the acquisition to provide many strategic and financial benefits . our growth strategy encompasses both our government and commercial businesses . we plan additional investment in research and development of a commercial mobile platform that boosts device specific capabilities . to protect our significant efforts in creating our technology , we have implemented an extensive intellectual property protection program that relies on a combination of patent , copyright , trademark and trade secret laws , and nondisclosure agreements and other contracts . as a result , we believe we have one of the world 's most extensive patent portfolios in the field of digital watermarking and related fields , with greater than 1,200 u.s. and foreign patents and pending patent applications as of december 31 , 2012. we continue to develop and broaden our portfolio of patented technology in the fields of media identification and management technology and related applications and systems . we devote significant resources to developing and protecting our inventions and continuously seek to identify and evaluate potential licensees for our patents . critical accounting policies and estimates the preparation of financial statements in accordance with accounting principles generally accepted in the u.s. ( u.s . gaap ) requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . on an on-going basis , we evaluate our estimates , including those related to bad debts , fixed assets , goodwill , intangible assets , income taxes , long-term service contracts , marketable securities , and contingencies and litigation . we base our estimates 25 on historical experience and on various other assumptions we believe to be reasonable in the circumstances . actual results may differ from these estimates under different assumptions or conditions . some of our accounting policies require higher degrees of judgment than others in their application . these include revenue recognition on long-term service contracts , revenue recognition on license and subscription arrangements , goodwill , impairments and estimation of useful lives of long-lived assets , contingencies and litigation , patent costs , stock-based compensation and income taxes ( valuation allowance ) . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements : revenue recognition : we derive our revenue primarily from development services and licensing of our patent portfolio : service revenue consists primarily of software development and consulting services . the majority of service revenue arrangements are structured as time and materials consulting agreements and fixed price consulting agreements . story_separator_special_tag if the estimated useful lives of the assets do change , we adjust the depreciation or amortization period to a shorter or longer period , based on the circumstances identified . contingencies and litigation : we periodically evaluate all pending or threatened contingencies or commitments , if any , that are reasonably likely to have a material adverse effect on our operations or financial position . we assess the probability of an adverse outcome and determine if it is remote , reasonably possible or probable as defined in accordance with the provisions of asc 450 contingencies . if information available 27 prior to the issuance of our financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of our financial statements , and the amount of the loss , or the range of probable loss can be reasonably estimated , then the loss is accrued and charged to operations . if no accrual is made for a loss contingency because one or both of the conditions pursuant to asc 450 are not met , but the probability of an adverse outcome is at least reasonably possible , we will disclose the nature of the contingency and provide an estimate of the possible loss or range of loss , or state that such an estimate can not be made . patent costs : costs associated with the application and award of patents in the u.s. and various other countries are capitalized and amortized on a straight-line basis over the term of the patents as determined at award date , which varies depending on the pendency period of the application , generally approximating seventeen years . capitalized patent costs , also referred to as patent prosecution costs , include internal legal labor , professional legal fees , government filing fees and translation fees related to obtaining the company 's patent portfolio . costs associated with the maintenance and annuity fees of patents are accounted for as prepaid assets at the time of payment and amortized over the respective periods , generally from one to four years . these patent costs are capitalized in accordance with asc 350 intangiblesgoodwill and other , based on our determination that the related patents provide value through the life of the patent . however , we may subsequently determine a patent should be abandoned or has been impaired , in which case the accumulated cost , including maintenance fees , would be written off . through december 31 , 2012 , abandonment or write-offs have not been material either individually or in the aggregate . stock-based compensation : we account for stock-based compensation in accordance with asc 718 compensationstock compensation , which requires the measurement and recognition of compensation for all stock-based awards made to employees and directors including stock options and restricted stock based on estimated fair values . for stock options , we use the black-scholes option pricing model as our method of valuation . our determination of the fair value on the date of grant is affected by our stock price as well as assumptions regarding a number of highly subjective variables . these variables include , but are not limited to , the expected life of the award , our expected stock price volatility over the term of the award , the risk-free interest rate and the expected dividend yield . although the fair value of stock-based awards is determined in accordance with asc 718 and staff accounting bulletin ( sab ) no . 107 shared-based payment , the black-scholes option pricing model requires the input of highly subjective assumptions , and other reasonable assumptions could provide differing results . the fair value of restricted stock awards granted is based on the fair market value of our common stock on the date of the grant ( measurement date ) , and is recognized over the vesting period of the related restricted stock using the straight-line method . income taxes ( valuation allowance ) : we account for income taxes in accordance with asc 740 income taxes . deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . a valuation allowance is required for deferred tax assets if , based on available evidence , it is more likely than not that all or some portion of the asset will not be realized due to the inability to generate sufficient taxable income in the period and or of the character necessary to utilize the benefit of the deferred tax asset . the more-likely-than-not criterion means the likelihood of realization is greater than 50 percent . when evaluating whether it is more likely than not that all or some portion of the deferred tax asset will not be realized , we evaluate all available evidence , both positive and negative , that may affect the realizability of deferred tax assets and that should be identified and considered in determining the appropriate amount of the valuation allowance . 28 results of operationsthe years ended december 31 , 2012 and december 31 , 2011 the following tables present our consolidated statements of operations data for the periods indicated . replace_table_token_7_th ( 1 ) includes the results of operations of attributor from the date of acquisition , december 3 , 2012 to the end of the year .
| summary our revenue increased in 2011 from 2010 primarily as a result of revenue derived from our relationships with iv and verance , a long-term licensee . our revenue for 2010 included a one-time payment of license fees of $ 4.5 million from arbitron in the first quarter of 2010. the improved mix of high margin license revenue to total revenue also contributed favorably to our higher gross profit . throughout 2011 , we continued to invest in the development and marketing of digimarc discover , an application designed for digital devices to hear , see and react to their surroundings , in developing additional intellectual property and in our strategic initiatives . we also continued to incur legal expenses in connection with our litigation matter with verance . finally , our deferred tax asset valuation reserve was reversed in the second quarter of 2011 reflecting our determination that it was more likely than not that our deferred tax assets will be realized in current and future periods . 39 revenue replace_table_token_20_th the increases in service revenue were primarily due to increased program work related to the central banks and increased revenue from our relationship with iv , offset by decreased revenue from other government customers . the increases in license and subscription revenue were primarily attributed to revenue derived from the iv relationship and increased royalty revenue from verance , offset by the one-time payment of license fees from arbitron in the first quarter of 2010. revenue by geography replace_table_token_21_th domestic revenue increased primarily as a result of increased revenue derived from the iv relationship and increased royalty revenue from verance , offset by the one-time payment of license fees from arbitron in the first quarter of 2010. international revenue increased primarily due to increased royalties from civolution and increased service revenue from the central banks .
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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 . 45 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 ti me we file this annual report and , except as required by law , we undertake no obligation to update publicly or revise any forward-looking statements . overview and recent developments we are a biopharmaceutical company focused on developing novel , small molecule drugs with optimized receptor pharmacology designed to deliver broad clinical utility across multiple therapeutic areas . our proprietary pipeline includes potentially first or best in class programs for which we own global commercial rights . our three most advanced investigational clinical programs are etrasimod ( formerly apd334 ) in phase 2 evaluation for multiple inflammatory indications , ralinepag ( formerly apd811 ) in phase 2 evaluation for pulmonary arterial hypertension ( pah ) , and apd371 entering phase 2 evaluation for the treatment of pain associated with crohn 's disease . additionally , we have collaborations with the following pharmaceutical companies : eisai inc. and eisai co. , ltd. ( collectively , eisai ) ( commercial stage ) , axovant sciences ltd. , or axovant , ( phase 2 candidate ) , and boehringer ingelheim international gmbh , or boehringer ingelheim , ( preclinical candidate ) . in 2016 , we made significant changes to our operations , including : hiring a new chief executive officer , other executive management and new clinical operations team ; appointment of three new independent directors ; implementing a reduction in force ; and restructuring our agreements with eisai and other distributors relating to lorcaserin . in may 2016 , our board of directors appointed amit munshi as our president and chief executive officer , and he joined our board of directors in june 2016 following our 2016 annual stockholders ' meeting . harry f. hixson , jr. , ph.d. , who served as our interim chief executive officer from october 2015 to may 2016 , continues to serve on our board of directors . in june 2016 , our board of directors appointed kevin r. lind as our executive vice president and chief financial officer . in august 2016 , our board of directors appointed vincent aurentz as our executive vice president and chief business officer . in february 2017 , arena appointed jayson dallas , m.d. , oliver fetzer , ph.d. , and garry a. neil , m.d . as independent directors to the company 's board of directors . in the second quarter of 2016 , we committed to a reduction of our us workforce of approximately 73 % , or approximately 100 employees , which we substantially completed in the third quarter of 2016. as a result of this workforce reduction , we recorded a restructuring charge in the second quarter of 2016 of $ 6.1 million for termination benefits , including severance and other benefits . included within this amount is non-cash , share-based compensation expense of $ 1.0 million related to the accelerated vesting of stock options and the extension of the exercise period of vested options for employees impacted by the workforce reduction . in the third quarter of 2016 , we committed to a reduction of our switzerland manufacturing workforce of approximately 23 % , or approximately 15 employees , which we substantially completed by the end of january 2017. as a result of this workforce reduction , we recorded a restructuring charge in the third quarter of 2016 of $ 0.2 million for cash termination benefits . on december 28 , 2016 , we amended and restated the terms of the marketing and supply agreement for lorcaserin with eisai by entering into a new transaction agreement and a new supply agreement ( collectively with the transaction agreement , the eisai agreement ) with eisai . under the eisai agreement , eisai acquired global commercialization and manufacturing rights to lorcaserin , including in the territories retained by us under the prior agreement , with control over global development and commercialization decisions . eisai is responsible for all lorcaserin development expenses going forward . we also assigned to eisai our rights under the commercial lorcaserin distribution agreements with ildong pharmaceutical co. , ltd. , or ildong , for south korea ; cy biotech company limited , or cyb , for taiwan ; and teva pharmaceuticals ltd. 's israeli subsidiary , abic marketing limited , or teva , for israel . in general , developing drugs and obtaining marketing approval is a long , uncertain and expensive process , and our ability to execute on our plans and achieve our goals depends on numerous factors , many of which we do not control . to date , we have generated limited revenues . we expect to continue to incur substantial net losses for at least the short term as we advance our clinical development programs , support our collaborators , and manufacture lorcaserin for eisai . 46 we plan to raise additional cash from outside sources in order to carry out our operational strategy and advance our clinical pipeline . there is no guarantee that adequate funds will be available when needed from additional debt or equity financing , development and commercialization partnerships or from other sources , or on terms acceptable to us . if our efforts to obtain sufficient additional funds are not successful , we would be required to delay , scale back , or eliminate some or a ll of our research or development , manufacturing operations , administrative operations , and clinical or regulatory activities , which could negatively affect our ability to achieve certain corporate goals . story_separator_special_tag 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 wheth er , when and to what extent we will generate revenues from the commercialization and sale of 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 potential therapeutic indication ; the number of patients who participate in the trials ; the number and location of sites included in the trials ; the rates of patient recruitment , enrollment and withdrawal ; 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 decreased by $ 4.8 million to $ 31.2 million for the year ended december 31 , 2016 , from $ 36.0 million for the year ended december 31 , 2015. this decrease was primarily due to decreases of $ 3.1 million in salary and other personnel costs and $ 2.3 million in non-cash , share-based compensation expense , primarily due to the recent reduction in the number of our employees . this decrease was partially offset by an increase of $ 1.0 million in legal , accounting and other professional fees . we expect that our 2017 general and administrative expenses will be lower than in 2016 , primarily due to the recent workforce reductions and other cost control initiatives . restructuring charges . we recognized $ 6.3 million of restructuring charges for the year ended december 31 , 2016 , in connection with employee termination costs , including severance and other benefits , related to the reduction of our us workforce to which we committed in june 2016 and the reduction of our manufacturing workforce in zofingen , switzerland to which we committed in july 2016. we recognized $ 4.0 million of restructuring charges for the year ended december 31 , 2015 , in connection with employee termination costs , including severance and other benefits , related to the workforce reductions to which we committed in the fourth quarter of 2015. impairment of long-lived assets . we recognized an impairment loss of $ 21.8 million for the year ended december 31 , 2016. the eisai agreement entered on december 28 , 2016 , results in a significant change in our expected use of our zofingen facility . we have agreed to manufacture and supply all of eisai 's requirements ( or specified minimum quantities if such quantities are greater than eisai 's requirements ) , subject to certain exceptions , for belviq for an initial two-year period . eisai may extend this initial period for an additional six months upon payment of an exercise fee . eisai will pay us agreed-upon prices to deliver belviq during this period . based on our estimate of future cash flows that are directly associated with our zofingen facility , we determined that long-lived assets with a carrying amount of $ 32.9 million were no longer recoverable and were in fact impaired and wrote them down to $ 11.1 million , which was based on the estimated fair value of the zofingen facility asset group . interest and other expense , net . interest and other expense , net , increased by $ 1.0 million to $ 5.8 million for the year ended december 31 , 2016 , from $ 4.8 million for the year ended december 31 , 2015. this increase was primarily due to ( i ) $ 0.9 million in foreign currency transaction gains , net for the year ended december 31 , 2016 , compared to $ 2.0 million in foreign currency transaction gains , net for the year ended december 31 , 2015 , and ( ii ) a $ 0.5 million gain from revaluation of our derivative liabilities related to our previously outstanding warrant for the year ended december 31 , 2015 , with no revaluation recorded for the year ended december 31 , 2016 , as the warrant expired in august 2015 according to its terms and ( iii ) a $ 0.2 million increase in fixed asset disposal losses , net . this increase was partially offset by an increase of $ 0.4 million in rental income and a decrease of $ 0.3 million in interest expense . year ended december 31 , 2015 , compared to year ended december 31 , 2014 revenues . we recognized revenues of $ 38.3 million for the year ended december 31 , 2015 , compared to $ 37.0 million for the year ended december 31 , 2014. this increase was primarily due to ( i ) an increase of $ 3.7 million in net product sales of belviq primarily due to sales of belviq in south korea commencing in february 2015 , partially offset by a decrease in net product sales of belviq in the united states , ( ii ) the $ 3.0 million milestone payment from ildong , that we earned in february 2015 for the approval of belviq in south korea and ( iii ) an increase of $ 2.8 million in toll manufacturing revenue . these increases were partially offset by a decrease in revenues of $ 8.5 million from eisai for reimbursements of our development expenses and patent and trademark expenses 50 primarily due to the completion of our phase 2 smoking cessation trial in early 2015 and lower costs related to our once-daily formulation studi es which were substantially completed in 2014. cost of product sales .
| results of operations 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_5_th * the change is more than 100 % . research and development expenses replace_table_token_6_th 47 general and administrative expenses replace_table_token_7_th year ended december 31 , 2016 , compared to year ended december 31 , 2015 revenues . we recognized revenues of $ 124.0 million for the year ended december 31 , 2016 , compared to $ 38.3 million for the year ended december 31 , 2015. this increase was primarily due to ( i ) $ 64.0 million of revenue resulting from the rights delivered by us to eisai pursuant to the eisai agreement entered in december 2016 , ( ii ) a total of $ 12.3 million of milestones from eisai and ildong that we earned during 2016 primarily from the approval of the once-daily formulation of lorcaserin in the united states ( branded as belviq xr ) , the approval of the twice-daily formulation of lorcaserin in mexico ( branded as venespri ) , and the approval of belviq in brazil , ( iii ) an increase of $ 6.6 million in net product sales of belviq , primarily due to recognition of deferred revenue discussed below , and ( iv ) $ 5.1 million earned in the year ended december 31 , 2016 , under our collaboration agreement with boehringer ingelheim , or boehringer ingelheim agreement , which commenced in december 2015. these increases were partially offset by the $ 3.0 million milestone from ildong that we earned in february 2015 for the approval of belviq in south korea . prior to the eisai agreement , we received from eisai , ildong , cyb and teva total upfront payments of $ 122.5 million .
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recently adopted accounting pronouncements on january 1 , 2018 , the company adopted the following accounting pronouncements , using a prospective adoption method , which did not have an impact on the company 's consolidated financial statements and did not result in any significant policy changes : accounting standards update ( `` asu `` ) 2017-01— business combinations ( topic 805 ) : clarifying the definition of a business ; and asu 2017-09— compensation—stock compensation ( topic 718 ) : scope of modification accounting . the company has also adopted asu 2016-15— statement of cash 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 about forward-looking statements . '' overview we provide a technology solution to automate the purchase and sale of digital advertising inventory for buyers and sellers . our platform features applications and services for digital advertising inventory sellers , including websites , mobile applications , other digital media properties , and their representatives to sell their digital advertising inventory ; applications and services for buyers , including advertisers , agencies , agency trading desks , and demand side platforms , or dsps , to buy digital advertising inventory ; and a marketplace over which such transactions are executed . together , these features power and enhance a comprehensive , transparent , independent advertising marketplace that brings buyers and sellers together and facilitates intelligent decision-making and automated transaction execution for the digital advertising inventory we manage on our platform . our clients include many of the world 's leading publishers of websites and mobile applications and buyers of digital advertising inventory . advertising inventory takes different forms , referred to as advertising units , is purchased and sold through different transactional methodologies , and allows advertising content to be presented to consumers through different channels . our solution enables buyers and sellers to purchase and sell : a comprehensive range of advertising units , including display , audio and video ; that are transacted through real-time bidding ( `` rtb '' ) , which includes ( i ) direct sale of premium inventory , which we refer to as private marketplace ( `` pmp '' ) , and ( ii ) open auction bidding , which we refer to as open marketplace ( `` omp '' ) ; and that are displayed across digital channels , including mobile web , mobile application , and desktop , as well as across various out-of-home channels , such as digital billboards . we generate revenue from transactions where we provide a platform for the purchase and sale of digital advertising inventory . digital advertising inventory is created when consumers access sellers ' content . sellers provide digital advertising inventory to our platform in the form of advertising requests , or ad requests . when we receive ad requests from sellers , we send bid requests to buyers , which enable buyers to bid on sellers ' digital advertising inventory . winning bids can create advertising , or paid impressions , for the seller to present to the consumer . the volume of paid impressions measured as a percentage of ad requests is referred to as fill rate . the price that buyers pay for each thousand paid impressions purchased is measured in units referred to as cpm . the total volume of spending between buyers and sellers on our platform is referred to as advertising spend . we keep a percentage of that advertising spend as a fee , and remit the remainder to the seller . the fee or “ take rate ” that we retain from the gross advertising spend on our platform is recognized as revenue . the fee earned on each transaction is based on the pre-existing agreement between the company and the seller and the clearing price of the winning bid . we discuss advertising spend and take rate more fully in the “ non-gaap financial measures ” section below . industry trends and trends in our business market opportunities the programmatic digital advertising market continues to experience growth . in september 2018 , magna estimated that the global programmatic market ( excluding search and social ) will grow from $ 34 billion in 2018 to $ 60 billion by 2022 , which represents a 15 % compound annual growth rate over that period . another important trend in the digital advertising industry is the continued expansion of automated buying and selling of advertising inventory through new and developing channels , including mobile , which has market growth rates exceeding those of the desktop channel and is a critical area of operational focus for us . according to magna estimates , mobile advertising was an $ 18 billion global market in 2018 that is expected to increase to $ 43 billion by 2022 , producing a compound annual growth rate of 24 % . consistent with industry trends , our mobile business is growing faster than desktop . our mobile advertising spend increased $ 152.2 million , or 42 % , for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017 , while our desktop business increased only 1 % during the same period . our mobile business consists of two components , mobile web and mobile applications . story_separator_special_tag in traditional omp waterfall transactions , available impressions are passed to different demand sources in a sequence determined by the seller 's ad server , and when an impression is passed to a particular demand source , that demand source is generally able to auction the impression with little or no competition . we saw the mix of omp transactions conducted through the traditional ad server waterfall on our exchange decrease significantly while the percentage of header bidding transactions has increased in 2018 . 53 header bidding increases competition for ad inventory by exposing impressions simultaneously to multiple sources of demand in a competitive auction that , if successful , replaces the ad server waterfall . each demand source in a header bidding auction generally conducts its own auction for the impression and then passes its winning bid to a “ downstream ” meta-auction in which the seller evaluates bids from all its demand sources , and generally the highest bid wins . this competition pushes auction clearing prices much closer to the winning first-price bid than omp waterfall transactions . in order to be more competitive and give our buyers a better chance of winning the header bidding impressions on which they bid , we began charging lower buyer fees for header bidding transactions so that we could pass higher priced bids into the downstream auction . based upon experience with this approach and client feedback , we began offering a modified first price auction dynamic in our header bidding solution without buyer fees in the fourth quarter of 2017. subsequently , in an effort to capture more inventory for our buyers and deliver better monetization to our sellers , and to provide better transparency and predictability to all our clients , in early 2018 we made first price our default auction dynamic for header bidding transactions . this means that the first price or highest bid in our auction wins and that first price is passed to the downstream auction . because buyers needed time to adapt their systems and bidding strategies to first-price auction dynamics and maximize advertising campaign returns and performance , or may prefer not to develop their own first price pricing algorithms , we built and implemented an optional feature at no additional cost , which we call estimated market rate ( `` emr '' ) . this feature uses algorithms that monitor existing market conditions against our dataset of auction outcomes to look for opportunities to reduce the amount of the bid that we pass through to the downstream auction on behalf of our winning bidder , while maintaining high fill rates . this is intended to help buyers bid on digital advertising inventory consistent with market values while preserving demand and budget for sellers on our platform . in addition to increasing the rate at which buyers win in our auctions , and the monetization that that winning provides to sellers , our first price auction dynamic and emr solution have contributed to higher cpms for our header bidding inventory . in november 2017 , we ceased charging our additive buyer fees altogether . we do still charge access fees to allow buyers to connect to our system when their spending is too small to support the maintenance of their accounts , although such amounts are not significant . this strategic decision , as well as cost reductions noted below , has helped to support our objective to be a high volume , lower cost and transparent exchange . most of our marketplace fees are negotiated with sellers as a percentage of the auction clearing price for sale of their inventory . in some cases , we reduce the buyer 's bid amount by the amount of our fee and pass the remainder as the bid to the seller . if the bid wins , we retain the amount of the bid reduction as our fee , which is referred to as net bidding . we do this at the discretion of sellers that allocate digital advertising inventory through a decisioning process that follows after our auction and incorporates other demand sources as well as our bids , and that prefer or require that we submit our bids to them net of our fees , so that our bid matches the amount we will owe them if we win . net bidding amounts can vary across transactions depending upon various factors including inventory and auction characteristics and seller policies . these pricing reductions were intended to address the market 's demand for lower costs and to attract more inventory and spending to our platform . lower pricing has caused our revenue to decline significantly in 2018 compared to 2017 , even though ad spend grew . to return to revenue growth , we must continue to increase advertising spend on our platform . increases in pmp and header bidding transactions as a percentage of the activity on our exchange could yield higher advertising spend despite lower take rates due to higher cpms typically associated with pmp transactions , and from modified first-price auctions in header bidding transactions . however , in an increasingly competitive market in which buyers and sellers have many choices , it is not clear whether pricing reductions will result in increases in spending on our platform , or whether any spending increases will compensate fully for the reduction in pricing . we have seen significant increases in the volume of ad requests we receive , but the rate at which we win header bidding auctions is much lower than the rate at which we win waterfall transactions . as our business continues to rely on header bidding , which now represents approximately 80 % of our revenue , we need to participate in more header bidding auctions and increase the fill rate in header bidding auctions to compensate for the decline in the number of waterfall transactions . driving revenue growth in this situation is difficult to accomplish in a competitive market and requires accessing significantly greater inventory levels from our sellers and in turn processing more auctions .
| results of operations the following table sets forth our consolidated results of operations : replace_table_token_1_th nm - not meaningful replace_table_token_2_th replace_table_token_3_th 57 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_4_th comparison of the years ended december 31 , 2018 and 2017 revenue revenue decreased $ 30.9 million , or 20 % , for the year ended december 31 , 2018 compared to the prior year primarily due to the reduction and then elimination of our buyer fees in 2017 , market and competitive pressures , deceleration in traditional desktop display spending , and header bidding dynamics as described above in `` industry trends and trends in our business '' . revenue is impacted by shifts in the mix of advertising spend by transaction type and channel , changes in the fees we charge buyers and sellers for our services , and other factors such as changes in the market , our execution of the business , and competition . in addition to the decrease in revenue due to the elimination of buyer transaction fees , an increase in pmp transactions as a percentage of the transactions on our platform could also result in reduced revenue , if not offset by increased volume , because pmp transactions can carry lower fees than omp transactions . in late 2018 , we began to see some pressure on desktop cpms , which has now carried over to mobile cpms , as a result of buyer pricing tools and the impact from privacy initiatives , such as apple 's itp , that drive a higher mix of contextual versus behavioral impressions being sold .
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” overview we are primarily engaged in the development , manufacturing and sale of our proprietary omnipod insulin management system ( the “ omnipod system ” ) , an innovative , discreet and easy-to-use insulin infusion system for people with insulin-dependent diabetes . the omnipod system features a unique disposable tubeless omnipod which is worn on the body for approximately three days at a time and the handheld , wireless personal diabetes manager ( “ pdm ” ) . conventional insulin pumps require people with insulin-dependent diabetes to learn to use , manage and wear a number of cumbersome components , including up to 42 inches of tubing . in contrast , the omnipod system features two discreet , easy-to-use devices that eliminate the need for a bulky pump , tubing and separate blood glucose meter , provides for virtually pain-free automated cannula insertion , communicates wirelessly and integrates a blood glucose meter . we believe that the omnipod system 's unique proprietary design offers significant lifestyle benefits to people with insulin-dependent diabetes . in june 2011 , we acquired neighborhood holdings , inc. and its wholly-owned subsidiaries ( collectively , “ neighborhood diabetes ” ) in order to support our sales of the omnipod system , expand our full suite diabetes management product offerings and obtain access to a larger number of insulin dependent patients . through neighborhood diabetes , we are able to provide customers with blood glucose testing supplies , traditional insulin pumps , pump supplies and pharmaceuticals and have the ability to process claims as either durable medical equipment or through pharmacy benefits . we began commercial sale of the omnipod system in the united states in 2005. we sell the omnipod system and other diabetes management supplies in the united states through direct sales to customers or through our distribution partners . the omnipod system is currently available in multiple countries in europe through our exclusive distribution partner ypsomed distribution ag ( “ ypsomed ” ) and in canada . we have been selling our new omnipod system since 2013. the new omnipod system is more than one-third smaller and one-quarter lighter than the original version , while maintaining the same features and operating capabilities . all customers have been transitioned to the new omnipod system . we sell our proprietary omnipod system as well as blood glucose testing supplies , traditional insulin pumps , pump supplies , pharmaceuticals and other products for the management and treatment of diabetes to people with diabetes . through our infrastructure in the reimbursement , billing and collection areas , we are able to provide for adjudication of claims as either durable medical equipment or through pharmacy benefits . claims are adjudicated under private insurers , medicaid or medicare . as we expand our sales and marketing focus , increase our manufacturing capacity and expand to additional international markets , we will need to maintain and expand available reimbursement for our product offerings . 35 our sales and marketing effort is focused on generating demand and acceptance of the omnipod system among key diabetes practitioners , academic medical centers , clinics , people with insulin-dependent diabetes , third-party payors , government agencies , and third-party distributors . our marketing strategy is to build awareness for the benefits of the omnipod system through a wide range of education programs , social networking , patient demonstration programs , support materials , media advertisements and events at the national , regional and local levels . we are using third-party distributors to improve our access to managed care and government reimbursement programs , expand our commercial presence and provide access to additional potential patients . our total revenue was $ 288.7 million , $ 247.1 million and $ 211.4 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . we currently produce the omnipod system on partially automated manufacturing lines at a facility in china operated by a subsidiary of flextronics international ltd. ( “ flextronics ” ) . we purchase complete omnipods pursuant to our agreement with flextronics . under the agreement , flextronics has agreed to supply us , as a non-exclusive supplier , with omnipods at agreed upon prices per unit pursuant to a rolling forecast that we provide . the current term of the agreement expires in december 2017 and is automatically renewed for one-year terms subsequently . it may be terminated upon prior written notice given no less than a specified number of days prior to the date of termination . the specified number of days is intended to provide the parties with sufficient time to make alternative arrangements in the event of termination . we seek to increase manufacturing volumes and reduce the per-unit production cost for the omnipod . by increasing production volumes of the omnipod , we have been able to reduce our per-unit raw material costs and improve absorption of manufacturing overhead costs . our new omnipod was designed to further lower the cost of the product through component sourcing , volume discounts and efficient manufacturing . we continue to seek to sustain or reduce our per omnipod cost through reductions in the bill of material as well as through manufacturing efficiencies . we believe our current manufacturing capacity is sufficient to meet our expected 2015 demand for omnipods . we purchase certain other diabetes management supplies from manufacturers at contracted rates and supply these products to our customers . based on market penetration , payor plans and other factors , certain manufacturers provide rebates based on product sold . we record these rebates as a reduction to cost of goods sold as they are earned . since our inception in 2000 , we have incurred losses every quarter . in the years ended december 31 , 2014 , 2013 and 2012 , we incurred net losses of $ 51.5 million , $ 45.0 million and $ 51.9 million , respectively . as of december 31 , 2014 , we had an accumulated deficit of $ 578.0 million . story_separator_special_tag this increase was primarily the result of an increase of $ 9.6 million in legal expense mainly related to the medtronic patent litigation settlement and related legal fees , additional expense of $ 2.5 million related to the write-off of equipment no longer expected to be used in our manufacturing process , an increase of $ 1.3 million in bad debt expense , an increase of $ 1.2 million in employee related expenses including stock-based compensation , and an increase of $ 1.1 million of shipping expenses as volumes of patient shipments increased . these increases were partially offset by a decrease of $ 1.2 million in administrative and consulting fees , a decrease of $ 1.1 million in amortization expense related to the customer relationship asset acquired in the june 2011 acquisition of neighborhood diabetes , and a decrease of $ 0.5 million related to sales and use tax compliance . sales and marketing sales and marketing expense increased $ 3.0 million , or 6 % , to $ 55.7 million for the year ended december 31 , 2013 , as compared to $ 52.7 million for the year ended december 31 , 2012 . this increase was primarily a result of a $ 0.8 million net increase in costs associated with the launch of the new omnipod system and other advertising expenses and a $ 2.2 million increase in costs related to customer support functions and strategic planning initiatives . interest and other expense , net interest and other expense , net was $ 15.7 million for both the years ended december 31 , 2013 and 2012 . in the year ended december 31 , 2013 , interest and other expense , net primarily consisted of non-cash interest expense on the 5.375 % notes and the 3.75 % notes based on their effective interest rates and the $ 0.3 million inducement charge recorded for the extinguishment of debt related to the exchange of 620,122 shares of common stock for $ 13 million in principal amount of the 5.375 % notes ( as defined below ) . this expense was offset by $ 1.4 million of other income representing the fair value of the call feature related to $ 59.5 million of modified 3.75 % notes . in the year ended december 31 , 2012 , interest and other expense , net primarily consisted of non-cash interest expense on the 5.375 % notes and the 3.75 % notes based on their effective interest rates . income tax expense income tax expense was $ 0.1 million for the year ended december 31 , 2013 as compared to $ 0.2 million for the year ended december 31 , 2012 . income tax expense is comprised of a current and deferred portion . the current portion primarily related to federal , state , and foreign taxes and the deferred portion primarily related to federal and state tax amounts . liquidity and capital resources we commenced operations in 2000 and to date we have financed our operations primarily through private placements of common and preferred stock , secured indebtedness , public offerings of our common stock and issuances of convertible debt . as of december 31 , 2014 , we had $ 151.2 million in cash and cash equivalents . we believe that our current cash and cash equivalents , together with the cash expected to be generated from sales , will be sufficient to meet our projected operating and debt service requirements for at least the next twelve months . equity in january 2013 , in a public offering , we issued and sold 4,715,000 shares of our common stock at a price of $ 20.75 per share . in connection with the offering , we received total gross proceeds of $ 97.8 million , or approximately $ 92.8 million in net proceeds after deducting underwriting discounts and offering expenses . in may 2013 , we entered into an exchange agreement with a holder of our 5.375 % notes . under the exchange agreement , we issued 620,122 shares of our common stock to the holder in exchange for the extinguishment of $ 13 million in principal amount of the 5.375 % notes . in june 2013 , in connection with the repayment of the remaining $ 2 million in principal amount of the 5.375 % notes , we issued 26,523 shares of our common stock to the holders representing the conversion value in excess of the principal amount in accordance with the terms of the 5.375 % notes . in november 2013 , we issued 47,392 shares of our common stock as a result of the exercise of warrants . in july 2014 , in connection with the extinguishment of $ 28.5 million in principal amount of 3.75 % notes , we issued 348,535 shares of common stock to the holders representing the conversion value in excess of the principal amount . 40 debt at december 31 , 2014 and 2013 , we had convertible debt and related deferred financing costs on our balance sheet as follows ( in thousands ) : replace_table_token_4_th interest expense related to the 5.375 % senior notes ( as defined below ) , the 3.75 % senior notes ( as defined below ) and the 2 % notes ( as defined below ) was included in interest and other expense on the consolidated statements of operations as follows ( in thousands ) : replace_table_token_5_th we expect to pay cash interest of $ 4.0 million in each year through 2018 and $ 1.8 million in 2019. additionally , $ 201.3 million related to the 2.00 % notes is due to the holders in 2019 . 5.375 % convertible senior notes in june 2008 , we sold $ 85.0 million principal amount of 5.375 % convertible senior notes due june 15 , 2013 ( the “ 5.375 % notes ” ) . the interest rate on the notes was 5.375 % per annum on the principal amount from june 16 , 2008 , payable semi-annually in arrears in cash on december 15 and june 15 of each year .
| general and administrative . general and administrative expenses consist primarily of salaries and other related costs for personnel serving the executive , finance , information technology and human resource functions , as well as legal fees , accounting fees , insurance costs , bad debt expenses , shipping , handling and facilities-related costs . for the year ending december 31 , 2015 , we expect general and administrative expenses to decrease as compared to 2014. in 2014 , we incurred significant one-time costs related the resolution of our outstanding litigation with becton , dickinson and company and expenses related to the retirement and transition of certain executives . sales and marketing . sales and marketing expenses consist primarily of personnel costs within our sales , marketing , reimbursement support , customer support and training functions , sales commissions paid to our sales representatives and costs associated with participation in medical conferences , physician symposia and promotional activities , including distribution of units used in our demonstration kit programs . we expect sales and marketing expenses to increase in the year ending december 31 , 2015 as compared to 2014 as we expand our commercial team and invest in initiatives that will enhance awareness and drive increased adoption of the omnipod system . 37 results of operations for the fiscal years ended december 31 , 2014 , 2013 and 2012 the following table presents certain statement of operations information for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_3_th comparison of the years ended december 31 , 2014 and december 31 , 2013 revenue our total revenue was $ 288.7 million for the year ended december 31 , 2014 , as compared to $ 247.1 million for the year ended december 31 , 2013 . the increase in revenue is mainly due to the continued adoption of the omnipod system by patients in the united states and internationally .
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analysis of financial condition and results of operations ” of our annual report on form 10-k for the fiscal year ended december 31 , 2019 , filed with the sec on february 20 , 2020 , which is available free of charge on the sec 's website at sec.gov and on our website at investor.chegg.com . in addition to historical consolidated financial information , the following discussion contains forward-looking statements that reflect our plans , estimates , and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . see the section titled “ note about forward-looking statements ” for additional information . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in part i , item 1a , “ risk factors. ” overview chegg : a smarter way to student ® . we strive to improve educational outcomes by putting the student first . we support students on their journey from high school to college and into their careers with tools designed to help them learn their course materials , succeed in their classes , save money on required materials , and learn the most in-demand skills . our services are available online , anytime and anywhere . students subscribe to our subscription services , which we collectively refer to as chegg services . our primary chegg services include chegg study , chegg writing , chegg math solver , chegg study pack , thinkful , and mathway . our chegg study subscription service provides “ expert questions and answers ” and step-by-step “ textbook solutions , ” helping students with their course work . when students need writing help , including plagiarism detection scans and creating citations for their papers , they can use our chegg writing service . our chegg math solver subscription service helps students understand math by providing a step-by-step math solver and calculator and we expect to incorporate mathway into chegg math solver . we also offer our chegg study pack as a premium subscription bundle of our chegg study , chegg writing , and chegg math solver services . our thinkful skills-based learning platform offers professional courses focused on the most in-demand technology skills . required materials includes our print textbook and etextbook offerings , which help students save money compared to the cost of buying new . we offer an extensive print textbook library primarily for rent and also for sale both on our own and through our print textbook partners . we partner with a variety of third parties to source print textbooks and etextbooks directly or indirectly from publishers in the united states , including cengage learning , pearson , mcgraw hill , sage publications , and john wiley & sons , inc. in june 2020 , we completed our acquisition of mathway , an online , on-demand math problem solving company that covers a vast range of subject areas in mathematics , including pre-algebra , algebra , trigonometry , pre-calculus , calculus , and linear algebra and related disciplines . during the years ended december 31 , 2020 , and 2019 , we generated net revenues of $ 644.3 million and $ 410.9 million , respectively , and in the same periods had net losses of $ 6.2 million and $ 9.6 million , respectively . during the year ended december 31 , 2020 , the covid-19 pandemic had a positive impact to our business and results of operations as we saw an increase in the acceleration of subscriber growth and engagement with our learning platform . however , the covid-19 pandemic also subjects our business to numerous risks and uncertainties , most of which are beyond our control and can not be predicted , including when colleges will resume in-person classes or how well they will overcome the impacts of the covid-19 pandemic . our long-term strategy is centered upon our ability to utilize chegg services to increase student engagement with our learning platform . we plan to continue to invest in the expansion of our chegg services to provide a more compelling and personalized solution and deepen engagement with students . in addition , we believe that the investments we have made to achieve our current scale will allow us to drive increased operating margins over time that , together with increased contributions of chegg services , will enable us to become profitable and remain cash-flow positive in the long-term . our ability to achieve these long-term objectives is subject to numerous risks and uncertainties , including our ability to attract , retain , and increasingly engage the student population , intense competition in our markets , the ability to achieve sufficient contributions to 33 t a b l e o f c o n t e n t s revenue from chegg services , uncertainty around online learning and potential restrictions imposed by traditional institutions , and other factors . these risks and uncertainties are described in greater detail in part i , item 1a , “ risk factors. ” we have presented revenues for our two product lines , chegg services and required materials , based on how students view us and the utilization of our products by them . more detail on our two product lines is discussed in the next two sections titled “ chegg services ” and “ required materials. ” chegg services our chegg services product line for students primarily includes chegg study , chegg writing , chegg math solver , chegg study pack , thinkful , and mathway . students typically pay to access chegg services on a monthly basis . we also work with leading brands to provide students with discounts , promotions , and other products that , based on student feedback , delight them . in the aggregate , chegg services revenues were 81 % of net revenues during each of the years ended december 31 , 2020 and 2019. required materials our required materials product line includes revenues from print textbooks and etextbooks . story_separator_special_tag our operating expenses also contain information technology expenses such as technology costs to support our research and development , sales and marketing expenses , depreciation expenses , amortization of acquired intangible assets except content libraries , and outside services . we allocate certain costs to each expense category , primarily based on the headcount in each group at the end of a period . as our business grows , our operating expenses may increase over time to expand capacity and sustain our workforce . research and development our research and development expenses consist of salaries , benefits , and share-based compensation expense for employees on our product , engineering , and technical teams who are responsible for maintaining our website , developing new products , and improving existing products . research and development costs also include depreciation expense , technology costs to support our research and development , outside services , and allocated information technology and facilities expenses . we expense substantially all of our research and development expenses as they are incurred . in the past three years , our research and development expenses have increased to support new products and services as well as to expand our infrastructure capabilities to support back-end processes associated with our revenue transactions and internal systems . we intend to continue making significant investments in developing new products and services and enhancing the functionality of existing products and services . sales and marketing our sales and marketing expenses consist of user and advertiser-facing marketing and promotional expenditures through a number of targeted online marketing channels , sponsored search , display advertising , email marketing campaigns , and other initiatives . we incur salaries , benefits and share-based compensation expenses for our employees engaged in marketing , business development and sales and sales support functions , amortization of acquired intangible assets , and allocated information technology , and facilities costs . our marketing expenses are largely variable and to the extent there is increased or decreased competition for these traffic sources , or to the extent our mix of these channels shifts , we could see a corresponding change in our sales and marketing expenses . 35 t a b l e o f c o n t e n t s general and administrative our general and administrative expenses consist of salaries , benefits and share-based compensation expense for certain executives as well as our finance , legal , human resources and other administrative employees . in addition , general and administrative expenses include outside services , legal and accounting services , depreciation expense , and allocated information technology and facilities costs . interest expense , net and other income , net interest expense , net consists primarily of interest expense on the amortization of debt discount and issuance costs related to the convertible senior notes . other income , net consists primarily of interest income on our cash and cash equivalents and investment balances and losses on early extinguishment of the convertible senior notes . provision for income taxes provision for income taxes consists primarily of state income taxes in the united states and income taxes in foreign jurisdictions in which we conduct business . due to the uncertainty as to the realization of the benefits of our domestic deferred tax assets , we have recorded a full valuation allowance against such assets . we intend to continue to maintain a full valuation allowance on our domestic deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances . story_separator_special_tag sales and marketing expenses during the year ended december 31 , 2020 increased by $ 18.3 million , or 29 % , compared to the same period in 2019. the increase was attributable to higher streaming radio and display advertisement marketing expense , including our international marketing spend , of $ 10.7 million , higher employee-related expenses of $ 4.1 million , and higher share-based compensation expense of $ 2.2 million , compared to the same period in 2019. sales and marketing expenses as a percentage of net revenues were 13 % during the year ended december 31 , 2020 compared to 15 % of net revenues during the same period in 2019. general and administrative general and administrative expenses in the year ended december 31 , 2020 increased by $ 31.9 million , or 33 % , compared to the same period in 2019. the increase was primarily attributable to an impairment charge on our investment in wayup of $ 10.0 million , which was the result of the uncertainty around wayup 's ability to raise additional funding to support their future operations , higher share-based compensation expense of $ 7.0 million , higher employee-related expenses of $ 5.5 million , and higher professional fees of $ 3.7 million , compared to the same period in 2019. general and administrative expenses as a percentage of net revenues were 20 % during the year ended december 31 , 2020 compared to 24 % of net revenues during the same period in 2019. the increases in employee-related operating expenses during the year ended december 31 , 2020 , compared to the same period in 2019 , are largely driven by employees from our acquisition of thinkful . 38 t a b l e o f c o n t e n t s interest expense , net and other income , net the following table sets forth our interest expense , net , and other income , net , for the periods shown ( in thousands , except percentages ) : replace_table_token_7_th interest expense , net increased during the year ended december 31 , 2020 , compared to the same period in 2019 , as a result of interest expense related the 2026 notes and 2025 notes .
| results of operations the following table summarizes our historical consolidated statements of operations ( in thousands , except percentage of total net revenues ) : replace_table_token_3_th 36 t a b l e o f c o n t e n t s years ended december 31 , 2020 , 2019 , and 2018 net revenues net revenues during the year ended december 31 , 2020 increased $ 233.4 million , or 57 % , compared to the same period in 2019. net revenues during the year ended december 31 , 2019 , increased $ 89.8 million , or 28 % , compared to the same period in 2018. the following table sets forth our total net revenues for the periods shown for our chegg services and required materials product lines ( in thousands , except percentages ) : replace_table_token_4_th chegg services revenues increased by $ 189.0 million , or 57 % , during the year ended december 31 , 2020 , compared to the same period in 2019 , primarily due to a 67 % increase in subscriber growth driven by increased global penetration , our efforts to reduce account sharing , the widespread transition to remote learning as a result of the covid-19 pandemic , and subscribers from our recent acquisitions . we currently expect to continue to see growth in chegg services revenues in the near term as a result of the aforementioned drivers in subscriber growth , most significantly from the contribution of international subscribers , however , we expect such drivers to become less pronounced .
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further , the notes are subject to the indenture between us and the trustee that , among other terms , includes provisions that would constitute an event of default under the indenture . story_separator_special_tag forward looking and other statements as discussed under “ forward looking statements and risk factors ” in item 1a of part 1 of this report , actual results may differ materially from the results contemplated by forward looking statements . we are not undertaking any obligation to update any forward looking statements or other statements we may make in the following discussion or elsewhere in this document even though these statements may be affected by events or circumstances occurring after the forward looking statements or other statements were made . therefore no reader of this document should rely on these statements being current as of any time other than the time at which this document was filed with the securities and exchange commission . overview through our subsidiary mortgage guaranty insurance corporation ( “ mgic ” ) we are a leading provider of private mortgage insurance in the united states , as measured by $ 174.5 billion of primary insurance in force on a consolidated basis at december 31 , 2015 . as used below , “ we ” and “ our ” refer to mgic investment corporation 's consolidated operations . in the discussion below , we refer to fannie mae and freddie mac collectively as the “ gses. ” business environment as a provider of mortgage insurance , our results are subject to macroeconomic conditions and specific events that impact the mortgage origination environment and the credit performance of the underlying insured mortgages . during 2015 , the residential mortgage market experienced an increase in mortgage loan originations driven by two factors : ( 1 ) an increase in purchase volume that was favorably impacted by increasing household formations and continued recovery in the labor market , and ( 2 ) an increase in refinance transactions especially in the first half of 2015 , as interest rates remained near historical lows and nationally home prices continued to appreciate . these favorable conditions resulted in a 6 % increase in our insurance in force at the end of 2015 compared to 2014 and we wrote our highest annual level of new insurance since 2008. we consider the new insurance written to generally be of high quality as lenders maintained stringent underwriting standards , a trend that has been in place since 2009. our recent loss results reflect the improved lending environment as the level of losses on our 2009-2014 books remain low , and also reflect positive trends on our pre-2009 business regarding new delinquency notices , paid claims , and the declining delinquent inventory . while macroeconomic conditions were favorable for our business in 2015 , we remain subject to competition from other private mortgage insurers , the fha and va , and significant regulatory oversight , both of which have implications on our ability to operate in the mortgage insurance industry . as of december 31 , 2015 private mortgage insurers became subject to the revised private mortgage insurer eligibility requirements ( the `` pmiers '' ) of the gses which contain compliance , reporting , and financial requirements that impact our business . of the various changes required under pmiers , the financial requirements have the most fundamental impact on us . for example , decisions made in 2015 regarding our reinsurance structure and capital allocations among our subsidiary companies were influenced by the financial requirements of pmiers . the competitive landscape remains intense and we have seen : ( 1 ) continued demands for lender-paid single premium policies , which include discounts from our published rate card , ( 2 ) a decrease in premium rates offered by the fha , and ( 3 ) adjustments by our competition to borrower-paid mortgage premium rates . for a number of years , substantially all of the loans we insured have been sold to the gses , which have been in conservatorship since late 2008. when the conservatorship will end and what role , if any , the gses will play in the secondary mortgage market post-conservatorship will be determined by congress . the scope of the fha 's large market presence may also change in connection with the determination of the future of the gses . see our risk factor titled “ changes in the business practices of the gses , federal legislation that changes their charters or a restructuring of the gses could reduce our revenues or increase our losses ” in item 1a . while we strongly believe private mortgage insurance should be an integral part of credit enhancement in a future mortgage market , its role in that market can not be predicted . outlook for 2016 we believe that housing fundamentals are solid and expect that household formations will continue to increase and that home sales will increase . mortgage interest rates remain very low relative to historical norms and the level of unemployment has been decreasing . however , the private mortgage insurance industry will continue to be very competitive . growing our insurance in 43 force and increasing the industry 's market share is difficult under these conditions , but we expect a modest increase in our insurance in force in 2016. in consideration of the pmier 's financial requirements and the competitive landscape , we are revising our premium rates on both borrower-paid and lender-paid premium plans . across the spectrum of loans we insure the revised rates will include both increases and decreases to previously published rate cards and we expect to achieve life-time after tax returns on required pmiers capital in the mid-teens , after considering reinsurance . story_separator_special_tag at december 31 , 2015 , mgic 's risk-to-capital ratio was 12.1 to 1 , below the maximum allowed by the jurisdictions with state capital requirements , and its policyholder position was $ 1.2 billion above the required mpp of $ 1.1 billion . in calculating our risk-to-capital ratio and mpp , we are allowed full credit for the risk ceded under our reinsurance transaction with a group of unaffiliated reinsurers . it is possible that under the revised state capital requirements discussed below , mgic will not be allowed full credit for the risk ceded to the reinsurers . if mgic is not allowed an agreed level of credit under either the state capital requirements or the pmiers , mgic may terminate the reinsurance agreement , without penalty . at this time , we expect mgic to continue to comply with the current state capital requirements ; however , you should read our risk factors for information about matters that could negatively affect such compliance . at december 31 , 2015 , the risk-to-capital ratio of our combined insurance operations ( which includes reinsurance affiliates ) was 13.6 to 1. reinsurance transactions with affiliates permit mgic to write insurance with a higher coverage percentage than it could on its own under certain state-specific requirements . a higher risk-to-capital ratio on a combined basis may indicate that , in order for mgic to continue to utilize reinsurance arrangements with its affiliates , additional capital contributions to the reinsurance affiliates could be needed . the naic previously announced that it plans to revise the minimum capital and surplus requirements for mortgage insurers that are provided for in its mortgage guaranty insurance model act . a working group of state regulators is drafting the revisions , although no date has been established by which the naic must propose revisions to such requirements . depending on the scope of revisions made by the naic , mgic may be prevented from writing new business in the jurisdictions adopting such revisions . gse reform the federal housing finance agency ( “ fhfa ” ) is the conservator of the gses and has the authority to control and direct their operations . the increased role that the federal government has assumed in the residential housing finance system through the gse conservatorship may increase the likelihood that the business practices of the gses change in ways that have a material adverse effect on us and that the charters of the gses are changed by new federal legislation . the financial reform legislation that was passed in july 2010 ( the “ dodd-frank act ” or “ dodd-frank ” ) required the u.s. department of the treasury to report its recommendations regarding options for ending the conservatorship of the gses . this report did not provide any definitive timeline for gse reform ; however , it did recommend using a combination of federal housing policy changes to wind down the gses , shrink the government 's footprint in housing finance ( including fha insurance ) , and help bring private capital back to the mortgage market . since then , members of congress introduced several bills intended to change the business practices of the gses and the fha ; however , no legislation has been enacted . as a result of the matters referred to above , it is uncertain what role the gses , fha and private capital , including private mortgage insurance , will play in the residential housing finance system in the future or the impact of any such changes on our business . in addition , the timing of the impact of any resulting changes on our business is uncertain . most meaningful changes would require congressional action to implement and it is difficult to estimate when congressional action would be final and how long any associated phase-in period may last . dodd-frank requires lenders to consider a borrower 's ability to repay a home loan before extending credit . the consumer financial protection bureau ( “ cfpb ” ) rule defining “ qualified mortgage ” ( “ qm ” ) for purposes of implementing the “ ability to repay ” law became effective in january 2014 and included a temporary category of qms for mortgages that satisfy the general product feature requirements of qms and meet the gses ' underwriting requirements ( the “ temporary category ” ) . the temporary category will phase out when the gses ' conservatorship ends , or if sooner , on january 21 , 2021. dodd-frank requires a securitizer to retain at least 5 % of the risk associated with mortgage loans that are securitized , and in some cases the retained risk may be allocated between the securitizer and the lender that originated the loan . the final rule implementing that requirement became effective on december 24 , 2015 for asset-backed securities collateralized by residential mortgages . the final rule exempts securitizations of qualified residential mortgages ( “ qrms ” ) from the risk retention requirement and generally aligns the qrm definition with that of qm . because there is a temporary category of qms for mortgages that satisfy the general product feature requirements of qms and meet the gses ' underwriting requirements , lenders that originate loans that are sold to the gses while they are in conservatorship would not be required to retain risk associated with those loans . the final 45 rule requires the agencies that implemented the rule to review the qrm definition no later than four years after its effective date and every five years thereafter , and allows each agency to request a review of the definition at any time . we estimate that for our new risk written in 2014 and 2015 , 83 % and 85 % , respectively , was for loans that would have met the cfpb 's general qm definition and , therefore , the qrm definition .
| investment portfolio 2015 highlights ◦ investments totaled $ 4.7 billion as of december 31 , 2015 , increasing from $ 4.6 billion as of december 31 , 2014 . ◦ net investment income was $ 103.7 million in 2015 , an increase of 18.4 % from $ 87.6 million in 2014 . 62 ◦ net realized investment gains were $ 28.4 million in 2015 compared to $ 1.4 million in 2014 . overview and strategy the return on our investment portfolio is an important component of our financial results . our main portfolio objectives are to maximize yield , protect principal , maximize statutory capital , and minimize losses . in that regard , we employ a strategic asset allocation approach which considers the risk and return parameters of the various asset classes in which we invest . this asset allocation is informed by our global economic and market outlook , as well as other inputs and constraints , including diversification effects , duration , liquidity and capital considerations . the credit risk of specific securities is evaluated through analysis of the underlying fundamentals that includes consideration of the issuer 's sector , scale , profitability , debt cover , and ratings . the investment policy guidelines limit the amount of our credit exposure to any one issue , issuer and type of instrument . the investment portfolio is principally invested in marketable investment grade fixed maturity securities and targets an intermediate 5 to 7 year duration . see note 6 – “ investments ” to our consolidated financial statements in item 8 for additional disclosure on our investment portfolio . investments outlook interest rates were in a state of flux during 2015 as market participants digested data showing slowing global growth and sought greater clarity on the federal open market committee 's ( `` fomc '' ) positions on employment , inflation , and u.s. growth when considering their timing of federal fund rate changes .
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the purchase price of this acquisition aggregated $ 8.1 million and consisted of cash to be paid of $ 2.5 million and 1,381,000 shares ( after giving effect to a reverse stock split ) of the company 's common stock deemed to have a fair value of $ 5.6 million . the cash portion was funded by the excess working capital the company obtained from the shoom acquisition . total costs incurred for the shoom acquisition were $ 316,000 which consisted primarily of professional fees . the acquisition of shoom was accounted for by the company under the acquisition method of accounting , whereby assets acquired and liabilities story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited financial statements and related notes included elsewhere in this annual report on form 10-k. in addition to historical information , this discussion and analysis here and throughout this form 10-k contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements , due to a number of factors , including but not limited to , risks described in the section entitled “ risk factors. ” except where indicated , all share and per share data in this section , as well as the consolidated financial statements , reflect the reverse stock split effected on april 8 , 2014. overview of our business sysorex global holdings corp. ( “ sysorex ” or the “ company ” ) provides data analytics and indoor-location based solutions and services to commercial and government customers worldwide . we have developed a new kind of discovery platform that blends data from traditional software and network systems with the growing universe of mobile and internet-connected things . in doing so we have created a high velocity , secure and scalable platform that allows customers to evaluate their most complex business issues , and compete successfully in their respective markets . our analytics products provide turnkey vertical solutions from etl ( extract , transfer , load ) to bi ( business intelligence ) to the final visualization of the data . these solutions are available on-premise or in the cloud . sysorex 's data analytics products integrate with our airpatrol product line , which focuses on collecting data from any wireless device in close proximity ( cellular , wifi , ble , rfid , etc. ) . we believe we can provide the right information at the right time based on our integrated solutions allowing us to uniquely blend the real world and the digital world . we believe that our airpatrol product line is also well positioned in the cyber security market as mobile device management and detection technology . we believe that our location accuracy of sub 10-feet and our ability to capture all rf frequencies is unmatched . detecting rogue devices that could be a security threat to an enterprise or government agency and then providing accurate location of that device is an important security application for our customers . our airpatrol product line has two patents and several others pending worldwide . sysorex also provides supporting products and services including enterprise computing and storage , virtualization , business continuity , data migration ; custom application development , networking and information technology business consulting services . these allow sysorex to offer turnkey solutions when requested by customers . our it commercial segment revenues are typically driven by purchase orders that are received on a monthly basis . approximately 20 % of these purchase orders are recurring contracts that range from one to five years for warranty and maintenance support . for these contracts the customer is invoiced one time and pays sysorex upfront for the full term of the warranty and maintenance contract . revenue from these contracts is determinable ratably over the contract period with the unearned revenue recorded as deferred revenue and amortized over the contract period . we have a 30-year history and a high repeat customer rate of approximately 50-60 % annually . our revenues are diversified over hundreds of customers and no one customer exceeds 15 % of revenues . management believes this diversification provides stability to our revenue streams . our esolutions software-as-a-service ( saas ) contracts are typically performed for periods of one or more years and we have a high customer retention rate . sysorex offers esolutions including etearsheets , invoicing , crm , and other products and services to approximately 700 newspapers in the cloud . cloud or saas based analytics is a growing market that sysorex intends to pursue beyond the media vertical that we are in today . our location-based technology sales are expected to grow in 2015 ; however sales cycles proved to be longer than we expected in 2014 and this trend could continue in 2015. the long sales cycles result from customer related issues such as budget and procurement processes but also because customers found additional use-cases for the products and requested further evaluations . recent events such as the budget impasse and sequestration in the federal government could continue to impact government customer funding for projects that our it government segment is pursuing by delaying payment or decisions on contract/task order awards , as the company has experienced with prior awards . however , our government contracts are currently approximately 13 % of our total revenues . such government contracts typically have a three to five year term and we believe that our recent government contract revenues will be indicative of future government contract based revenues . story_separator_special_tag we recognize revenue when the following criteria are met ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred or services have been rendered , ( 3 ) the sales price is fixed or determinable , and ( 4 ) collectability is reasonably assured . generally , these criteria are met upon shipment to customers with respect to the sales of hardware and software products . with respect to our maintenance and other service agreements , this criteria is met once the service has been provided . revenue from the sales of our services on time and material contracts is recognized based on a fixed hourly rate as direct labor hours are expended . we recognize revenue for sales of all services on a fixed fee ratably over the term of the arrangement as such services are provided . the company evaluates whether the revenues it receives from the sale of hardware and software products , licenses , and services , including maintenance and professional consulting services , should be recognized on a gross or net basis on a transaction by transaction basis . we maintain primary responsibility for the materials and procedures utilized to service our customers , even in connection with the sale of third party-products and maintenance services as we are responsible for the fulfillment and acceptability of the products and services purchased by our customers . in addition , the nature of the products sold to our customers are such that they need configuration in order to be utilized properly for the purposes intended by the customer and therefore we assume certain responsibility for product staging , configuration , installation , modification , and integration with other client systems , or retain general inventory risk upon customer return or rejection . our customers rely on us to develop the appropriate solutions and specifications applicable to their specific system and then integrate any such required products or services into their systems . as described above , we are responsible for the day to day maintenance and warranty services provided in connection with all of our existing customer relationships , whether such services are ultimately provided directly by the company and its employees or by the applicable third party service provider . as of the date of this filing , after an evaluation of all of our existing customer relationships , we have concluded that we are the primary obligor to all of our existing customers and therefore recognize all revenues on a gross basis . 46 long-lived assets we account for our long-lived assets in accordance with accounting standards codification ( “ asc ” ) 360 , “ accounting for the impairment or disposal of long-lived assets ” ( “ asc 360 ” ) , which requires that long-lived assets be evaluated whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or the useful life has changed . some of the events or changes in circumstances that would trigger an impairment test include , but are not limited to : ● significant under-performance relative to expected and or historical results ( negative comparable sales growth or operating cash flows for two consecutive years ) ; ● significant negative industry or economic trends ; ● knowledge of transactions involving the sale of similar property at amounts below our carrying value ; or ● our expectation to dispose of long-lived assets before the end of their estimated useful lives , even though the assets do not meet the criteria to be classified as “ held for sale. ” long-lived assets are grouped for recognition and measurement of impairment at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets . the impairment test for long-lived assets requires us to assess the recoverability of our long-lived assets by comparing their net carrying value to the sum of undiscounted estimated future cash flows directly associated with and arising from our use and eventual disposition of the assets . if the net carrying value of a group of long-lived assets exceeds the sum of related undiscounted estimated future cash flows , we would be required to record an impairment charge equal to the excess , if any , of net carrying value over fair value . when assessing the recoverability of our long-lived assets , which include property and equipment and finite-lived intangible assets , we make assumptions regarding estimated future cash flows and other factors . some of these assumptions involve a high degree of judgment and also bear a significant impact on the assessment conclusions . included among these assumptions are estimating undiscounted future cash flows , including the projection of comparable sales , operating expenses , capital requirements for maintaining property and equipment and residual value of asset groups . we formulate estimates from historical experience and assumptions of future performance , based on business plans and forecasts , recent economic and business trends , and competitive conditions . in the event that our estimates or related assumptions change in the future , we may be required to record an impairment charge . due to the decrease in the stock price , the company performed a valuation analyses to be used in complying with fasb asc 350-20 intangibles – goodwill and other and determined the fair values of the reporting units are greater than their carrying values indicated no impairment as of december 31 , 2014. accordingly , the company did not record an impairment charge for the years ended december 31 , 2014 and , 2013. we evaluate the remaining useful lives of long-lived assets and identifiable intangible assets whenever events or circumstances indicate that a revision to the remaining period of amortization is warranted . such events or circumstances may include ( but are not limited to ) : the effects of obsolescence , demand , competition , and or other economic factors including the stability of the industry in which we operate , known technological advances , legislative actions , or changes in the regulatory environment .
| results of operations year ended december 31 , 2014 compared to the year ended december 31 , 2013 revenues revenues for the year ended december 31 , 2014 were $ 62.9 million compared to $ 50.6 million for the comparable period in the prior year . the increase of $ 12.3 million , or approximately 24 % , is primarily due to the acquisitions we have completed and excludes approximately $ 1 million in sales from our it commercial operating segment that was not recognized in the fourth quarter as a result of a shipment that was delayed until the first week of 2015. information technology solutions services to commercial organizations revenue was $ 52.5 million for the year ended december 31 , 2014 as compared to $ 44.6 million for the year ended december 31 , 2013. internet based hosting eservice revenue was $ 4.0 million for the year ended december 31 , 2014 as compared to $ 1.3 million for the year ended december 31 , 2013. information technology solutions services to u.s. and foreign government ( sysorex ' historical business ) revenue was $ 4.6 million for the year ended december 31 , 2014 as compared to $ 4.7 million for the year ended december 31 , 2013. location based technology revenue was $ 1.9 million for the year ended december 31 , 2014 as compared to $ 0 for the year ended december 31 , 2013 as the company did not do business in this segment prior to the acquisition of airpatrol . cost of revenues cost of revenues for the year ended december 31 , 2014 was $ 44.2 million compared to $ 38.3 million for the comparable period in the prior year .
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our first marketed product , ocaliva® ( obeticholic acid or “ oca ” ) , is a farnesoid x receptor ( “ fxr ” ) agonist approved in the united states , the european union and several other jurisdictions for the treatment of primary biliary cholangitis ( “ pbc ” ) in combination with ursodeoxycholic acid ( “ udca ” ) in adults with an inadequate response to udca or as monotherapy in adults unable to tolerate udca . in addition to commercializing oca for pbc under the ocaliva brand name , we are currently developing oca for additional indications , including nonalcoholic steatohepatitis ( “ nash ” ) . we are also developing several product candidates in various stages of clinical and preclinical development . we believe that oca and our other product candidates have the potential to treat orphan and other more prevalent liver diseases such as nash for which there are currently limited therapeutic options . ocaliva was approved for pbc by the u.s. food and drug administration ( “ fda ” ) in may 2016 under the accelerated approval pathway . we commenced sales and marketing of ocaliva in the united states shortly after receiving approval , and ocaliva is now available to u.s. patients primarily through a network of specialty pharmacy distributors . ocaliva received conditional approval for pbc from the european commission in december 2016 and we commenced our european commercial launch in january 2017. we have submitted dossiers and obtained , or are otherwise pursuing , reimbursement from a number of national authorities in europe . since january 2017 , ocaliva has also received regulatory approval in several of our target markets outside the united states and europe , including canada , israel and australia , and we are pursuing marketing approval of ocaliva for pbc in our other international target markets . ocaliva received orphan drug designation in both the united states and the european union for the treatment of pbc . in addition , we continue to work to execute on our post-marketing regulatory commitments with respect to ocaliva in the u.s. and europe . our lead product candidate is oca for the potential treatment of nash . in february 2019 , we announced topline results from the planned 18-month interim analysis of our pivotal phase 3 clinical trial of oca in patients with liver fibrosis due to nash , known as the regenerate trial . in the primary efficacy analysis , once-daily oca 25 mg met the primary endpoint agreed with the fda of fibrosis improvement by at least one stage with no worsening of nash at the planned 18-month interim analysis . adverse events were generally mild to moderate in severity and the most common were consistent with the known profile of oca . interim analysis results at 18 months were based on surrogate endpoints and the impact on clinical outcomes has not been confirmed . the regenerate trial is ongoing and is expected to continue through clinical outcomes for verification and description of the clinical benefit of oca . oca also achieved the primary endpoint in a phase 2b clinical trial for the treatment of nash that completed in late july 2014 , known as the flint trial , which was sponsored by the u.s. national institute of diabetes and digestive and kidney diseases , a part of the national institutes of health . oca has received breakthrough therapy designation from the fda for the treatment of nash patients with liver fibrosis . in september 2019 , we submitted a new drug application ( “ nda ” ) to the fda seeking accelerated approval of oca for liver fibrosis due to nash . in november 2019 , the fda accepted our nda for filing and granted a priority review designation of oca for liver fibrosis due to nash . in december 2019 , we submitted a marketing authorization application ( “ maa ” ) to the european medicines agency ( the “ ema ” ) seeking conditional approval of oca for liver fibrosis due to nash . in january 2020 , the ema validated our maa and thereby confirmed that our maa was sufficiently complete to begin the formal review process . in june 2020 , we received a complete response letter ( “ crl ” ) from the fda stating that our nda for oca for the treatment of liver fibrosis due to nash could not be approved in its present form . the crl indicated that , based on the data the fda had reviewed , the fda has determined that the predicted benefit of oca based on a surrogate histopathologic endpoint remains uncertain and does not sufficiently outweigh the potential risks to support accelerated approval for the treatment of patients with liver fibrosis due to nash . at that time , the fda recommended that we submit additional post-interim analysis efficacy and safety data from the 93 ongoing regenerate trial in support of potential accelerated approval and that the long-term outcomes phase of the trial should continue . we are in discussions with the fda with respect to the potential resubmission of our nda seeking accelerated approval of oca for the treatment of liver fibrosis due to nash . we had our end of review meeting with the fda in october 2020 to discuss the fda 's risk-benefit assessment in the crl based on its review of the available data , as well as our proposed resubmission of our nda for the treatment of liver fibrosis due to nash . the meeting was constructive and the fda has provided us with helpful guidance regarding supplemental data we can provide to further characterize oca 's efficacy and safety profile that could support resubmission based on our phase 3 regenerate 18-month biopsy data , together with a safety update from our ongoing studies . story_separator_special_tag while we intend to vigorously defend and enforce our intellectual property rights protecting ocaliva , we can offer no assurance as to when the lawsuits will be decided , whether the lawsuits will be successful , or that a generic equivalent of ocaliva will not be approved and enter the market before the expiration of such patents . see note 19 to our audited consolidated financial statements included elsewhere in this annual report on form 10-k for more information . licensing revenue in march 2011 , we entered into an exclusive license agreement ( the “ sumitomo agreement ” ) with sumitomo dainippon pharma co. , ltd. ( “ sumitomo dainippon ” ) , pursuant to which we granted to sumitomo dainippon an exclusive license to research , develop and commercialize oca for the treatment of pbc and nash in japan and china ( excluding taiwan ) and an option to research , develop and commercialize oca in certain countries outside of such territories ( the “ country option ” ) . we received an upfront payment from sumitomo dainippon of $ 15.0 million under the terms of the sumitomo agreement . in october 2019 , we and sumitomo dainippon mutually agreed to terminate with immediate effect the sumitomo agreement . in connection with the termination of the sumitomo agreement , sumitomo dainippon agreed to return to us the rights to develop and commercialize oca in china and we agreed to forego any further milestone or royalty payments relating to the development and commercialization of oca in china . no payment was due from us to sumitomo dainippon as a result of the termination of the sumitomo agreement . we recognized licensing revenue of $ 0 , $ 2.4 million and $ 2.0 million for the years ended december 31 , 2020 , 2019 and 2018 , respectively . selling , general and administrative expenses we have incurred and expect to continue to incur significant selling , general and administrative expenses as a result of , among other initiatives , the launch and commercialization of ocaliva for pbc in the united states , europe and our other target markets . in addition , we have incurred significant selling , general and administrative expenses and may in the future incur similar expenses in connection with the preparation for the potential commercialization of oca for liver fibrosis due to nash , if approved , and our other future approved products , if any , and any build-out of our general and administrative infrastructure in the united states and abroad . 95 research and development expenses since our inception , we have focused significant resources on our research and development activities , including conducting preclinical studies and clinical trials , pursuing regulatory approvals and engaging in other product development activities . we recognize research and development expenses as they are incurred . we have incurred and expect to continue to incur significant research and development expenses as a result of , among other initiatives , our clinical development programs for oca for pbc and nash , our other earlier stage research programs and our regulatory approval efforts . story_separator_special_tag related to the amortization of upfront payments under the sumitomo agreement . cost of sales cost of sales was $ 4.2 million and $ 2.5 million for the years ended december 31 , 2019 and 2018 , respectively . our cost of sales for the years ended december 31 , 2019 and 2018 consisted primarily of packaging , labeling , materials and related expenses . selling , general and administrative expenses selling , general and administrative expenses were $ 317.4 million and $ 255.5 million for the years ended december 31 , 2019 and 2018 , respectively . the $ 61.9 million net increase between periods was primarily driven by increases in expenses relating to our launch preparation activities associated with the potential approval and commercialization of oca for liver fibrosis due to nash . research and development expenses research and development expenses were $ 242.8 million and $ 207.3 million for the years ended december 31 , 2019 and 2018 , respectively . the $ 35.5 million net increase between periods was primarily driven by increases in oca for liver fibrosis due to nash development program expenses and costs associated with the preparation of the nash nda submission . 98 interest expense interest expense was $ 41.1 million and $ 30.5 million for the years ended december 31 , 2019 and 2018 , respectively . for the year ended december 31 , 2019 , interest expense related to the 2026 convertible notes that we issued in may 2019 and the $ 460.0 million aggregate principal amount of 3.25 % convertible senior notes due 2023 ( the “ 2023 convertible notes ” and together with the 2026 convertible notes , the “ convertible notes ” ) that we issued in july 2016. for the year ended december 31 , 2018 , interest expense related only to the 2023 convertible notes . other income , net other income , net was $ 8.9 million and $ 6.8 million for the years ended december 31 , 2019 and 2018 , respectively . such income is primarily attributable to interest income earned on cash , cash equivalents and investment debt securities . income taxes for the years ended december 31 , 2019 and 2018 , no income tax expense or benefit was recognized . our deferred tax assets are comprised primarily of net operating loss carryforwards . we maintain a full valuation allowance on our deferred tax assets since we have not yet achieved sustained profitable operations . as a result , we have not recorded any income tax benefit since our inception . liquidity and capital resources cash flows the following table sets forth the significant sources and uses of cash for the periods indicated : replace_table_token_8_th operating activities .
| results of operations comparison of the years ended december 31 , 2020 and 2019 the following table summarizes our results of operations for the years ended december 31 , 2020 and 2019 : replace_table_token_6_th revenues product revenue , net was $ 312.7 million and $ 249.6 million for the years ended december 31 , 2020 and 2019 , respectively . for the years ended december 31 , 2020 and 2019 , product revenue , net was comprised of u.s. ocaliva net sales of $ 234.0 million and $ 187.5 million , respectively , and ex-u.s. ocaliva net sales of $ 78.7 million and $ 62.1 million , respectively . we commenced our commercial launch of ocaliva for the treatment of pbc in the united states and certain european countries in june 2016 and january 2017 , respectively . since january 2017 , ocaliva has also received regulatory approval in several of our target markets outside the united states and europe , including canada , israel and australia . for the years ended december 31 , 2020 and 2019 , licensing revenue was $ 0 and $ 2.4 million , respectively . in the case of the year ended december 31 , 2019 , revenues were related to the amortization of upfront payments under the sumitomo agreement . cost of sales cost of sales was $ 5.3 million and $ 4.2 million for the years ended december 31 , 2020 and 2019 , respectively . our cost of sales for the years ended december 31 , 2020 and 2019 consisted primarily of packaging , labeling , materials and related expenses . 96 selling , general and administrative expenses selling , general and administrative expenses were $ 332.5 million and $ 317.4 million for the years ended december 31 , 2020 and 2019 , respectively .
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replace_table_token_12_th any compensation ultimately earned for this award will be based on performance during 2016 , 2017 and 2018. in measuring the achievement against the goals for each performance metric and calculating the related payout factors , achievement will be linearly interpolated between the percentages set forth in the table above based on actual results as story_separator_special_tag overview greenhill is a leading independent investment bank that provides financial and strategic advice on significant domestic and cross-border mergers and acquisitions , divestitures , restructurings , financings , capital raising and other transactions to a diverse client base , including corporations , partnerships , institutions and governments globally . we serve as a trusted advisor to our clients throughout the world from our offices in the united states , australia , brazil , canada , germany , hong kong , japan , sweden , and the united kingdom . our revenues are principally derived from advisory services on mergers and acquisitions ( or m & a ) , financings and restructurings and are primarily driven by total deal volume and the size of individual transactions . while fees payable upon the successful conclusion of a transaction generally represent the largest portion of our advisory fees , we also earn other corporate advisory fees , including on-going retainer fees , substantially all of which relate to non-success based strategic advisory and financing advisory and restructuring assignments , and fees payable upon the commencement of an engagement or upon the achievement of certain milestones , such as the announcement of a transaction or the rendering of a fairness opinion . additionally , our global capital advisory group provides capital raising advisory services in the primary market for real estate funds , where revenues are driven primarily by the amount of capital raised , and in the secondary market for alternative assets , where revenue is determined based upon a fixed percentage of the transaction value . greenhill was established in 1996 by robert f. greenhill , the former president of morgan stanley and former chairman and chief executive officer of smith barney . since our founding , greenhill has grown by recruiting talented managing directors and other senior professionals , by acquiring complementary advisory businesses and by training , developing and promoting professionals internally . we have expanded beyond merger and acquisition advisory services to include financing , restructuring and capital advisory services , and we have expanded the breadth of our sector expertise to cover substantially all major industries . since the opening of our original office in new york , we have expanded globally to 14 offices across five continents . over our 21 years as an independent investment banking firm , we have sought to opportunistically recruit new managing directors with a range of industry and transaction specialties , as well as high-level corporate and other relationships , from major investment banks , independent financial advisory firms and other institutions . we also have sought to expand our geographic reach both through recruiting managing directors in new locations and through strategic acquisitions , such as our 2006 acquisition of beaufort partners limited ( now greenhill canada ) in canada and our 2010 acquisition of caliburn partnership pty limited ( now greenhill australia ) in australia . additionally , we expanded the breadth of our advisory services through the recruitment of a team of managing directors focused on real estate capital advisory services , through the hiring of managing directors to focus on financing and restructuring advisory services , and through our acquisition in 2015 of cogent , which provides advisory services related to the secondary fund placement market . through our recruiting and acquisition activity , we have significantly increased our geographic reach by adding offices in the united states , united kingdom , germany , canada , japan , australia , sweden , hong kong and brazil . during 2016 , we recruited six m & a focused managing directors who have joined our teams in new york , london , houston and toronto and have expanded our coverage in the canadian and latin american markets and the business services , chemical and energy sectors . we intend to continue our efforts to recruit new managing directors with industry sector experience and or geographic reach who can help expand our advisory capabilities . we had 73 client facing managing directors as of january 1 , 2017 , including six client facing bankers promoted to managing director at the beginning of the year . at december 31 , 2016 , we employed 356 people . we strive to maintain a work environment that fosters professionalism , excellence , diversity , and cooperation among our employees worldwide . we utilize a comprehensive evaluation process at the end of each year to measure performance , determine compensation and provide guidance on opportunities for continued development . business environment and outlook economic and global financial market conditions can materially affect our financial performance . in addition , revenues and net income in any period may not be indicative of full-year results or the results of any other period and may vary significantly from year to year and quarter to quarter . see “ risk factors. ” our total revenues were $ 335.5 million in the year ended december 31 , 2016 compared to $ 261.6 million in the year ended december 31 , 2015 , an increase of 28 % . the increase resulted from a greater number of completed merger and acquisition transactions with fees which were generally larger in scale than the prior year , offset in part by a decrease in other corporate advisory fees . at the same time , the number of worldwide completed m & a transactions in 2016 decreased by 1 % as compared to 2015 , while the volume of completed transactions ( reflecting the sum of all transaction sizes ) decreased by 2 % . for 2016 , the 25 number of announced transactions globally remained consistent with 2015 , while the volume of announced transactions decreased by 16 % in the same period . story_separator_special_tag 26 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > the representation of boehringer ingelheim gmbh on a global collaboration with abbvie inc. ; the sale of heartland payment systems , inc. to global payments inc. ; the acquisition by mann+hummel gmbh of the global filtration operations of affinia group holding , inc. ; the sale of rofin-sinar technologies , inc. to coherent , inc. ; the representation of supervalu inc. on the sale of its save-a-lot business to an affiliate of onex corporation ; the sale of telecity group plc to equinix , inc. ; the acquisition by teva pharmaceuticals industries ltd. of allergan plc 's generics business ; the representation of teva pharmaceuticals industries ltd. on the divestment of the u.s. rights to seventy-nine generic products to eleven different counterparties ; the representation of texas competitive electric holdings and its subsidiaries at the direction of its independent director in connection with its and energy future holdings ' chapter 11 proceedings ; and the sale of whistler blackcomb holdings inc. to vail resorts , inc. during 2016 , our global capital advisory group advised real estate fund general partners on five final closings of primary capital commitments from institutional investors in such funds , and advised institutional investors on 83 closings of sales of limited partnership interests in secondary market transactions . capital advisory fees for 2016 decreased to $ 51.2 million , a slight decrease of $ 3.8 million , or 7 % , compared to $ 55.0 million for 2015 , which principally resulted from a slowdown in transaction activity as a result of market volatility throughout the year , offset by an additional three months of revenue from our secondary placement business , which was acquired april 1 , 2015. for 2016 , we generated 15 % of our advisory revenues from capital advisory fees . we earned advisory revenues from 212 different clients in 2016 and 197 different clients in 2015 . of this group of clients , 47 % were new to us in 2016 . we earned fees of $ 1 million or more from 71 clients in 2016 , up 11 % compared to 64 clients in 2015 . the ten largest fee-paying clients contributed 40 % of our total revenues in 2016 and 32 % in 2015 . there was no single client in 2016 or 2015 that represented greater than 10 % of our revenues . 2015 versus 2014 . advisory revenues were $ 260.3 million for the year ended december 31 , 2015 compared to $ 280.5 million for the year ended december 31 , 2014 , a decrease of 7 % . the decrease in our 2015 advisory revenues , as compared to 2014 , 28 resulted from a decrease in transaction completion fees due to fewer large transaction closings , offset in part by greater capital advisory fees due to the acquisition of cogent and an increase in transaction announcement and opinion fees . prominent advisory assignments completed in 2015 include : the acquisition by alcoa inc. of rti international metals , inc. ; the acquisition by anixter international inc. of hd supply 's power solutions business ; the sale of azelis group to funds advised by apax partners ; the acquisition by cerner corporation of siemens ag 's health information technology business unit , siemens health services ; the spin-off by gannett co. , inc. of its publishing business and resulting creation of two separate media companies ; the sale by glaxosmithkline consumer healthcare of a portfolio of otc brands to perrigo company plc ; the representation of henderson equity partners ( `` hep '' ) in connection with the initial public offering of john laing plc , a company wholly owned by funds managed by hep ; the representation of lonmin plc on its c. $ 777 million recapitalization ; the spin-off by masco corporation of its installation services business ; and the sale by scholastic corporation of its educational technology and services business to houghton mifflin harcourt company . during 2015 , our global capital advisory group advised real estate fund general partners on six final closings of primary capital commitments from institutional investors in such funds . in addition , the secondary advisory team advised institutional investors on 60 closings of sales of limited partnership interests in secondary market transactions . capital advisory fees for 2015 increased to $ 55.0 million , an increase of $ 23.6 million , or 75 % , compared to $ 31.4 million for 2014 , which principally resulted from additional revenues generated as a result of the acquisition of cogent . for 2015 , we generated 21 % of our advisory revenues from capital advisory fees . we earned advisory revenues from 197 different clients in 2015 and 135 different clients in 2014 , with the increase resulting from our acquisition of cogent and the resulting increase in institutional investor clients selling limited partnership interests in the secondary market . of this group of clients , 44 % ( excluding historical cogent clients ) were new to us in 2015. we earned fees of $ 1 million or more from 64 clients in 2015 compared to 63 clients in 2014. the ten largest fee-paying clients contributed 32 % of our total revenues in 2015 and 43 % in 2014 , and two of the top ten largest fee-paying clients in 2015 had in a prior year been among our ten largest fee-paying clients . there was no single client in 2015 or 2014 that represented greater than 10 % of our revenues . investment revenues we also generate a small portion of our revenues from interest income and gains ( or losses ) in merchant banking fund investments , which we substantially liquidated in prior years . revenue recognized on investments in merchant banking funds is based on our allocable share of realized and unrealized gains ( or losses ) reported by such funds on a quarterly basis .
| results of operations the following tables set forth data relating to the firm 's sources of revenues : historical revenues by source replace_table_token_5_th advisory revenues historical advisory revenues by client location replace_table_token_6_th historical advisory revenues by industry replace_table_token_7_th we operate in a highly competitive environment where there are no long-term contracted sources of revenue . each revenue-generating engagement is separately awarded and negotiated . our list of clients with whom there are active engagements changes continually . to develop new client relationships , and to develop new engagements from historic client relationships , we maintain , on an ongoing basis , active business dialogues with a large number of clients and potential clients . we gain new clients each year through our business development initiatives , through recruiting additional senior investment banking professionals who bring with them client relationships and expertise in certain industry sectors or geographies and through referrals from members of boards of directors , attorneys and other parties with whom we have relationships . at the same time , we lose clients each year as a result of the sale or merger of a client , a change in a client 's senior management team , turnover of our senior banking professionals , competition from other investment banks and other causes . our revenues are principally derived from advisory services on mergers and acquisitions ( or m & a ) , financings and restructurings and are primarily driven by total deal volume and the size of individual transactions . a majority of our advisory revenue is contingent upon the closing of a merger , acquisition , financing , restructuring , capital fund transaction or other advisory transaction .
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as these customers and governmental agencies have paid for such projects , story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations should be read together with our consolidated financial statements , including the notes thereto , set forth herein . this discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance . actual results may differ materially from those anticipated in these forward-looking statements . see “ forward looking information ” below for additional discussion regarding risks associated with forward-looking statements . 30 liquidity and capital resources our net cash provided by ( used in ) operating activities , investing activities , and financing activities for the years ended december 31 , 2011 , 2010 , and 2009 are set forth in the following table . ( dollars in thousands ) replace_table_token_10_th operating activities cash provided by operating activities increased from $ 17,839,000 in 2010 to $ 50,429,000 in 2011 , a net $ 32,590,000 increase . this increase was primarily attributable to : ( i ) an increase in net income ; ( ii ) the timing of collections of accounts receivable , including those receivables from related parties ; ( iii ) the timing of payments of accounts payable , including those payables to related parties ; and ( iv ) cash receipts related to deferred revenue . as will be discussed in more detail in the discussion of our results of operations , our net income increased from $ 23,094,000 in the 2010 to $ 34,509,000 in 2011 , an increase of $ 11,415,000. in 2010 , accounts receivable accounted for a $ 13,406,000 reduction in cash provided by operating activities . in 2011 , accounts receivable accounted for a $ 512,000 reduction in cash provided by operating activities despite increased consolidated revenues . the primary reason for this result was the retroactive reinstatement of the $ 1.00 per gallon biodiesel blenders tax credit in december 2010. at december 31 , 2010 , we had an outstanding receivable from the federal government related to this credit of $ 10,785,000. this receivable was collected in february 2011 , increasing the 2011 cash provided by operating activities . in 2010 , the change in accounts payable increased cash provided by operating activities by $ 272,000. in 2011 , the change in accounts payable increased cash provided by operating activities by $ 6,592,000. this increase in cash provided by operating activities is largely due to timing differences related to the receipt and payment of inventory and the timing of payment for capital expenditures . in 2010 , deferred revenue contributed $ 7,958,000 to cash provided by operating activities . in 2011 it contributed $ 12,124,000. this change is a result of progress made on capital projects we have undertaken on behalf of certain of our customers . partially offsetting these increases in cash provided by operating activities was an increase in inventory . in 2010 , inventory reduced cash provided by operating activities by $ 10,929,000. in 2011 , inventory reduced cash provided by operating activities by $ 20,067,000. the increase in inventory at the end of 2011 relative to year-end 2010 primarily relates to increased biodiesel feedstock . cash provided by operating activities decreased from $ 25,883,000 in 2009 to $ 17,839,000 in 2010. this decrease was primarily the result of an $ 11,695,000 decrease in the cash provided by the change in accounts receivables and a $ 12,070,000 decrease in the cash provided by the change in inventory . partially offsetting these decreases was an $ 8,604,000 increase in the cash provided by deferred revenue , a $ 2,404,000 increase in the cash provided by the provision for deferred income taxes , and a $ 6,102,000 increase in net income . the decrease in cash provided by the change in accounts receivable was a result of the december 2010 retroactive reinstatement of the $ 1.00 per gallon biodiesel blenders tax credit . a key component of the impact of this reinstatement was the booking of a $ 10,785,000 receivable from the federal government . this receivable remained uncollected until february 2011 when payment was received in full . the decrease in the cash provided by the change in inventory stemmed from an inventory build of feedstocks and raw materials at december 31 , 2010 along with end-of-the-year purchases of petrodiesel . the increase in cash provided by deferred revenue was a result of progress made on capital projects we undertook on behalf of our customers . the increase in cash provided by the provision for deferred income taxes was a result of the effects of tax laws such as bonus depreciation which allowed for an early recognition of income tax expenses . 31 investing activities cash used in investing activities increased from $ 30,767,000 in 2010 to $ 51,367,000 in 2011 , a net increase of $ 20,600,000. this increase was primarily attributable to a net increase in the purchases of marketable securities and an increase in capital expenditures . in 2011 , we purchased a net $ 47,124,000 of marketable securities . such purchases totaled $ 3,139,000 in 2010. such purchases were made to increase the expected returns on our cash holdings . the increase in capital expenditures is largely the result of us undertaking certain capital projects on behalf of certain customers , a large portion of which is reimbursed by certain of our customers and through grants . these reimbursements are summarized in the table below . ( dollars in thousands ) replace_table_token_11_th these increases in cash used in investing activities were partially offset by a reduction in our restricted cash balances of $ 21,086,000 in 2011. this reduction resulted from our short sale position in u.s. treasuries being closed in 2011. when this happened , the cash which was previously held in a restricted margin account was returned to us . story_separator_special_tag the special cash dividends amounted to $ 31,053,000. on november 30 , 2009 , we declared a special cash dividend of $ 0.30 per share on our common stock , with a record date of december 1 , 2009 and a payment date of december 22 , 2009. the special cash dividend amounted to $ 8,457,000. capital management as a result of our initial equity offering , our subsequent positive operating results , the exercise of warrants , and the issuance of shares in our at-the-market offering , we accumulated excess working capital . some of this excess working capital was paid out in 2009 , 2010 , and 2011 as a special cash dividend and in 2011 as regular cash dividends . regular cash dividends will also be paid in 2012 as previously discussed . we intend to retain the remaining cash to fund infrastructure and capacity expansion at our batesville plant . third parties have not placed significant restrictions on our working capital management decisions . these funds were predominantly held in cash or cash equivalents at multiple financial institutions . in 2011 and 2010 , we also had investments in certain preferred stock , trust preferred securities , and other equity instruments . we classify these investments as current assets in the accompanying consolidated balance sheets and designate them as being “ available-for-sale ” . accordingly , they are recorded at fair value , with the unrealized gains and losses , net of taxes , reported as a component of stockholders ' equity . the fair value of these preferred stock , trust preferred securities , and other equity instruments , including accrued interest , totaled $ 56,294,000 and $ 28,200,000 at december 31 , 2011 and 2010 , respectively . 33 we also maintained a position in auction rate securities during 2010. we selectively made investments in certain auction rate securities that we believed offered sufficient yield along with sufficient liquidity . through the date of their repurchase , all the auction rate securities in which we invested maintained a mechanism for liquidity , meaning that the respective auctions did not fail , the issuers called the instruments , or a secondary market existed for liquidation of the securities . we classified these instruments as current assets in the accompanying consolidated balance sheet and carried them at their estimated fair market value . these securities were repurchased on october 15 , 2010 for par value . at december 31 , 2010 , we had a short position in certain marketable debt securities . no such position existed at december 31 , 2011. the purpose of this position was to help mitigate the potential negative impact an increase in interest rates would have on other marketable securities we had purchased . the securities comprising this position were carried at fair value , with unrealized gains and losses reported as a component of net income . we realized gains of $ 240,000 and $ 528,000 on these securities in 2011 and 2010 , respectively . the fair value of these securities totaled $ ( 19,295,000 ) at december 31 , 2010. the margin account maintained with a broker to collateralize these securities carried a balance of $ 21,086,000 at december 31 , 2010 , and was classified as restricted cash and cash equivalents in our consolidated balance sheet . the margin account did not exist as december 31 , 2011. lastly , we maintain depository accounts such as checking accounts , money market accounts , and other similar accounts at selected financial institutions . story_separator_special_tag 2010 , we redesigned our continuous line to produce biodiesel from feedstock with high fatty acids . by the end of 2011 , daily production volumes from the redesigned line demonstrated a production capacity in excess of 35 million gallons of biodiesel per year . debottlenecking has increased the annual rate to in excess of 45 million gallons per year . projects are currently in progress to further debottleneck the plant to run at higher rates . there currently is uncertainty as to whether we will produce biodiesel in the future . this uncertainty results from : ( i ) changes in feedstock prices relative to biodiesel prices ; and ( ii ) the permanency of government mandates . see “ risk factors ” above . while biodiesel is the principal component of the biofuels segment , we also generate revenue from the sale of petrodiesel both in blends with our biodiesel and , from time to time , with no biodiesel added . petrodiesel and biodiesel blends are available to customers at our leased storage facility in north little rock , arkansas and at our batesville plant . in addition , we deliver blended product to a small group of customers within our region . we also sell refined petroleum products from time-to-time on common carrier pipelines in part to maintain our status as a shipper on the pipeline . the majority of our expenses are cost of goods sold . cost of goods sold includes raw material costs as well as both fixed and variable conversion costs , conversion costs being those expenses that are directly or indirectly related to the operation of our plant . significant conversion costs include labor , benefits , energy , supplies , depreciation , and maintenance and repair . in addition to raw material and conversion costs , cost of goods sold includes environmental reserves and costs related to idle capacity . finally , cost of goods sold includes hedging gains and losses recognized by us related to our biofuels segment . cost of goods sold is allocated to the chemicals and biofuels business segments based on equipment and resource usage for most conversion costs and based on revenues for most other costs . operating costs include selling , general and administrative , and research and development expenses . the discussion of results of operations that follows is based on revenues and expenses in total and for individual product lines and do not differentiate related party transactions .
| results of operations in general we break our chemicals business into two main product groups : custom manufacturing and performance chemicals . custom manufacturing consists of products made for specific customers based upon specifications provided by such customers . major products in the custom manufacturing group include : ( i ) nonanoyloxybenzene-sulfonate , a bleach activator manufactured exclusively for a customer for use in a household detergent ; ( ii ) a proprietary herbicide ( and intermediates ) manufactured exclusively for a customer ; ( iii ) chlorinated polyolefin adhesion promoters and antioxidant precursors for a customer ; and ( iv ) a biocide intermediate for another customer . the custom manufacturing group also includes agrochemicals as well as industrial and consumer products ( cosmetics and personal care products , ink colorants , polymer additives , polymer and specialty dyes , specialty polymers , photographic and imaging chemicals , and food additives ) . in 2012 , products in the custom manufacturing group should also include an intermediate anode powder to be used as a component of high-performance graphite anode materials for lithium-ion batteries . revenues generated from the bleach activator are based on a supply agreement with the customer . the supply agreement stipulates selling price per kilogram based on volume sold , with price moving up as volumes move down , and vice-versa . the current contract expires in march 2013. we pay for raw materials required to produce the bleach activator . the contract with the customer provides that the price received by us for the bleach activator is indexed to changes in certain items , enabling us to pass along most inflationary increases in production costs to the customer . in the second quarter of 2011 , we received notification from the customer of the bleach activator stating their intention to reduce the quantities of the bleach activator they purchase beginning as soon as possible from the date of such notice .
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98 note 2 : earnings per share the following table presents the computation of basic and diluted earnings per share : replace_table_token_38_th note 3 : securities available-for-sale debt and equity securities the amortized cost and approximate fair values , together with gross unrealized gains and losses , of period end available-for-sale debt and equity securities consisted of the following : replace_table_token_39_th 99 replace_table_token_40_th replace_table_token_41_th the carrying value of securities pledged as collateral was $ 41 million and $ 109 million at december 31 , 2019 and 2018 , respectively . gross gains of $ 1 million , $ 2 million and $ 677 thousand and gross losses of $ 56 thousand , $ 2 million and $ 271 thousand resulting from sales of available-for-sale securities were realized for the years ended december 31 , 2019 , 2018 and 2017 , respectively . 100 maturity schedule the amortized cost , fair value , and weighted average yield of available-for-sale debt securities by contractual maturity , are shown below : december 31 , 2019 within after one to after story_separator_special_tag 42 replace_table_token_7_th 43 overview this section includes a discussion on the financial condition and results of operations of crossfirst bankshares , inc. and its subsidiaries for the past three years . tables may include additional periods to comply with disclosure requirements or to illustrate trends in greater depth . you should read the following financial data in conjunction with the other information contained in this 10-k , including under ‘ ‘ risk factors , '' ‘ ‘ gaap reconciliation and management explanation of non-gaap financial measures , '' and in the financial statements and related notes included elsewhere in this 10-k. the page locations of specific sections that we refer to are presented in the to this section . our company crossfirst bankshares , inc. , a kansas corporation and registered bank holding company , is the holding company for crossfirst bank . the company was initially formed as a limited liability company , crossfirst holdings , llc , on september 1 , 2008 to become the holding company for the bank and converted to a corporation in 2017. the bank was established as a kansas state-chartered bank in 2007 and provides a full suite of financial services to businesses , business owners , professionals and their personal networks throughout our five primary markets located in kansas , missouri , oklahoma and texas . growth history since opening our first branch in 2007 , we have grown organically primarily by establishing seven offices , attracting new clients and expanding our relationships with existing clients , as well as through two strategic acquisitions . the data below presents the growth of key areas of our business for the past five years and the related compound annual growth rate : replace_table_token_8_th our strategy since inception , our strategy has been to build the most trusted bank serving our markets , which we believe has driven value for our stockholders . we remain focused on robust growth and are equally focused on building stockholder value through greater efficiency and increased profitability . we intend to execute our strategic plan through the following : continue organic growth ; selectively pursue opportunities to expand through acquisitions or new market development ; improve profitability and operating efficiency ; attract and develop talent ; maintain a branch-lite business model with strategically placed locations ; and leverage technology to enhance the client experience and improve profitability . story_separator_special_tag roman ; font-size:11pt ; color : # 000000 ; font-style : normal ; font-weight : normal ; text-decoration : underline ; '' > year ended december 31 , 2019 vs. year ended december 31 , 2018 tax-equivalent net interest income was $ 144 million for the year ended december 31 , 2019 , an increase of $ 30 million or 27 % from the prior year due to asset growth . our net interest margin declined 8 basis points to 3.31 % from the prior year as our loans repriced more quickly than our cost of funds in the down rate environment . tax-equivalent interest income increased $ 59 million or 37 % from the prior year . average loan growth of $ 1 billion increased interest income by $ 57 million , while the loan yield improved 18 basis points to 5.52 % and resulted in $ 5 million in interest income . loan yields in 2019 improved from 2018 due to variable rate assets indexed to market rates that had increased during 2018 before starting a gradual decline in 2019. interest expense increased $ 28 million or 61 % from 2018. the increase was driven by interest-bearing deposit growth of $ 763 million to support our asset growth , resulting in a $ 15 million increase in interest expense and a 50 basis point increase in the cost of interest-bearing deposits that resulted in a $ 14 million increase in interest expense . the rise in the cost of interest-bearing deposits was driven by market competition , changes in the interest rate environment and short-term time deposits opened during 2019. we anticipate a significant number of time deposits will reprice downward during the first quarter of 2020. in addition , the company shortened the duration of interest-bearing liabilities during the fourth quarter of 2019 and added some additional short-term brokered funds to the balance sheet to manage interest rate risk . year ended december 31 , 2018 vs. year ended december 31 , 2017 tax-equivalent net interest income was $ 114 million for the year ended december 31 , 2018 , an increase of $ 33 million or 41 % from the year ended december 31 , 2017. our net interest margin declined one basis point during the same period as improved yields on loans were offset by increases in deposit costs and a reduction in the tax equivalent yield on tax-exempt securities due to the reduction in the federal income tax rate . tax-equivalent interest income was driven by $ 897 million in average loan growth and an increase in interest rates . story_separator_special_tag sold ( 26 ) 51 25 331 5 336 interest-bearing deposits in other banks ( 365 ) 297 ( 68 ) 323 1,007 1,330 gross loans , net of unearned income 56,927 4,525 61,452 47,350 7,480 54,830 total interest income ( 1 ) 55,417 3,344 58,761 49,207 7,517 56,724 interest expense transaction deposits 564 1,003 1,567 31 36 67 savings and money market deposits 4,911 7,069 11,980 5,005 8,466 13,471 time deposits 9,115 5,634 14,749 3,724 3,434 7,158 total interest-bearing deposits 14,590 13,706 28,296 8,760 11,936 20,696 fhlb and short-term borrowings ( 538 ) 493 ( 45 ) 1,899 890 2,789 trust preferred securities , net of fair value adjustments 5 6 11 4 25 29 total interest expense 14,057 14,205 28,262 10,663 12,851 23,514 net interest income ( 1 ) $ 41,360 $ ( 10,861 ) $ 30,499 $ 38,544 $ ( 5,334 ) $ 33,210 ( 1 ) tax-exempt income is calculated on a tax-equivalent basis . tax-free municipal securities are exempt from federal taxes . the incremental tax rate used is 21 % in 2019 and 2018 and 35 % in 2017 . ( 2 ) the change in interest not due solely to volume or rate has been allocated in proportion to the respective absolute dollar amounts of the change in volume or rate . provision for loan losses for the year ended december 31 , 2019 , the provision for loan losses increased $ 16 million or 121 % from the prior year . the change in the allowance for loan losses was driven by our loan growth , deterioration of a credit relationship , and an increase in nonperforming assets . a full discussion regarding changes to the allowance for loan and lease losses ( ‘ ‘ alll `` ) can be found within the allowance for loan losses section below . the allowance as a percentage of loans was 1.48 % at december 31 , 2019 compared to 1.23 % at december 31 , 2018. for the year ended december 31 , 2018 , the provision for loan losses increased $ 2 million or 13 % from 2017. the change in the allowance for loan losses was driven by our loan growth and an increase in nonperforming assets , partially offset by a reduction in the energy portfolio 's qualitative factors due to stabilized oil prices . the allowance as a percentage of loans was 1.23 % at december 31 , 2018 compared to 1.30 % at december 31 , 2017 . 48 noninterest income * dollars in thousands the components of noninterest income were as follows for the periods shown : replace_table_token_9_th the changes in noninterest income were driven by the following : swap fee income , net the swap fee program was started in 2018. swap fee income , net includes both swap fees from the execution of new swaps and the credit valuation allowance ( ‘ ‘ cva `` ) . swap fees on new swaps depend on the size and term of the underlying asset . during 2019 , the company added nineteen back-to-back swap agreements , related to approximately $ 347 million in loan commitments ; compared to nine back-to-back swap agreements , related to approximately $ 73 million in loan commitments in 2018. the swap program benefited from attractive market conditions during 2019 and became a material piece of our noninterest income . in addition , the 2019 increase included a change in the cva methodology during the third quarter of 2019. prior to the third quarter , a more conservative default methodology was used to account for non-performance risk . the company moved to a review of internal 49 credit analysis performed by the company . the result was an increase to noninterest income of approximately $ 800 thousand related to swaps entered in previous quarters . if there is no impact to the credit quality of the swap during its life , the change in methodology will lower future income by the same amount for those swaps impacted by the change . gain on sale of loans the reduction between 2018 and 2019 is due to a reduction in both the activity and size of the sba guaranteed portion of loans sold . atm and credit card interchange income increased income in 2019 and 2018 was driven by the expansion of our credit card program to our new and existing customers . service charges and fees on customer accounts this category includes a rebate program implemented in the second quarter of 2018 that attracted additional funding for the bank and resulted in the decline between 2017 and 2018. in 2019 , our customer base increased while the rebate program costs remained stable , resulting in the increase to service charges and fees on customer accounts as compared to the prior year . gain on sale of available-for-sale securities the company sold $ 101 million and $ 184 million of securities during the years ended 2019 and 2018 , respectively . the sales were a strategic decision by management to capitalize on attractive market conditions , balance taxable and tax-free municipal securities , and redeploy the proceeds into higher yielding assets . impairment of premises and equipment held for sale during the first half of 2019 , the company sold its remaining assets held-for-sale . the assets sold for approximately $ 3 million resulting in an additional impairment of $ 424 thousand . during the year ended december 31 , 2017 , we relocated our services and support teams into a newly acquired headquarters building . as a result , we listed two support buildings for sale . an impairment charge of $ 2 million in 2017 was made after an evaluation of the market value of both buildings . during the year ended december 31 , 2018 , we sold one of the two held-for-sale buildings . the sale resulted in an additional $ 171 thousand in impairment costs .
| 2019 highlights : we completed our ipo on august 19 , 2019 in which we issued and sold 6,594,362 common shares including 844,362 shares pursuant to the underwriters ' partial exercise of their overallotment option . the common shares were sold at an initial public offering price of $ 14.50 per share . after deducting the underwriting discounts and offering expenses , the company received total net proceeds of approximately $ 87 million . the shares began trading on the nasdaq global select market under the symbol ‘ ‘ cfb . '' 44 balance sheet growth approached $ 5 billion in total assets as of december 31 , 2019 , an increase of $ 824 million or 20 % from year-end 2018. gross loans , net of unearned income totaled nearly $ 4 billion as of december 31 , 2019 , an increase of $ 791 million or 26 % from the prior year , driven by organic growth . deposits increased $ 716 million or 22 % from december 31 , 2018 to $ 4 billion as of december 31 , 2019 , which resulted in a slight increase to our loan-to-deposit ratio to 98 % . book value per share was $ 11.58 at december 31 , 2019 compared to $ 10.21 at december 31 , 2018 driven by earnings and our successful ipo . operating and financial performance full year 2019 net income of $ 28.5 million compared to $ 19.6 million in 2018 , a year-over-year increase of $ 9 million or 45 % . the improvement was the result of a $ 31 million increase in net interest income and a $ 3 million increase in noninterest income , partially offset by a $ 2 million increase in operating expenses , a $ 16 million increase in the provision and a $ 7 million increase in income tax expense .
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concentrations of credit risk and off-balance sheet risk financial instruments that potentially expose the company to concentrations of credit risk primarily consist of cash , cash equivalents and investments . the company maintains its cash and cash equivalent balances with high-quality financial institutions and , consequently , the company believes that such funds are subject to minimal credit risk . the company 's cash equivalents and investments are comprised of money market funds that are invested in u.s. treasury obligations , corporate debt securities , u.s. treasury obligations and government agency securities . credit risk in these securities is reduced as a result of the company 's investment policy to limit the amount invested in any single issuer and to only invest in securities of a high credit quality . the company has no significant off-balance sheet risk such as foreign exchange contracts , option contracts or other foreign hedging arrangements . recent accounting story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and 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 . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors . we discuss factors that we believe could cause or contribute to these differences below and elsewhere in this annual report on form 10-k , including those factors set forth in the section entitled “ cautionary note regarding forward-looking statements and industry data ” and in the section entitled “ risk factors ” in part i , item 1a . overview we are a clinical stage immunotherapy company dedicated to transforming the treatment of cancer by developing therapies that enable the immune system to attack tumors and provide long-lasting benefits to patients . we have developed a suite of integrated technologies that comprise our translational science platform , enabling us to comprehensively interrogate the cellular and molecular composition of tumors . by focusing on specific cell types , both immune and non-immune , within tumors , we can prioritize targets and then identify related biomarkers designed to match the right therapy to the right patient . through this deep , scientific understanding of the tumor microenvironment , or tme , our goal is to effectively and efficiently identify and develop new cancer immunotherapies designed to benefit patients with tumors across the spectrum from highly inflamed , or “ hot , ” to poorly inflamed , or “ cold , ” and especially those not well served by current therapies . our most advanced product candidate , jtx-2011 , is a clinical-stage monoclonal antibody that binds to and activates the i nducible t cell co-s timulator , or icos , a protein on the surface of certain t cells commonly found in many solid tumors . our preclinical data demonstrates that jtx-2011 stimulates a significant t cell immune response against solid tumors . we submitted our investigational new drug application , or ind , for jtx-2011 to the food and drug administration , or fda , in july 2016 and began the phase i portion of our jtx-2011 adaptive phase i/ii clinical trial in patients with solid tumors in august 2016. in june 2017 , we presented preliminary safety , pharmacodynamic and pharmacokinetic data from the phase i portion of this clinical trial as well as the recommended dose for the phase ii monotherapy cohorts at the 2017 american society of clinical oncology annual meeting . in april 2017 , we began enrollment in the monotherapy cohorts of the phase ii portion of this clinical trial , which evaluate jtx-2011 as a monotherapy in at least three tumor-specific cohorts , including head and neck squamous cell cancer , or hnscc , non-small cell lung cancer , or nsclc , gastric cancer and non-indication specific solid tumors and additional tumor types identified through our translational science platform . in july 2017 , we began enrollment in the combination cohorts of the phase ii portion of this clinical trial , which evaluate jtx-2011 in combination with nivolumab in at least six tumor types , including hnscc , nsclc , triple negative breast cancer , melanoma , gastric cancer and additional tumor types identified through our translational science platform . we expect to provide preliminary efficacy data in the second quarter of 2018. we believe jtx-2011 has the potential to act both as a single agent and more importantly in combination with other therapies , such as anti-pd-1 antibodies , to offer treatment alternatives to patients who otherwise lack an effective response to currently approved therapies . we are also conducting ind-enabling studies for jtx-4014 , an anti-pd-1 antibody that , assuming continued successful development , we may use in future combinations with jtx-2011 as well as for use in combination with other future product candidates , as we believe combination therapy has the potential to be a mainstay of cancer immunotherapy . we expect to file an ind for jtx-4014 in 2018. we are discovering and developing immunotherapies beyond the currently approved products targeting t effector cells . to do so , we are leveraging our translational science platform to systematically and comprehensively interrogate cell types within the human tumor microenvironment , or tme , to enable us to develop therapies with the potential to benefit patients with tumors across the spectrum from hot to cold tumor characteristics . this includes focusing on adaptive and innate immune cells , such as b and t regulatory cells , and immunosuppressive macrophages , respectively . therapies targeting these cell types and cell subsets may have the potential to complement existing approaches that focus on t effector cells and thereby benefit many patients who do not respond to the currently approved t effector cell-focused immunotherapies . story_separator_special_tag the development milestones are payable on initiation of certain clinical trials and range from $ 32.5 million to $ 105.0 million , per program , with an aggregate total of $ 290.0 million . the regulatory approval milestones are payable upon regulatory approval in the united states and outside the united states and range from $ 7.5 million to $ 50.0 million per milestone , with an aggregate total of $ 700.0 million . the commercial milestones are payable upon achievement of specified aggregate product sales outside the united states for each program and range from $ 40.0 million to $ 200.0 million per milestone , with an aggregate total of $ 1.270 billion . we are also eligible to receive royalties on product sales outside the united states ranging from a high single digit to mid-teen percentage rate . if celgene elects to exercise any of the program options , celgene will pay us an option-exercise fee of $ 10.0 million to $ 60.0 million that varies by program , with an aggregate of $ 182.5 million if celgene exercises all six program options . the initial research term of the collaboration is four years , which can be extended , at celgene 's option , annually for up to three additional years for additional consideration that ranges from $ 30.0 million to $ 45.0 million per year , for an aggregate of $ 120.0 million if the term is extended for an additional three years . as of december 31 , 2017 , we had not received any option exercise , research term extension , milestone or royalty payments under the celgene collaboration agreement . since inception , our operations have focused on organizing and staffing our company , business planning , raising capital , developing our translational science platform and conducting research , preclinical studies and clinical trials . we do not have any products approved for sale . from inception through december 31 , 2017 , we have recognized a total of $ 108.8 million in collaboration revenue under the celgene collaboration agreement relating to the $ 225.0 million upfront payment received from celgene in 2016. we are subject to a number of risks comparable to those of other similar companies , including dependence on key individuals ; the need to develop commercially viable products ; competition from other companies , many of which are larger and better capitalized ; and the need to obtain adequate additional financing to fund the development of our products . we have funded our operations through december 31 , 2017 primarily through proceeds received from our ipo , the upfront payment received under the celgene collaboration agreement and private placements of our preferred stock . on february 1 , 2017 , we closed our ipo of 7,319,750 shares of our common stock at a public offering price of $ 16.00 per share , including 954,750 shares of our common stock issued upon the full exercise by the underwriters of their option to purchase additional shares . the gross proceeds from the ipo were $ 117.1 million , and net proceeds were $ 106.4 million , after deducting underwriting discounts and commissions and other offering expenses paid by us . due to our significant research and development expenditures , we have generated substantial operating losses in each annual period since our inception . we have incurred an accumulated deficit of $ 89.6 million through december 31 , 2017 . we expect to incur substantial additional losses in the future as we expand our research and development activities . financial operations overview revenue for the year ended december 31 , 2017 , we recognized $ 71.6 million of collaboration revenue under the celgene collaboration agreement related to the $ 225.0 million upfront payment received from celgene in 2016. we had $ 116.2 million of deferred revenue as of december 31 , 2017 , which is classified as either current or net of current portion in our consolidated balance sheets based on the period over which the revenue is expected to be recognized . as of december 31 , 2017 , we had not received any option exercise , research term extension , milestone or royalty payments under the celgene collaboration agreement . in the future , we expect to continue to generate revenue from the celgene collaboration agreement and may generate revenue from product sales or other collaboration agreements , strategic alliances and licensing arrangements . we expect that our revenue will fluctuate from quarter-to-quarter and year-to-year as a result of the timing and amount of license fees , milestones , reimbursement of costs incurred and other payments and product sales , to the extent any are successfully commercialized . if we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them , our ability to generate future revenue , and our results of operations and financial position , would be materially adversely affected . 61 operating expenses research and development expenses research and development expenses represent costs incurred by us for the discovery , development and manufacture of jtx-2011 , jtx-4014 and our potential future product candidates and include : external research and development expenses incurred under arrangements with third parties , including academic and non-profit institutions and consultants ; salaries and personnel-related costs , including non-cash stock-based compensation expense ; license fees to acquire in-process technology and other expenses , which include direct and allocated expenses for laboratory , facilities and other costs . we use our employee and infrastructure resources across multiple research and development programs directed toward developing our translational science platform and for identifying , testing and developing product candidates . we manage certain activities such as contract research and manufacture of jtx-2011 , jtx-4014 and our discovery programs through our third-party vendors . at this time , we can not reasonably estimate or know the nature , timing and estimated costs of the efforts that will be necessary to complete the development of our product candidates .
| results of operations comparison of the years ended december 31 , 2017 and 2016 the following table summarizes our results of operations for the years ended december 31 , 2017 and 2016 , along with the changes in those items in dollars : replace_table_token_3_th collaboration revenue collaboration revenue for the years ended december 31 , 2017 and 2016 was solely related to the recognition of the upfront payment we received under our celgene collaboration agreement that was executed in july 2016. research and development expenses the following table summarizes our research and development expenses for years ended december 31 , 2017 and 2016 : replace_table_token_4_th 69 research and development expenses increase d by $ 32.9 million from $ 34.9 million for the year ended december 31 , 2016 to $ 67.8 million for the year ended december 31 , 2017 . the increase in research and development expenses was primarily attributable to the following : $ 5.3 million of increased employee compensation costs primarily attributable to increased headcount , offset by $ 1.3 million of decreased stock-based compensation expense related to the achievement of milestones during the year ended december 31 , 2016 which triggered vesting of certain outstanding awards granted to non-employees ; $ 8.7 million of increased external research and development costs primarily attributable to the manufacture of pre-commercial clinical trial materials and related activities for jtx-2011 , ind enabling activities related to jtx-4014 and external costs associated with our early discovery programs ; $ 9.8 million of increased external clinical and regulatory costs related to our jtx-2011 adaptive phase i/ii clinical trial , which commenced enrollment in august 2016 ; $ 4.6 million of increased lab consumables costs primarily attributable to our increased research and development activities ; $ 3.3 million of increased facility costs , including expenses associated with the exit of our previous corporate headquarters , increased rent expense related to our new corporate headquarters , depreciation and
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as consideration for our issuance of the december 2014 bridge notes , each investor paid us an amount equal to the original principal amount of the note issued to the investor . the december 2014 bridge notes matured on june story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the notes to those statements included elsewhere in this annual report on form 10-k. in addition to historical financial information , this discussion and analysis contains forward-looking statements that reflect our plans , estimates and beliefs . you should not place undue reliance on these forward-looking statements , which involve risks and uncertainties . as a result of many factors , including but not limited to those set forth under risk factors , '' our actual results may differ materially from those anticipated in these forward-looking statements . see cautionary note regarding forward-looking statements. overview we are a clinical stage specialty pharmaceutical company that has developed a proprietary transdermal microneedle patch system to deliver drug formulations through the skin for the treatment of a variety of indications . our microneedle patch system offers rapid onset , consistent drug delivery , improved ease of use and room-temperature stability , benefits that we believe often are unavailable using oral formulations or injections . our microneedle patch system has the potential to deliver numerous medications for a wide variety of indications in commercially attractive markets . by focusing our development efforts on the delivery of established molecules with known safety and efficacy and premium pricing , we plan to reduce our clinical and regulatory risk and development costs and accelerate our time to commercialization . during 2015 , our clinical development efforts were focused on three product candidates : zp-pth , for the treatment of severe osteoporosis , zp-glucagon , for the treatment of severe hypoglycemia , and zp-triptan , for the treatment of migraine . these product candidates are generic drugs specifically formulated to be administered by our microneedle patch system , and are proposed treatments for indications in which we believe rapid onset , ease of use and stability offer particularly important therapeutic and practical advantages , and have patient populations that we believe will provide us with an attractive commercial opportunity . we recently made the decision to prioritize our clinical development effort on zp-triptan and to suspend further development related to our other product candidates , zp-pth and zp-glucagon , until such time that we can appropriately fund such development through strategic partnerships or additional financing . while we are considering pursuing clinical development of our zp-triptan product candidate to a meaningful milestone , we remain open to opportunities with potential strategic partners to ensure our product candidate will receive the best chance of commercial success . zp-triptan is our proprietary formulation of zolmitriptan , one of a class of serotonin receptor agonists known as triptans used for the treatment of migraine . in november 2015 , we announced positive results from our phase 1 clinical trial of our zp-triptan patch , which was conducted in healthy human subjects in australia . the phase 1 results demonstrated the fast absorption of zp-triptan that is a characteristic of our microneedle patch and applicator system , which we believe can potentially translate to fast pain relief . in connection with our decision to concentrate on the clinical development of zp-triptan , we recently announced that we would streamline our organization to ensure that we effectively use our funds for this purpose . we implemented a workforce reduction of 24 employees , representing approximately 38 % of our total workforce , which we expect to reduce our expenses by approximately $ 2.0 million , net of severance costs , for fiscal year 2016. we expect to reinvest the savings from the workforce reduction in our zp-triptan clinical development program . we have no product sales to date , and we will not have product sales unless and until we receive approval from the united states food and drug administration , or fda , or equivalent foreign regulatory bodies , to market and sell one or more of our product candidates . accordingly , our success depends not only on the development , but also on our ability to finance the development , of these products . we will require substantial additional funding to complete development and seek regulatory approval for these products . additionally , we 59 index to financial statements currently have no sales , marketing or distribution capabilities and thus our ability to market our products in the future will depend in part on our ability to develop such capabilities either alone or with collaboration partners . in november 2014 , we entered into a collaboration and license agreement with eli lilly and company , or lilly , to develop one or more zp-pth microneedle patch products , with the initial product candidate being daily zp-pth , a daily administration of zp-pth . under the terms of the agreement , we granted to lilly an exclusive , worldwide license to commercialize zp-pth in all dosing frequencies , including daily zp-pth . on september 28 , 2015 , we terminated the collaboration agreement in accordance with its terms following our determination that it is commercially unreasonable to pursue one of the critical success factors under the collaboration agreement , relating to worldwide regulatory approval of daily zp-pth by 2019. as a result of the termination of the collaboration agreement , the exclusive , worldwide license that we granted to lilly terminated and reverted to us , and we will no longer be eligible to receive any milestone or other payments from lilly . in january 2014 , we entered into an agreement with novo nordisk a/s , or novo nordisk , to develop a new transdermal formulation of semaglutide , an investigational proprietary human glp-1 ( glucagon-like peptide-1 ) analogue , to be administered once a week using our microneedle patch system for the treatment of type 2 diabetes . story_separator_special_tag this process involves : communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost ; estimating and accruing expenses in our financial statements as of each balance sheet date based on facts and circumstances known to us at the time ; and periodically confirming the accuracy of our estimates with selected service providers and making adjustments , if necessary . examples of estimated research and development and manufacturing expenses that we accrue include : fees paid to contract research organizations , or cros , and other service providers in connection with nonclinical studies and clinical trials ; fees paid to investigative sites in connection with clinical trials ; fees paid to contract manufacturing organizations , or cmos , in connection with the production of nonclinical study and clinical trial materials ; and professional service fees for consulting and related services . 61 index to financial statements we base our expense accruals related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with research institutions and cros that conduct and manage nonclinical and clinical trials on our behalf . the financial terms of these agreements vary from contract to contract and may result in uneven payment flows . payments under these contracts often depend on factors such as the successful enrollment of patients and the completion of certain clinical trial milestones . our service providers invoice us in arrears for services performed . in accruing clinical costs , we estimate the time period over which patient enrollment will be completed and the progress of patient enrollment through completion in each period . if we do not identify costs that we have begun to incur or if we underestimate or overestimate the number of patients enrolled or the costs of patient enrollment , our actual expenses could differ from our estimates . to date , we have not experienced significant changes in our estimates of accrued clinical trial expenses after a reporting period . however , due to the nature of the estimates , we can not assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trials and other research activities . stock-based compensation we account for our stock-based compensation in accordance with asc 718 , compensationstock compensation . asc 718 establishes accounting for stock-based awards exchanged for employee services . under the fair value recognition provisions of asc 718 , stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service/vesting period . determining the appropriate fair value model and calculating the fair value of stock-based payment awards require the use of highly subjective assumptions , including the expected life of the stock-based awards and stock price volatility . we account for stock-based compensation to non-employees in accordance with the recognition provisions of asc 505-50 , equity-based payments to non-employees , using a fair value approach . the fair value of these awards is subject to re-measurement over the vesting period at each reporting date based upon the valuation of our common stock at that time . our stock-based compensation expense for stock options is estimated at the grant date based on the award 's fair value as calculated by the black-scholes option pricing model and is recognized as expense over the requisite service period . the black-scholes option pricing model requires various highly judgmental assumptions including expected volatility and expected term . the expected volatility is based on the historical stock volatilities of several of our publicly listed peers over a period equal to the expected terms of the options as we do not have a sufficient trading history to use the volatility of our own common stock . to estimate the expected term , we have opted to use the simplified method which is the use of the midpoint of the vesting term and the contractual term . if any of the assumptions used in the black-scholes option pricing model changes significantly , stock-based compensation expense may differ materially in the future from that recorded in the current period . in addition , we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest . we estimate the forfeiture rate based on historical experience and our expectations regarding future pre-vesting termination behavior of employees . to the extent our actual forfeiture rate is different from our estimate , stock-based compensation expense is adjusted accordingly . prior to our initial public offering , or ipo , of common stock in january 2015 , our board of directors , with the assistance of management and independent consultants , performed fair value analyses based on information available to us at the time of grant to determine the fair value of the shares of our common stock that underlie options granted by the board of directors . for option grants made on dates for which there was no contemporaneous valuation to utilize in setting the exercise price of options to purchase shares of our common stock , and given the absence of an active market for our common stock prior to our ipo , our board of directors determined the fair value of our common stock on the date of grant using significant judgment and taking into account numerous factors , including product development progress since the last valuation of the company and that the grants involved illiquid securities in a private company . 62 index to financial statements financial operations overview general as of december 31 , 2015 , we had an accumulated deficit of approximately $ 166.9 million .
| results of operations comparison of the year ended december 31 , 2015 and 2014 revenue replace_table_token_6_th total revenue decreased $ 2.5 million , or 89 % , for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014. the decrease was primarily due to the $ 1.1 million of contract revenue we earned in 2014 under our license agreement with asahi that did not recur in 2015 as a result of the termination of the license agreement , and an approximately $ 1.5 million reduction in license fee revenue and related development support service revenue upon completion of the feasibility study and conclusion of work under our now terminated collaboration agreement with novo nordisk . cost of license fees revenue replace_table_token_7_th cost of license fees revenue represents our payment obligations under our intellectual property license agreement with alza . there was no cost of license fees revenue for the year ended december 31 , 2015. cost of license fee revenue for the year ended december 31 , 2014 was $ 0.1 million due to the royalty payment to alza attributable to our receipt of a $ 1.0 million license fee from novo nordisk upon execution of the collaboration and license agreement in january 2014. research and development expenses year ended december 31 , change 2015 2014 amount % ( in thousands ) research and development $ 20,366 $ 10,953 $ 9,413 86 % research and development expenses increased $ 9.4 million , or 86 % for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014. of this increase , $ 5.8 million was due to daily zp-pth phase 3 gmp manufacturing preparation and patient preference study conducted in connection with our then collaboration with lilly , $ 3.1 million was due to zp-triptan phase 1 clinical trial and related preclinical toxicology studies , $ 2.3 million was
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the surface protection component of pe films supports manufacturers of optical and other specialty substrates used in flat panel display products . these films are primarily used by customers to protect components of displays in the manufacturing and transportation processes and then discarded . the company previously reported the risk that a portion of its film products used in surface protection applications will be made obsolete by possible future customer product transitions to less costly alternative processes or materials . these transitions principally relate to one customer . the full transition continues to encounter delays , resulting in higher than expected sales to this customer in 2019. the company estimates that during 2020 the adverse impact on ebitda from ongoing operations from this customer shift versus 2019 could possibly be $ 14 million . to offset the potential adverse impact , the company is aggressively pursuing and making progress generating sales from new surface protection products , applications and customers . 21 projected capital expenditures and depreciation & amortization capital expenditures are projected to be $ 16 million in 2020 , including : $ 1.5 million to complete a scale-up line in surface protection to improve development and speed to market for new products ; $ 6 million for other development projects ; and $ 8 million for capital expenditures required to support continuity of current operations . depreciation expense is projected to be $ 15 million in 2020 . there is no amortization expense for pe films . flexible packaging films a summary of operating results for flexible packaging films is provided below : year ended favorable/ ( unfavorable ) % change ( in thousands , except percentages ) december 31 , 2019 2018 sales volume ( lbs ) 105,276 98,994 6.3 % net sales $ 133,935 $ 123,830 8.2 % ongoing operations : ebitda $ 14,737 $ 11,154 32.1 % depreciation & amortization ( 1,517 ) ( 1,262 ) ( 20.2 ) % ebit * $ 13,220 $ 9,892 33.6 % capital expenditures $ 8,866 $ 5,423 * see the table in item 6 for a reconciliation of this non-gaap measure to gaap and additional information . net sales in 2019 increased versus 2018 primarily due to higher sales volume and increased selling prices . terphane 's ebitda from ongoing operations in 2019 increased by $ 3.6 million versus 2018 due to : higher volume ( $ 2.6 million ) and higher selling prices ( $ 1.6 million ) , partially offset by higher fixed and variable costs , including costs related to a restarted line ( $ 2.0 million ) ; net favorable foreign currency translation of real-denominated operating costs of $ 0.4 million ; and foreign currency transaction gains of $ 1.0 million in 2019 versus losses of $ 0.8 million in 2018. projected capital expenditures and depreciation & amortization capital expenditures are projected to be $ 8 million in 2020 , including $ 6 million for new capacity for value-added products and productivity projects and $ 1 million for capital expenditures required to support continuity of current operations . depreciation expense is projected to be $ 2 million in 2020 . amortization expense is projected to be $ 0.4 million in 2020 . corporate expenses , investments , interest and income taxes pension expense was $ 9.6 million in 2019 , a favorable change of $ 0.8 million from 2018 . the impact on earnings from lower pension expense is reflected in “ corporate expenses , net ” in the ebitda from ongoing operations table in note 5. pension expense is projected to be $ 14.2 million in 2020 . corporate expenses , net , increased in 2019 versus 2018 primarily due to higher stock-based employee compensation ( $ 1.7 million ) , and consulting fees ( $ 4.1 million ) related to the identification and remediation of previously disclosed material weaknesses in the company 's internal control over financial reporting , business development activities , and implementation of new accounting guidance . interest expense decreased to $ 4.1 million in 2019 from $ 5.7 million in 2018 , primarily due to lower average debt levels . during 2019 , the company recognized consolidated income tax expense of $ 9.9 million based on pretax income of $ 58.2 million . during 2018 , the company recognized consolidated income tax expense of $ 11.5 million based on pretax income of $ 36.4 million . information on the differences between the effective tax rate for income and the u.s. federal statutory rate for 2019 and 2018 are further detailed in the effective income tax rate reconciliation provided in note 16 . 22 total debt was $ 42.0 million at december 31 , 2019 , compared to $ 101.5 million at december 31 , 2018 . net debt ( debt in excess of cash and cash equivalents ) was $ 10.6 million at december 31 , 2019 , compared to $ 67.1 million at december 31 , 2018 . net debt is calculated as follows : replace_table_token_8_th net debt , a financial measure that is not calculated or presented in accordance with gaap , is not intended to represent debt as defined by gaap , but is utilized by management in evaluating financial leverage and equity valuation . the company believes that investors also may find net debt helpful for the same purposes . consolidated net capitalization and other credit measures are provided in the financial condition section below . critical accounting policies in the ordinary course of business , the company makes a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of financial statements in conformity with gaap . actual results could differ significantly from those estimates under different assumptions and conditions . the company believes the following discussion addresses its critical accounting policies . story_separator_special_tag at december 31 , 2019 and 2018 , the fair value of the company 's investment in kaléo ( also the carrying value , which is separately stated in the consolidated balance sheets ) was estimated at $ 95.5 million and $ 84.6 million , respectively . the ultimate value of the company 's ownership interest in kaléo will be determined and realized only if and when a liquidity event occurs , and the ultimate value could be materially different from the $ 95.5 million estimated fair value reflected in the company 's financial statements at december 31 , 2019 . pension benefits tredegar sponsors noncontributory defined benefit ( pension ) plans in its continuing operations that have resulted in varying amounts of net pension income or expense , as developed from actuarial valuations . inherent in these valuations are key assumptions including discount rates , expected return on plan assets and rate of future compensation increases . the company is required to consider current market conditions , including changes in interest rates and plan asset investment returns , in determining these assumptions . actuarial assumptions may differ materially from actual results due to changing market and economic conditions , higher or lower withdrawal rates or longer or shorter life spans of participants . these differences may result in a significant impact to the amount of net pension income or expense recorded in future periods . the discount rate is used to determine the present value of future payments . the discount rate is the single rate that , when applied to expected benefit payments , provides a present value equal to the present value of expected benefit payments determined by using the aa-rated bond yield curve . in general , the pension liability increases as the discount rate decreases and vice versa . the weighted average discount rate utilized was 3.27 % , 4.40 % and 3.72 % at the end of 2019 , 2018 and 2017 , respectively , with changes between periods due to changes in market interest rates . pay for active participants of the plan was frozen as of december 31 , 2007. as of january 31 , 2018 , the plan no longer accrued benefits associated with crediting employees for service , thereby freezing all future benefits under the plan . a lower expected return on plan assets increases the amount of expense and vice versa . decreases in the level of actual plan assets will also serve to increase the amount of pension expense . the total return on plan assets ( net of fees and plan expenses ) , which is primarily affected by the change in fair value of plan assets , current year contributions and current year payments to participants , was approximately 11.8 % in 2019 , negative 5.4 % in 2018 and 10.0 % in 2017 . the expected long-term return on plan assets relating to continuing operations , which is estimated by asset class and generally based on inflation-adjusted historical returns , volatilities , risk premiums and managed asset premiums , was 6.00 % , 6.50 % and 6.50 % in 2019 , 2018 and 2017 , respectively . the company anticipates that its expected long-term return on plan assets will be 5.00 % for 2020 . see note 13 for more information on expected long-term return on plan assets and asset mix . see the executive summary section above for further discussion regarding the financial impact of the company 's pension plans . 24 income taxes on a quarterly basis , tredegar reviews its judgments regarding uncertain tax positions and the likelihood that the benefits of a deferred income tax asset will be realized . as circumstances change , the company reflects in earnings any adjustments to unrecognized benefits for uncertain tax positions and valuation allowances for deferred income tax assets . for financial reporting purposes , unrecognized tax benefits on uncertain tax positions were $ 0.9 million , $ 3.4 million and $ 2.0 million as of december 31 , 2019 , 2018 and 2017 , respectively . tax payments resulting from the successful challenge by the taxing authority on uncertain tax positions taken by tredegar would possibly result in the payment of interest and penalties . accordingly , the company also accrues for possible interest and penalties on uncertain tax positions . the balance of accrued interest and penalties on deductions taken relating to uncertain tax positions was $ 0.1 million , $ 0.2 million and $ 0.1 million at december 31 , 2019 , 2018 and 2017 , respectively ( $ 0.1 million , $ 0.2 million and $ 0.1 million , respectively , net of corresponding u.s. federal and state income tax benefits ) . accruals for possible interest and penalties on uncertain tax positions are reflected in income tax expense for financial reporting purposes . tredegar , or one of its subsidiaries , files income tax returns in the u.s. federal jurisdiction , various states and jurisdictions outside the u.s. with few exceptions , tredegar is no longer subject to u.s. federal , state or non-u.s. income tax examinations by tax authorities for years before 2016. as of december 31 , 2019 and 2018 , valuation allowances relating to deferred income tax assets were $ 5.1 million and $ 24.7 million , respectively . for more information on deferred income tax assets and liabilities , see note 16. recently issued accounting standards refer to the section recently issued accounting standards in note 1 for information concerning the effect of recently issued accounting pronouncements . results of operations 2019 versus 2018 revenues . sales in 2019 decreased by 8.7 % compared with 2018 due to lower sales in both aluminum extrusions and pe films . net sales decreased 7.6 % in aluminum extrusions primarily due to lower sales volume and the passthrough of lower metal costs , partially offset by an increase in average selling prices to cover higher operating costs .
| executive summary general tredegar is a manufacturer of aluminum extrusions , polyethylene ( “ pe ” ) plastic films , and polyester films . descriptions of all the company 's businesses are provided in the business section in part i , item 1 of this form10-k. sales were $ 1.0 billion in 2019 compared to $ 1.1 billion in 2018 . net income was $ 48.3 million ( $ 1.45 per diluted share ) in 2019 , compared with $ 24.8 million ( $ 0.75 per diluted share ) in 2018 . the 2019 results include : an after-tax gain on the sale of the company 's shanghai manufacturing property of $ 5.9 million ( $ 0.18 per share ) ; 19 an after-tax dividend received from kaléo of $ 14.8 million ( $ 0.45 per share ) ; and an unrealized after-tax gain on the company 's investment in kaléo of $ 8.5 million ( $ 0.26 per share ) , which is accounted for under the fair value method ( see note 4 for more details ) ; the 2018 results include : an after-tax impairment of the total goodwill balance of pe films ' personal care division of$ 38.2 million ( $ 1.15 per share after-tax ) .
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in january 2021 , the fasb issued asu 2021-01 , “ reference rate reform ( topic 848 ) : scope ” ( “ asu 2021-01 ” ) . this asu clarifies that all derivative instruments affected by changes to the interest rates used for discounting , margining or contract price alignment ( “ the discounting transition ” ) are in the scope of asc 848 and therefore qualify for the available temporary optional expedients and exceptions . as such , entities that employ derivatives that are the designated hedged item in a hedge relationship where perfect effectiveness is assumed can continue to apply hedge accounting without de-designating the hedging relationship to the extent such derivatives are impacted by the discounting transition . the company has evaluated recently issued , but not yet adopted , accounting pronouncements and does not believe they would have a material effect on the company 's condensed consolidated and combined financial statements . 76 note 3. acquisitions during the period from august 22 , 2020 to december 31 , 2020 and the period from january 1 , 2020 to august 21 , 2020 , the company spent a total of $ story_separator_special_tag the following discussion and analysis should be read in conjunction with the historical financial statements and related notes included elsewhere in this report . this discussion contains “ forward ‑ looking statements ” reflecting our current expectations , estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position . actual results and the timing of events may differ materially from those contained in these forward ‑ looking statements due to a number of factors . factors that could cause or contribute to such differences include , but are not limited to , market prices for oil and natural gas , capital expenditures , economic and competitive conditions , regulatory changes and other uncertainties , as well as those factors discussed below and elsewhere in this report . please read cautionary note regarding forward ‑ looking statements . also , please read the risk factors and other cautionary statements described under “ part i , item 1a . risk factors . ” we assume no obligation to update any of these forward ‑ looking statements , except as required by applicable law . overview highpeak energy , inc. , a delaware corporation , was formed in october 2019 solely for the purpose of combining the businesses of pure and hpk lp , referred to herein as the “ highpeak business combination , ” which was completed on august 21 , 2020. hpk lp was formed in august 2019 for the purpose combining the assets of highpeak i and highpeak ii into one entity . highpeak i was formed in june 2014 for the purpose of acquiring , exploring and developing oil and natural gas properties , although it had no activity until 2017. beginning in late 2017 , highpeak i began acquiring its assets through an organic leasing campaign and a series of acquisitions consisting primarily of leasehold acreage and existing vertical producing wells . the company 's assets are located primarily in howard county , texas , which lies within the north eastern part of the oil-rich midland basin . as of december 31 , 2020 , the assets consisted of two highly contiguous leasehold positions of approximately 59,092 gross ( 50,636 net ) acres , approximately 24 % of which were held by production , with an average working interest of 86 % . approximately 97 % of the operated acreage provides for horizontal wells with lateral lengths of 10,000 feet or greater . for the year ended december 31 , 2020 , approximately 95 % and 5 % of production from the assets were attributable to liquids ( both oil and ngl ) and natural gas , respectively . as of december 31 , 2020 , highpeak energy was drilling with one ( 1 ) rig . we are the operator on approximately 95 % of the net acreage across our assets . further , as of december 31 , 2020 , there were approximately 115 gross ( 71.7 net ) producing wells , including 19 gross ( 18.3 net ) horizontal wells , with total sales volumes of approximately 3,426 boe/d in december 2020. as of december 31 , 2020 , of the 22,515 mboe of proved reserves of the assets , 46 % were developed , 94 % of which were liquids . the financial results as presented in this section entitled “ management 's discussion and analysis of financial condition and results of operations ” consist of the historical results of hpk lp from august 28 , 2019 ( inception ) through december 31 , 2019 combined with highpeak i for the year ended december 31 , 2019 ( excluding highpeak i 's equity in losses of hpk lp which was its only activity during the period following its business combination with and into hpk lp ) , hpk lp for the period from january 1 , 2020 through august 21 , 2020 and the company from august 22 , 2020 through december 31 , 2020. at the closing of the highpeak business combination on august 21 , 2020 , the company 's “ predecessors ” for accounting purposes were hpk lp for the period from october 1 , 2019 through august 21 , 2020 and highpeak i from january 1 , 2017 through september 30 , 2019 ( collectively , the “ predecessors ” ) . outlook highpeak energy 's financial position and future prospects , including its revenues , operating results , profitability , liquidity , future growth and the value of its assets , depend primarily on prevailing commodity prices . the oil and natural gas industry is cyclical and commodity prices are highly volatile . story_separator_special_tag horizontal drilling program in the permian basin partially offset by 23 % lower taxes on a dollar per boe basis due to lower overall realized prices of 26 % ; and a $ 2.2 million increase in exploration and abandonment expenses related to the impairment of $ 4.8 million during 2020 related to various undeveloped leasehold costs that the company was not successful in obtaining extensions on , partially offset by lower geophysical data purchases of almost $ 2.6 million that were incurred in 2019 ; partially offset by : a $ 16.5 million increase in oil and gas revenues due to a 317 % increase in daily sales volumes due to the company 's successful horizontal drilling program in the permian basin , partially offset by a 27 % decrease in average realized commodity prices per boe ; a $ 4.2 million increase in the company 's income tax benefit due to the net loss experienced in 2020 and the fact that the predecessors were pass through entities for income tax purposes and did not recognize any tax expense or benefit on their financial statements ; and a $ 1.1 million decrease in general and administrative costs due primarily to a significant amount of expenses relating to the highpeak business combination that were incurred during 2019 plus various cost reduction efforts implemented across the organization during 2020 in response to the covid-19 pandemic and downturn in crude oil prices , partially offset by increased costs in late 2020 associated with being a public company . 53 during the period from august 22 , 2020 through december 31 , 2020 , average daily sales volumes totaled 3,292 boe/d and during the period from january 1 , 2020 through august 21 , 2020 , average sales volumes totaled 1,154 boe/d for an overall average for the year ended december 31 , 2020 of 1,925 boe/d , an increase of 317 % over 2019 , due to the company 's successful horizontal drilling program in the permian basin . weighted average realized oil prices per bbl decreased during the year ended december 31 , 2020 to $ 37.96 ( $ 40.15 during the period from august 22 , 2020 through december 31 , 2020 and $ 34.26 during the period from january 1 , 2020 through august 21 , 2020 ) , compared with $ 53.96 for 2019. weighted average ngl prices per bbl were $ 14.06 during the year ended december 31 , 2020 ( $ 19.44 during the period from august 22 , 2020 through december 31 , 2020 and $ 9.31 per bbl during the period from january 1 , 2020 through august 21 , 2020 ) . this partially caused the decreased natural gas prices during 2020 as the company recorded wet wellhead natural gas sales prior to 2020 which combines the revenues received from residue gas and ngl into one revenue component and sales volumes equal to wet wellhead volumes rather than processed residue natural gas and ngl at the tailgate of the processing plants . weighted average gas prices per mcf increased to $ 1.04 during the year ended december 31 , 2020 ( $ 1.45 during the period from august 22 , 2020 through december 31 , 2020 and $ 0.52 during the period from january 1 , 2020 through august 21 , 2020 ) compared with $ 1.92 during 2019. cash provided by operating activities totaled $ 5.4 million for the period from august 22 , 2020 through december 31 , 2020. the company raised $ 84.5 million of capital , net of offering costs , in the highpeak business combination that closed on august 21 , 2020. the company closed a revolving credit facility in december 2020 with an initial borrowing capacity of $ 20 million with nothing drawn as of december 31 , 2020. this capital gave the company flexibility to recommence its development drilling program whereby we have added one drilling rig that has drilled one salt-water disposal well and four producing wells during the successor period and as of december 31 , 2020 was drilling on a two well pad in our development area . shortly after closing , we also added two completion crews to frac eight ( 8 ) of our twelve ( 12 ) uncompleted wells that were drilled but not fully completed when operations were shut down earlier this year due primarily to the covid-19 pandemic and we also finished completing our four ( 4 ) additional uncompleted wells . we reduced to one completion crew prior to year-end that will focus on completing the wells both recently drilled and wells currently drilling . first quarter 2021 outlook the first quarter is likely to continue to offer a high degree of uncertainty and market disruption . the extent to which the company 's future results are affected by the covid-19 pandemic will depend on various factors and consequences beyond the company 's control , such as the duration and scope of the pandemic , the length and severity of the worldwide economic recovery , additional actions by businesses , opec and other cooperating countries , and governments in response to the pandemic , economic downturn and decline in oil demand , the speed and effectiveness of responses to combat the virus , and the time necessary to balance oil supply and demand . for additional information on the risks posed by the covid-19 pandemic , see “ part i , item 1a . risk factors ” . story_separator_special_tag retirement costs are capitalized . however , the costs of abandoned properties , exploratory dry holes , geophysical costs and annual lease rentals are charged to expense as incurred . all capitalized costs of oil and gas properties are amortized on the unit-of-production method using estimates of proved reserves . any remaining investments in unproved properties are not amortized until proved reserves associated with the projects can be determined or until impairment occurs . ● general and administrative expenses .
| operations and drilling highlights average daily oil , ngl and gas sales volumes are as follows : replace_table_token_8_th the company 's liquids production was 95 % of total production on a boe basis for the year ended december 31 , 2020 . 54 costs incurred are as follows ( in thousands ) : replace_table_token_9_th development and exploration/extension drilling activity is as follows : year ended december 31 , 2020 development/ service exploration/ extension beginning wells in progress - 13 well spud 2 11 successful wells ( 2 ) ( 20 ) ending wells in progress - 4 the company currently plans to operate one ( 1 ) drilling rig and an average of one ( 1 ) frac fleet in the permian basin during the first three months of 2021. however , the scope , duration and magnitude of the direct and indirect effects of the covid-19 pandemic are continuing to evolve and in ways that are difficult or impossible to anticipate . given the dynamic nature of this situation , the company is maintaining flexibility in its capital plan and will continue to evaluate drilling and completion activity on an economic basis , with future activity levels assessed monthly . during the year ended december 31 , 2020 , the company successfully drilled twenty-one ( 21 ) horizontal wells in our northern acreage , thirteen of which are in the wolfcamp a formation and eight of which are in the lower spraberry formations . in addition , the company completed a horizontal salt-water disposal well near the center of our northern acreage production area which began accepting water for disposal in january 2021. of the four ( 4 ) exploration/extension wells in progress as of december 31 , 2020 , two ( 2 ) of which were in the process of being drilled and two ( 2 ) of which were in the process of being completed , three ( 3 ) are in the wolfcamp a formation and one ( 1 ) is in the lower spraberry formations .
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factors that could cause or contribute to such differences include , but are not limited to , those identified below and those discussed in the section titled “ risk factors ” included elsewhere in this annual report on form 10-k. our fiscal year end is january 31 , and references throughout this annual report to a given fiscal year are to the twelve months ended on that date . overview cloudera is the enterprise data cloud company . we empower people to transform data into clear and actionable insights through an integrated suite of data analytics and management products from the edge to artificial intelligence ( ai ) . our portable , multi-cloud platform with common security , governance and data management functions underpins products that include streaming analytics at the edge , data engineering , data warehousing , real-time operational analytics , exploratory data science and machine learning offerings . today these products are implemented in private and co-location datacenters , multiple public clouds and hybrid cloud environments with common data analytics and management capabilities across all workloads and architectures . our offerings are based predominantly on open source software , utilizing data stored natively in public cloud object stores as well as in various open source data stores . using our software , organizations are able to capitalize on vast amounts of data from a variety of sources to better serve and market to their customers , design connected products and services and protect their enterprises . in january 2019 , as more fully described in note 3 to our consolidated financial statements , we completed the merger of hortonworks , inc. ( hortonworks ) , a publicly-held company headquartered in santa clara , california ( hortonworks merger ) . the combined company operates under the cloudera name . our results of operations for the year ended january 31 , 2019 includes the results of operations of hortonworks from january 3 , 2019 to january 31 , 2019. we generate revenue from subscriptions and services . subscription revenue relates to term ( or time-based ) subscription agreements for both open source and propriety software including support . services revenue relates to professional services for the implementation and use of our subscriptions , machine learning expertise and consultation , training and education services and related reimbursable travel costs . we price our subscription offerings based on the number of servers in a cluster , or nodes , core or edge devices , data under management and or the scope of support provided . during the year ended january 31 , 2019 , we adopted accounting standards update ( asu ) 2014-09 , revenue from contracts with customers ( topic 606 ) ( asc 606 ) , the new accounting standard related to revenue recognition . prior period information presented has been adjusted to reflect the adoption of this new standard . see note 2 to consolidated financial statements for details . we market and sell our platform to a broad range of organizations , although we focus our selling efforts on the largest enterprises globally . we target these organizations because they capture and manage the vast majority of the world 's data and operate highly complex it environments . we market our platform primarily through a direct sales force while benefiting from business driven by our ecosystem of technology partners , resellers , oems , msps , independent software vendors and systems integrators . as of january 31 , 2019 , we had more than 2,000 customers . we have a broad customer base that spans industries and geographies . for the years ended january 31 , 2019 , 2018 and 2017 , no customer accounted for more than 10 % of our total revenue . we have significant revenue in the banking and financial services , manufacturing , technology , business services , telecommunications , public sector , consumer and retail , and healthcare and life sciences verticals , and continue to expand our penetration across many other data‑intensive industries . sales outside of the united states represented approximately 34 % , 30 % and 27 % of our total revenue for the years ended january 31 , 2019 , 2018 and 2017 , respectively . our business model is based on a “ land and expand ” strategy designed to use the initial sale as a foothold to increase revenue per customer by increasing the amount of data and number of use cases each customer runs 49 through our platform . after an initial purchase of our platform , we work with our customers to identify new use cases that can be developed on or moved to our platform , ultimately increasing the amount of data managed on our platform as well as the number and size of our platform deployments . components of results of operations as a result of hortonworks merger , our results of operations for fiscal 2019 includes hortonworks ' results of operations from january 3 to january 31 , 2019. during fiscal 2018 , our ipo was declared effective and the performance-based condition for the rsus was either achieved or probable of being achieved ( see “ —significant impacts of stock‑based compensation expense ” ) . as such we recognized a cumulative catch‑up of stock‑based compensation expense attributable to service prior to such effective date for rsus . revenue we generate revenue from subscriptions and services . subscription revenue relates to term ( or time-based ) subscription agreements for both open source and propriety software , including support . subscription arrangements are typically one to three years in length but may be up to seven years in limited cases . arrangements with our customers typically do not include general rights of return . services revenue relates to professional services for the implementation and use of our subscriptions , machine learning expertise and consultation , training and education services and related reimbursable travel costs . story_separator_special_tag the total stock‑based compensation expense recorded on the effective date of our ipo associated with the achievement of the liquidity event‑related performance condition was as follows ( in thousands ) : cost of revenue – subscription $ 15,292 cost of revenue – services 19,695 research and development 65,250 sales and marketing 58,219 general and administrative 23,080 total stock‑based compensation expense $ 181,536 as a result of the hortonworks merger , we issued 4,076,157 stock options to purchase shares of our common stock and rsus for 7,704,004 shares of our common stock to hortonworks employees in exchange for their outstanding stock options and awards . the total fair value of the stock-based awards assumed is $ 63.5 million which 51 will be recognized as stock-based compensation expense over a weighted-average period of 1.5 years . additionally , we recognized $ 13.1 million of additional stock-based compensation expense during the year ended january 31 , 2019 due to the acceleration and modification of certain stock awards assumed as part of the hortonworks merger . during the year ended january 31 , 2019 , we incurred $ 6.2 million of additional stock-based compensation expense related to modifications of stock awards held by certain employees . story_separator_special_tag roman ; font-size:10pt ; color : # 000000 ; '' > $ 1.4 million in allocated shared costs . subscription gross margin increased from 77 % to 84 % in the year ended january 31 , 2019 as compared to the same period a year ago primarily due to lower stock-based compensation expense . services gross margin increased from negative 25 % to 1 % in the year ended january 31 , 2019 as compared to the same period a year ago primarily due to lower stock-based compensation expense . 55 operating expenses replace_table_token_15_th * as adjusted to reflect the impact of the full retrospective adoption of topic 606. see note 2 to our consolidated financial statements for a summary of adjustments . research and development the decrease in research and development expenses during the year ended january 31 , 2019 compared to the year ended january 31 , 2018 was primarily due to a decrease of $ 58.7 million in stock-based compensation expense resulting from the catch‑up of stock‑based compensation expense following our ipo during the year ended january 31 , 2018 , partially offset by an increase of $ 10.5 million in employee‑related costs including salaries and benefits , bonuses , severance costs and travel costs , which also includes additional employee- related costs from the hortonworks merger , and an increase of $ 5.1 million in allocated shared costs . sales and marketing the decrease in sales and marketing expenses during the year ended january 31 , 2019 compared to the year ended january 31 , 2018 was primarily due to a decrease of $ 62.5 million in stock-based compensation expense resulting from the catch‑up of stock‑based compensation expense following our ipo during the year ended january 31 , 2018 , partially offset by an increase of $ 18.5 million in employee‑related costs including salaries , incentive‑based compensation and benefits , severance costs and travel costs , which also includes additional employee- related costs from the hortonworks merger , an increase of $ 4.4 million as a result of intangible assets acquired in conjunction from the hortonworks merger , an increase of $ 3.4 million in allocated shared costs and an increase of $ 1.5 million in outside consultant fees . general and administrative the increase in general and administrative expenses during the year ended january 31 , 2019 compared to the year ended january 31 , 2018 was primarily due to $ 22.8 million of merger-related costs , an increase of $ 9.3 million in employee‑related costs including salaries and benefits , bonuses , severance costs and travel costs , which also includes additional employee‑related costs from the hortonworks merger , and an increase of $ 2.3 million in allocated shared costs , partially offset by a decrease of $ 16.2 million in stock-based compensation expense resulting from the catch‑up of stock‑based compensation expense following our ipo during the year ended january 31 , 2018 . 56 interest income , net years ended january 31 , change 2019 2018 amount % ( dollars in thousands ) interest income , net $ 9,011 $ 5,150 $ 3,861 75 % interest income , net increased primarily due to higher average investments in marketable securities . other income ( expense ) , net years ended january 31 , change 2019 2018 amount % ( dollars in thousands ) other income ( expense ) , net $ ( 2,478 ) $ 1,429 $ ( 3,907 ) ( 273 ) % other expense , net during the year ended january 31 , 2019 was primarily due to foreign exchange losses as compared to other income , net during the year ended january 31 , 2018 due to foreign exchange gains . provision for income taxes years ended january 31 , change 2019 2018 amount % ( dollars in thousands ) provision for income taxes $ 5,418 $ 2,079 $ 3,339 161 % provision for income taxes increased primarily due to increases in foreign income taxes and tax withholding from increases on foreign sales during the year ended january 31 , 2019 as compared to the same period a year ago . years ended january 31 , 2018 and 2017 revenue replace_table_token_16_th * as adjusted to reflect the impact of the full retrospective adoption of topic 606. see note 2 to our consolidated financial statements for a summary of adjustments . the increase in subscription revenue during the year ended january 31 , 2018 compared to the year ended january 31 , 2017 was primarily attributable to volume driven increases in subscription sales to new and existing customers .
| results of operations our results of operations for the year ended january 31 , 2019 includes the results of operations of hortonworks from january 3 , 2019 to january 31 , 2019. see note 3 to our consolidated financial statements . the consolidated statements of operations data for each of the years ended january 31 , 2019 , 2018 and 2017 set forth in the tables below have been updated to comply with the new standards under topic 606 , including previously reported amounts , which are labeled “ as adjusted ” . see note 2 to our consolidated financial statements . the following table sets forth our results of operations for the periods indicated : replace_table_token_7_th * as adjusted to reflect the impact of the full retrospective adoption of topic 606. see note 2 to our consolidated financial statements for a summary of adjustments . 52 ( 1 ) amounts include stock‑based compensation expense as follows : replace_table_token_8_th ( 2 ) amounts include amortization of acquired intangible assets as follows : replace_table_token_9_th ( 3 ) in january 2017 , we donated 1,175,063 shares of common stock to the cloudera foundation . we recorded a non‑cash charge of $ 21.6 million for the fair value of the donated shares , which was recognized in general and administrative expense for the year ended january 31 , 2017 , see note 11 to our consolidated financial statements for further discussion . the following table sets forth selected consolidated statements of operations data for each of the periods indicated as a percentage of total revenue : replace_table_token_10_th * as adjusted to reflect the impact of the full retrospective adoption of topic 606. see note 2 to our consolidated financial statements for a summary of adjustments .
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59 the following table presents the changes in the accumulated postretirement benefit obligation related to the company 's unfunded postretirement healthcare benefits at december 31 ( in thousands ) : replace_table_token_38_th amounts recognized in the consolidated financial statements consisted of ( in thousands ) : replace_table_token_39_th the measurement date used to determine postretirement benefit obligation measures was december 31. components of net periodic postretirement benefit cost charged to expense for the years ended december 31 were as follows ( in thousands ) : replace_table_token_40_th ( 1 ) it was assumed that these rates would gradually decline to 3.8 % by 2075 . ( 2 ) actuarial ( gains ) /losses are amortized utilizing the corridor approach . differences between actual experience and the actuarial assumptions are reflected in ( gain ) /loss . if the total net ( gain ) or loss exceeds 10 percent of the greater of the accumulated postretirement benefit 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 company 's risk factors and its consolidated financial statements and notes thereto included in item 1a and item 8 , respectively , of this annual report on form 10-k. certain information set forth in this item 7 constitutes “ forward-looking statements ” as that term is used in the private securities litigation reform act of 1995. such forward-looking statements are based , in whole or in part , on management 's beliefs , estimates , assumptions , and currently available information . for a more detailed discussion of what constitutes a forward-looking statement and of some of the factors that could cause actual results to differ materially from such forward-looking statements , please refer to the “ safe harbor statement ” on page 3 of this annual report on form 10-k. we use certain operating performance measures , specifically consolidated gross margin , operating margin by segment and consolidated operating margin , to manage our businesses , set operational goals , and establish performance targets for incentive compensation for our employees . we define consolidated gross margin as a percentage of total consolidated gross profit to total consolidated net sales . we define operating margin by segment as a percentage of total income from operations by segment to total net sales by segment and consolidated operating margin as a percentage of total consolidated income from operations to total consolidated net sales . we believe gross margin and operating margin may be useful to investors in evaluating the profitability of our segments and company on a consolidated basis . company overview the company serves customers primarily in north america including renewable energy ( solar ) developers , institutional and commercial growers of food and plants , home improvement retailers , wholesalers , distributors , and contractors . our operational infrastructure provides the necessary scale to support local , regional , and national customers in each of our markets . the company operates and reports its results in the following three reporting segments : renewable energy and conservation ; residential products ; and infrastructure products . the segments and end markets our businesses serve are subject to economic conditions that are influenced by various factors . these factors include but are not limited to changes in general economic conditions , interest rates , exchange rates , commodity costs , demand for residential construction , demand for repair and remodeling , governmental policies and funding , tax policies and incentives , tariffs , trade policies , the level of non-residential construction and infrastructure projects , the need for protection of high value assets , demand for renewable energy sources , and climate change . we believe the key elements of our strategy outlined in item 1. business will allow us to respond timely to these factors . 25 story_separator_special_tag 2020 , the company had $ 85.0 million outstanding on its revolving credit facility , the result of funds borrowed to help finance the acquisition of terrasmart in december 2020. during 2019 , no amounts were outstanding under our revolving credit facility . 27 the company recorded other income of $ 1.3 million in 2020 and other expense of $ 0.4 million in 2019 , respectively . the change from the prior year was the result of the $ 1.9 million pre-tax gain on the sale of the company 's self-guided apartment tour application business within the residential products segment . we recognized a provision for income taxes of $ 24.5 million , an effective tax rate of 22.7 % , for 2020 compared with a provision for income taxes of $ 18.2 million , an effective tax rate of 23.2 % , for 2019. the effective tax rates for 2020 and 2019 exceeded the u.s. federal statutory rate of 21 % due to state taxes and nondeductible permanent differences partially offset by favorable discrete items . outlook for 2021 , we enter the year with confidence in our end markets but remain cautious about the ongoing pandemic landscape , the recovery of the u.s. and global economy , availability and input cost of key materials , as well as recent operating disruptions related to severe weather across the u.s. we will continue executing our current operating playbook , maintaining a safe environment for our people , and supporting our customers . as in 2020 , we will continue working on the business and investing to strengthen our businesses and uphold our commitments to our stakeholders . the company is providing its guidance for revenues and earnings for the full year 2021. gibraltar expects 2021 consolidated revenues to be in the range of $ 1.30 billion and $ 1.35 billion , up from $ 1.03 billion for 2020. gaap eps for full year 2021 is expected to be between $ 2.78 and $ 2.95 , compared with $ 2.53 in 2020. liquidity and capital resources our principal capital requirements are to fund our operations ' working capital and capital improvements and to provide capital for acquisitions . story_separator_special_tag 29 financing activities net cash provided by financing activities for 2020 of $ 79.5 million was primarily driven by proceeds from a draw on our revolving credit facility of $ 85 million , as well as the $ 1.1 million in net proceeds from stock option exercises , offset by $ 6.6 million in purchases of treasury stock related to the net settlement of tax obligations for participants in the company 's equity incentive plans . net cash used in financing activities for 2019 of $ 217.1 million was primarily driven by the $ 212.0 million repayment of our 6.25 % notes and other debt , as well as the $ 4.3 million purchase of treasury stock related to the net settlement of tax obligations for participants in the company 's equity incentive plans , and the $ 1.2 million payment of debt issuance costs , all which were slightly offset by $ 0.5 million in net proceeds from stock option exercises . see note 9 to the company 's consolidated financial statements in part ii , item 8 , financial statements and supplementary data , of this form 10-k for further information on the company 's senior credit agreement . off balance sheet arrangements as of december 31 , 2020 , the company did not have any off balance sheet arrangements that had or were reasonably likely to have a current or future material effect on the company 's financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures , or capital resources . contractual obligations the following table summarizes by category our company 's expected future cash outflows associated with contractual obligations in effect at december 31 , 2020 ( in thousands ) : replace_table_token_10_th ( 1 ) includes amounts due to retired participants of the management stock purchase plan ( mspp ) . excludes the future payments due to active participants of the mspp who have not notified the company of their intended retirement date , which represents a liability of $ 12.8 million as of december 31 , 2020. the timing of future payments to active participants can not be accurately estimated as we are uncertain of when active participants ' service to the company will terminate . our policy does not recognize the contractual obligation until the participant has officially retired . ( 2 ) the purchase obligations are primarily comprised of purchase orders issued in the normal course of business for inventory , minimum quantities of certain raw materials . also included in is a contractual obligation related to cloud services agreement . critical accounting estimates the preparation of the financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make decisions based upon estimates , assumptions , and factors it considers relevant to the circumstances . such decisions include the selection of applicable principles and the use of judgment in their application , the results of which could differ from those anticipated . a summary of the company 's significant accounting policies are described in note 1 of the company 's consolidated financial statements included in part ii , item 8 , financial statements and supplementary data , of this annual report on form 10-k. 30 our most critical accounting estimates that require the most difficult , subjective and complex judgments include : revenue recognition on contracts ; the assessment of recoverability of goodwill and other indefinite-lived intangible assets ; and the estimation of fair value for acquired assets and liabilities assumed in business combination transactions . management reviews these estimates on a regular basis and makes adjustments based on historical experience , current conditions , and future expectations . management believes these estimates are reasonable , but actual results could differ from these estimates . revenue recognition on contracts the vast majority of our sales contracts are for standard products with revenue recognized at the point in time we transfer control to the customer . the point in time we transfer control is based on when we determine the customer has legal title , significant risks and rewards of ownership of the asset , and we have a present right to payment for the product . however , revenue representing 40 % , 41 % and 38 % of our 2020 , 2019 and 2018 consolidated net sales , respectively , was recognized over time under the cost-to-cost method as we satisfied our performance obligations . this method of revenue recognition pertains to activities within the renewable energy and conservation and the infrastructure products segments . revenue recognized on contracts over time using the cost-to-cost method for measuring progress is recognized as work progresses toward completion based on the ratio of cumulative costs incurred to date to estimated total contract costs at completion . revenues are recognized proportionally as costs are incurred under this method . estimates of the total costs at completion for the performance obligations involve subjective judgment and estimation to determine total costs expected to be incurred by the time the performance obligation has been completed and accepted by the customer . the estimates of total costs to be incurred at completion of each contract are sensitive to significant judgments and assumptions , such as the expected costs to complete installation , which are affected by customer site-specific conditions as well as availability and cost of third-party contractors to complete the installation process . these estimates , judgments and assumptions impact the timing and amount of net sales and cost of sales recognized on in-progress performance obligations with customers . we continuously review our estimates and the progress and performance of the performance obligation for substantially all contracts that we recognize revenue over time under the cost-to-cost method . any adjustments or changes in these estimates affecting sales , costs and profits are recognized in the period in which the change becomes known using the cumulative catch-up method of accounting , resulting in the cumulative effect of changes reflected in the period .
| results of operations year ended december 31 , 2020 compared to year ended december 31 , 2019 the following table sets forth selected results of operations data ( in thousands ) and its percentages of net sales for the years ended december 31 : replace_table_token_5_th the following table sets forth the company 's net sales by reportable segment for the years ended december 31 ( in thousands ) : replace_table_token_6_th consolidated net sales increased by $ 134.3 million , or 15.0 % , for 2020 compared to 2019. the 15.0 % increase in revenue was driven by the renewable energy and conservation and residential products segments . sales generated from our 2020 acquisitions of thermo , delta separations and architectural mailboxes , and the prior year acquisition of apeks , contributed 10.0 % or $ 89.9 million to the growth from the prior year . organic growth of 4.9 % , or $ 44.4 million was a result of increased volume in our residential products segment , which more than offset the organic volume declines in both our renewable energy and conservation and our infrastructure products segments . net sales in our renewable energy and conservation segment increased 20.0 % , or $ 74.5 million , to $ 447.6 million in 2020 compared to $ 373.0 million in 2019. sales generated by the current year acquisitions of thermo and delta separations , along with the prior year acquisition of apeks , contributed $ 84.6 million , or 22.7 % , to the increase in the current year . organic revenue decline of $ 10.1 million partially offset this increase , the result of continued weakness in cannabis and hemp markets more than offsetting participation gains in our renewable energy related business . backlog improved 22 % year over year for this segment , driven by strength in the fruit and vegetable market and strong end market demand in renewable energy .
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story_separator_special_tag this report , and in particular this management 's discussion and analysis of financial condition and results of operations , contains forward-looking statements within the meaning of section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934. please see the cautionary language at the very beginning of this annual report on form 10-k regarding the identification of and risks relating to forward-looking statements , as well as part i , item 1a “ risk factors ” in this annual report on form 10-k. the following discussion of our financial condition and results of operations should be read in conjunction with the `` financial statements and supplementary data '' as set out in part ii , item 8 of this annual report on form 10-k. overview we are an independent international energy company incorporated in the united states and engaged in oil and natural gas acquisition , exploration , development and production . our operations are carried out in south america in colombia , peru and brazil and we are headquartered in calgary , alberta , canada . on june 25 , 2014 , we sold our argentina business unit to madalena energy inc. ( `` madalena '' ) for aggregate consideration of $ 69.3 million , comprising $ 55.4 million in cash and $ 13.9 million in madalena shares . the decision to sell our argentina business unit followed ongoing success in colombia and ongoing evaluations in brazil and was due to a decision to focus our human and capital resources in areas that we believe will provide the greatest return for our shareholders and drive growth in the future . in accordance with generally accepted accounting principles in the united states of america ( `` gaap '' ) , we met the criteria to classify our argentina business unit as discontinued operations in the second quarter of 2014. as such , the results of operations for our argentina business unit are reflected as loss from discontinued operations , net of income taxes and discussed further in note 3 , `` discontinued operations , '' of our consolidated financial statements for the three years ended december 31 , 2014. largely as a result of the current low commodity price environment , we reevaluated our business strategy with a renewed focus on balancing the return and risk of our exploration and development projects . as a result , on february 19 , 2015 , we made the decision to cease all further development expenditures on the bretaña field on block 95 in peru other than what is necessary to maintain tangible asset integrity and security . the high capital investment , associated debt financing and long-term payout horizon of this project does not align with our shift in strategy as announced on february 2 , 2015 . 54 considering the current low commodity price environment and the significant aspects of the bretaña field project which were no longer in line with our strategy , our board of directors determined that they would not proceed with the further capital investment required to develop the bretaña field . as a result of this decision , all probable and possible reserves associated with the field were reclassified as contingent resources in a report with an effective date of january 31 , 2015. further as a result , $ 265.1 million of unproved properties relating to block 95 were impaired at december 31 , 2014. we expect to continue to identify and evaluate all options for the bretaña field . for the year ended december 31 , 2014 , 95 % ( year ended december 31 , 2013 - 96 % ; year ended december 31 , 2012 - 98 % ) of our revenue and other income was generated in colombia . as of december 31 , 2014 , we had estimated proved reserves nar of 37.0 mmboe , approximately 100 % oil , of which 79 % were proved developed reserves . our primary source of liquidity is cash generated from our operations and cash on hand . the price of oil is a critical factor to our business , has historically been volatile , and has fallen dramatically in december 2014 and january 2015. sustained periods of low oil prices could be detrimental to our financial performance . during 2014 , the average price realized for our oil was $ 83.22 per barrel ( 2013 - $ 92.31 ; 2012 - $ 102.92 ) . average brent oil prices for the year ended december 31 , 2014 , were $ 99.02 per bbl compared with $ 108.64 per bbl in 2013 . west texas intermediate ( `` wti '' ) oil prices for the year ended december 31 , 2014 , were $ 93.00 per bbl compared with $ 97.97 per bbl in 2013 . at the end of 2014 , oil prices declined sharply , and the effect of that decline was not reflected in the average price for the year ended december 31 , 2014. on december 31 , 2014 , the brent oil price was $ 55.27 per bbl and the wti oil price was $ 53.27 per bbl . business strategy we are focused on the south america oil and gas business with current operations in colombia , peru and brazil . in today 's low commodity price environment we are taking prudent steps to ensure near term stability while positioning for growth in preparation for rising commodity prices in the future . a key piece in this strategy is the preservation of our strong balance sheet through reductions to our capital program , operating expenses , general and administrative costs and renegotiations of all service and transportation costs . for the capital program , only those projects that have immediate value additions or are contractual commitments will move forward , and all others will be deferred or canceled . additionally , our exploration and development process is under review with the intent of high grading and enhancing our exploration success . story_separator_special_tag in 2014 , capital expenditures included drilling of $ 245.3 million , geological and geophysical ( “ g & g ” ) expenditures of $ 96.1 million , facilities of $ 36.6 million and other expenditures of $ 38.2 million . estimated oil and gas reserves as at december 31 , 2014 , estimated proved oil and gas reserves , nar , were 37.0 mmboe compared with 42.1 mmboe as at december 31 , 2013 and 40.6 mmboe as at december 31 , 2012 . proved reserves at december 31 , 2014 were after 2014 oil and gas production of 7.0 mmboe nar before inventory changes and losses . estimated proved oil and gas reserves , nar , as at december 31 , 2013 , included 4.4 mmboe in argentina . we sold our argentina business unit during 2014. estimated proved oil reserves , nar , as of december 31 , 2014 , were 36.9 mmbbl compared with 39.8 mmbbl as at december 31 , 2013 and after producing 7.0 mmbbl nar before inventory adjustments and losses , excluding argentina production . the decrease was primarily due to the sale of our argentina business unit during 2014 which contributed 3.6 mmbbl of proved oil and ngl reserves at december 31 , 2013. this was partially offset by : reserve additions in colombia for the costayaco field due to reservoir performance and additional development drilling ; reserve additions in colombia for the moqueta field due to delineation drilling ; and reserve additions in brazil for the tiê field due to a successful dual completion program and the acid stimulation treatment of the agua grande formation . estimated probable and possible oil reserves , nar , as of december 31 , 2014 were 13.0 mmbbl and 14.9 mmbbl , respectively , compared with 68.9 mmbbl and 63.7 mmbbl as of december 31 , 2013 . as previously discussed , all probable and possible reserves associated with the bretaña field on block 95 in peru were reclassified as contingent resources in a report with an effective date of january 31 , 2015 , as a result of the decision to cease all further development expenditures on the bretaña field on block 95 in peru other than what is necessary to maintain tangible asset integrity and security . the december 31 , 2014 , reserves referred to in this paragraph exclude probable and possible reserves associated with the bretaña field . estimated probable and possible oil and ngl reserves , nar , as at december 31 , 2013 , included 1.8 and 2.6 mmbbl , respectively , in argentina . the december 31 , 2013 , reserves also included 57.6 mmboe and 104.7 mmboe of 2p and 3p reserves relating to the bretaña field on block 95 in peru . estimated proved , probable and possible oil reserves , included small amounts of ngl reserves at december 31 , 2013 , and 2012. estimated proved gas reserves , nar , as of december 31 , 2014 , were 1.0 bcf compared with 13.5 bcf at december 31 , 2013 . estimated probable and possible gas reserves , nar , as of december 31 , 2014 , were 3.4 bcf and 2.5 bcf , respectively , compared with 5.5 bcf and 50.3 bcf as of december 31 , 2013 . estimated proved , probable and possible gas reserves in argentina , nar , as at december 31 , 2013 , were 4.7 bcf , 1.7 bcf and 46.2 bcf , respectively . estimated proved oil and ngl reserves , nar , as of december 31 , 2013 , were 39.8 mmbbl , a 4 % increase from estimated proved reserves as at december 31 , 2012 . the increase was due primarily to positive technical adjustments for the costayaco field due to reservoir performance , additional development drilling in the costayaco field and the appraisal drilling program in the moqueta field . reserves were also added for the tiê field in the recôncavo basin , brazil due to production performance . estimated probable and possible oil and ngl reserves , nar , as of december 31 , 2013 were 68.9 mmbbl and 63.7 mmbbl , respectively . estimated proved gas reserves , nar , as of december 31 , 2013 , were 13.5 bcf compared with 12.8 bcf at december 31 , 2012 . proved gas reserves were consistent with the prior year end as new gas reserves were developed to replace 2013 production . estimated probable and possible gas reserves , nar , as of december 31 , 2013 were 5.5 bcf and 50.3 bcf , respectively . business environment outlook our revenues are significantly affected by pipeline disruptions in colombia and the continuing fluctuations in oil prices . oil prices are volatile and unpredictable and are influenced by concerns about the quantity of world supply and demand , market competition between large suppliers to the market for market share , political influences , financial markets and the impact of the worldwide economy on oil supply and demand growth . we believe that our current operations and 2015 capital expenditure program can be funded from cash flow from existing operations and cash on hand . should our operating cash flow decline due to unforeseen events , including additional pipeline delivery restrictions in colombia or a protracted downturn in oil and gas prices , we would examine measures such as further 59 capital expenditure program reductions , use of our revolving credit facility , issuance of debt , disposition of assets , or issuance of equity . given the current economic environment and unstable conditions in the middle east , north africa , and eastern europe and the current over supply of oil in world markets , the oil price environment is unpredictable and unstable . we are unable to determine the impact , if any , these events may have on oil prices and demand .
| highlights replace_table_token_10_th replace_table_token_11_th ( 1 ) excludes amounts relating to discontinued operations . oil and gas production , nar and adjusted for inventory changes and losses , associated with discontinued operations was 1,361 boepd for the year ended december 31 , 2014 ( 2013 - 3,028 boepd ; 2012 - 3,474 boepd ) . argentina production for the year ended december 31 , 2014 , was calculated to the date of sale of june 25 , 2014 . ( 2 ) production represents production volumes nar adjusted for inventory changes and losses . 56 ( 3 ) funds flow from continuing operations is a non-gaap measure which does not have any standardized meaning prescribed under gaap . management uses this financial measure to analyze operating performance and the income generated by our principal business activities prior to the consideration of how non-cash items affect that income , and believes that this financial measure is also useful supplemental information for investors to analyze operating performance and our financial results . investors should be cautioned that this measure should not be construed as an alternative to net income or other measures of financial performance as determined in accordance with gaap . our method of calculating this measure may differ from other companies and , accordingly , it may not be comparable to similar measures used by other companies . funds flow from continuing operations , as presented , is net income or loss adjusted for loss from discontinued operations , net of income taxes , depletion , depreciation , accretion and impairment ( “ dd & a ” ) expenses , deferred tax recovery or expense , non-cash stock-based compensation , unrealized loss on financial instruments , unrealized foreign exchange gain or loss , cash settlement of asset retirement obligation , other loss and other gain , and equity tax .
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the board of directors may take into account such matters as general business conditions , the company 's financial results , capital requirements , contractual , legal , and regulatory restrictions on the payment of dividends to the company 's stockholders or by the company 's subsidiaries to the parent and any such other factors as the board of directors may deem relevant . 10. stock-based compensation plans the company has three stock incentive plans which provide for story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations in conjunction with selected financial data and our consolidated financial statements and related notes included elsewhere in this form 10-k. in addition to historical information , this discussion and analysis contains forward-looking statements relating to future events and the future performance of marketaxess that are based on our current expectations , assumptions , estimates and projections about us and our industry . these forward-looking statements involve risks and uncertainties . our actual results and timing of various events could differ materially from those anticipated in such forward-looking statements as a result of a variety of factors , as more fully described in this section , in item 1a . risk factors and elsewhere in this form 10-k. we undertake no obligation to update publicly any forward-looking statements for any reason , even if new information becomes available or other events occur in the future . executive overview marketaxess operates a leading electronic trading platform that allows investment industry professionals to efficiently trade corporate bonds and other types of fixed-income instruments . our over 850 active institutional investor clients ( firms that executed at least one trade in u.s. or european fixed-income securities through our electronic trading platform during 2011 ) include investment advisers , mutual funds , insurance companies , public and private pension funds , bank portfolios , broker-dealers and hedge funds . our 87 broker-dealer market-maker clients provide liquidity on the platform and include most of the leading broker-dealers in global fixed-income trading . the company also executes certain bond transactions between and among institutional investor and broker-dealer clients on a riskless principal basis by serving as counterparty to both the buyer and the seller in matching back-to-back trades , which then settle through a third-party clearing organization . through our corporate bondticker service , we provide fixed-income market data , analytics and compliance tools that help our clients make trading decisions . in addition , we provide fix ( financial information exchange ) message management tools , connectivity solutions and ancillary technology services that facilitate the electronic communication of order information between trading counterparties . our revenues are primarily generated from the trading of u.s. high-grade corporate bonds . our multi-dealer trading platform allows our institutional investor clients to simultaneously request competing , executable bids or offers from our broker-dealer clients and execute trades with the broker-dealer of their choice from among those that choose to respond . we offer our broker-dealer clients a solution that enables them to efficiently reach our institutional investor clients for the distribution and trading of bonds . in addition to u.s. high-grade corporate bonds , european high-grade corporate bonds and emerging markets bonds , including both investment-grade and non-investment grade debt , we also offer our clients the ability to trade crossover and high-yield bonds , agency bonds , asset-backed and preferred securities and credit default swaps . the majority of our revenues are derived from monthly distribution fees and commissions for trades executed on our platform that are billed to our broker-dealer clients on a monthly basis . we also derive revenues from technology products and services , information and user access fees , investment income and other income . our expenses consist of employee compensation and benefits , depreciation and amortization , technology and communication expenses , professional and consulting fees , occupancy , marketing and advertising and other general and administrative expenses . our objective is to provide the leading global electronic trading platform for fixed-income securities , connecting broker-dealers and institutional investors more easily and efficiently , while offering a broad array of information , trading and technology services to market participants across the trading cycle . the key elements of our strategy are : to innovate and efficiently add new functionality and product offerings to the marketaxess platform that we believe will help to increase our market share with existing clients , as well as expand our client base ; 46 index to financial statements to leverage our technology , as well as our strong broker-dealer and institutional investor relationships , to deploy our electronic trading platform into additional product segments within the fixed-income securities markets , deliver fixed-income securities-related technical services and products , and deploy our electronic trading platform into new client segments ; to continue building our existing service offerings so that our electronic trading platform is fully integrated into the workflow of our broker-dealer and institutional investor clients and to continue to add functionality to allow our clients to achieve a fully automated end-to-end straight-through processing solution ( automation from trade initiation to settlement ) ; to add new content and analytical capabilities to corporate bondticker in order to improve the value of the information we provide to our clients ; and to continue to supplement our internal growth by entering into strategic alliances , or acquiring businesses or technologies that will enable us to enter new markets , provide new products or services , or otherwise enhance the value of our platform to our clients . critical factors affecting our industry and our company economic , political and market factors the global fixed-income securities industry is risky and volatile and is directly affected by a number of economic , political and market factors that may result in declining trading volume . these factors could have a material adverse effect on our business , financial condition and results of operations . story_separator_special_tag we believe that there are five key variables that impact the notional value of such transactions on our platform and the amount of commissions and distribution fees earned by us : the number of institutional investor clients that participate on the platform and their willingness to originate transactions through the platform ; 48 index to financial statements the number of broker-dealer clients on the platform and the frequency and competitiveness of the price responses they provide to the institutional investor clients ; the number of markets for which we make trading available to our clients ; the overall level of activity in these markets ; and the level of commissions that we collect for trades executed through the platform . we believe that overall corporate bond market trading volume is affected by various factors including the absolute levels of interest rates , the direction of interest rate movements , the level of new issues of corporate bonds and the volatility of corporate bond spreads versus u.s. treasury securities . because a significant percentage of our revenue is tied directly to the volume of securities traded on our platform , it is likely that a general decline in trading volumes , regardless of the cause of such decline , would reduce our revenues and have a significant negative impact on profitability . commission revenue commissions are generally calculated as a percentage of the notional dollar volume of bonds traded on our platform and vary based on the type , size , yield and maturity of the bond traded . the commission rates are based on a number of factors , including fees charged by inter-dealer brokers in the respective markets , average bid-offer spreads in the products we offer and transaction costs through alternative channels including the telephone . under our transaction fee plans , bonds that are more actively traded or that have shorter maturities are generally charged lower commissions , while bonds that are less actively traded or that have longer maturities generally command higher commissions . u.s. high-grade corporate bond commissions . our u.s. high-grade corporate bond fee plans for fully electronic trades generally incorporate monthly distribution fees and variable transaction fees billed to our broker-dealer clients on a monthly basis . certain dealers participate in fee programs that do not contain monthly distribution fees and instead incorporate additional per transaction execution fees and minimum monthly fee commitments . under the fee plans , we electronically add the transaction fee to the spread quoted by the broker-dealer client . eurobond commissions . similar to the u.s. high-grade plans , our european fee plan incorporates monthly distribution fees as well as variable transaction fees . in june 2010 , we launched a click-to-trade protocol in the european market . click-to-trade is offered alongside our request-for-quote product and consists of streamed indicative pricing in credit and rates products . clients have the ability to request a trade at the displayed price with the indicated dealer . in connection with the launch , the eurobond fee plan was revised and a standard commission rate was established across most types of bonds . prior to this change , the variable transaction fee was dependent on the type of bond traded and the maturity of the issue . other commissions . commissions for other bond , asset-backed and preferred securities trades generally vary based on the type and the maturity of the instrument traded . we generally operate using standard fee schedules that may include both transaction fees and monthly distribution fees that are charged to the participating dealers . for trades that we execute between and among institutional investor and broker-dealer clients on a riskless principal basis by serving as counterparty to both the buyer and the seller , we earn our commission through the difference in price between the two back-to-back trades . we anticipate that average fees per million may change in the future . consequently , past trends in commissions are not necessarily indicative of future commissions . 49 index to financial statements other revenue in addition to the commissions discussed above , we earn revenue from technology products and services , information services fees paid by institutional investor and broker-dealer clients , income on investments and other income . technology products and services . technology products and services includes software licenses , maintenance and support services and professional consulting services . information and user access fees . we charge information services fees for corporate bondticker tm to our broker-dealer clients , institutional investor clients and data-only subscribers . the information services fee is a flat monthly fee , based on the level of service . we also generate information services fees from the sale of bulk data to certain institutional investor clients and data-only subscribers . institutional investor clients trading u.s. high-grade corporate bonds are charged a monthly user access fee for the use of our platform . the fee , billed quarterly , is charged to the client based on the number of the client 's users . to encourage institutional investor clients to execute trades on our platform , we reduce these information and user access fees for such clients once minimum quarterly trading volumes are attained . investment income . investment income consists of income earned on our investments . other . other revenues include fees from telecommunications line charges to broker-dealer clients , initial set-up fees and other miscellaneous revenues . expenses in the normal course of business , we incur the following expenses : employee compensation and benefits . employee compensation and benefits is our most significant expense and includes employee salaries , stock-based compensation costs , other incentive compensation , employee benefits and payroll taxes . depreciation and amortization . we depreciate our computer hardware and related software , office hardware and furniture and fixtures and amortize our capitalized software development costs on a straight-line basis over three to seven years . we amortize leasehold improvements on a straight-line basis over the lesser of the life of the improvement or the remaining term of the lease .
| results of operations year ended december 31 , 2011 compared to year ended december 31 , 2010 overview total revenues increased by $ 34.9 million or 23.8 % to $ 181.1 million for the year ended december 31 , 2011 from $ 146.2 million for the year ended december 31 , 2010. this increase in total revenues was primarily due to an increase in commissions of $ 33.3 million . total expenses increased by $ 7.0 million or 7.4 % to $ 102.4 million for the year ended december 31 , 2011 from $ 95.3 million for the year ended december 31 , 2010. the increase was primarily due to higher employee compensation and benefits of $ 2.3 million , professional and consulting fees of $ 1.6 million and marketing and advertising costs of $ 1.8 million . 53 index to financial statements income before taxes increased by $ 27.8 million or 54.7 % to $ 78.7 million for the year ended december 31 , 2011 from $ 50.9 million for the year ended december 31 , 2010. net income increased by $ 16.3 million or 51.8 % to $ 47.7 million for the year ended december 31 , 2011 from $ 31.4 million for the year ended december 31 , 2010. revenues our revenues for the years ended december 31 , 2011 and 2010 , and the resulting dollar and percentage changes , were as follows : replace_table_token_5_th commissions .
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in some cases , you can identify forward-looking statements by terminology such as “ may , ” “ will , ” “ expect , ” “ plan , ” “ anticipate , ” “ believe , ” “ estimate , ” “ intend , ” “ potential ” or “ continue ” or the negative of these terms or other comparable terminology . forward-looking statements are made as of the date of this report , deal with future events , are subject to various risks and uncertainties , and actual results could differ materially from those anticipated in those forward looking statements . the risks and uncertainties that could cause actual results to differ materially are more fully described under “ risk factors ” and elsewhere in this report and in our other reports filed with the sec . we assume no obligation to update any of the forward-looking statements after the date of this report or to conform these forward-looking statements to actual results . you should read the following discussion and analysis together with “ selected financial data ” in part ii , item 6 and our financial statements and related notes in part ii , item 8. overview we are a medical device company primarily focused on the design , development and commercialization of continuous glucose monitoring ( “ cgm ” ) systems for use by people with diabetes and by healthcare providers for the treatment of people with diabetes . unless the context requires otherwise , the terms “ we , ” “ us , ” “ our , ” the “ company , ” or “ dexcom ” refer to dexcom , inc. and its subsidiaries . from inception to 2006 , we devoted substantially all of our resources to start-up activities , raising capital and research and development , including product design , testing , manufacturing and clinical trials . since 2006 , we have devoted considerable resources to the commercialization of our continuous glucose monitoring systems , including the g4 platinum and g5 mobile , as well as the continued research and clinical development of our technology platform . from inception through december 31 , 2016 , we have generated $ 1.7 billion of product and development grant and other ( non-product ) revenue , and we have incurred net losses in each year since our inception in may 1999. as of december 31 , 2016 , we had an accumulated deficit of $ 621.0 million . we expect our losses to continue as we proceed with our commercialization and research and development activities . we have financed our operations primarily through offerings of equity securities and debt , and the sales of our products . financial operations revenue we sell our durable systems and disposable units through a direct sales force in the united states and portions of europe , and through distribution arrangements in the united states , canada , australia , new zealand , and in portions of europe , asia , latin america , the middle east and africa . we have contracts with certain distributors who stock our products , and we refer to these distributors as stocking distributors , whereby the distributors fulfill orders for our product from their inventory . we also have contracts with certain distributors that do not stock our products , but rather products are shipped directly to the customer by us on behalf of our distributor , and we refer to these distributors as drop-ship distributors . we expect that revenues we generate from the sales of our products will fluctuate from quarter to quarter . we typically experience seasonality with lower sales in the first quarter of each year , compared to the previous fourth quarter , related to annual insurance deductible resets and unfunded flexible spending accounts . cost of sales cost of sales includes direct labor and materials costs related to each product sold or produced , including assembly , test labor and scrap , as well as factory overhead supporting our manufacturing operations . factory overhead includes facilities , material procurement and control , manufacturing engineering , quality assurance , supervision and management . these costs are primarily salary , fringe benefits , share-based compensation , facility expense , supplies and purchased services . all of our manufacturing costs are included in cost of sales . 49 research and development our research and development expenses primarily consist of engineering and research expenses related to our continuous glucose monitoring technology , clinical trials , regulatory expenses , quality assurance programs , materials and products for clinical trials . research and development expenses are primarily related to employee compensation , including salary , fringe benefits , share-based compensation , and temporary employee expenses . we also incur significant expenses to operate our clinical trials including clinical site reimbursement , clinical trial product and associated travel expenses . our research and development expenses also include fees for design services , contractors and development materials . selling , general and administrative our selling , general and administrative expenses primarily consist of salary , fringe benefits and share-based compensation for our executive , financial , sales , marketing , information technology and administrative functions . other significant expenses include commissions , marketing and advertising , it software license costs , insurance , professional fees for our outside legal counsel and independent auditors , litigation expenses , patent application expenses and consulting expenses . story_separator_special_tag completion of development activities with edwards . the decrease in costs associated with development was primarily due to fewer development obligations during the period with respect to our collaboration and development arrangements . research and development . research and development expense increased $ 68.1 million to $ 137.5 million for the twelve months ended december 31 , 2015 , compared to $ 69.4 million for the twelve months ended december 31 , 2014. the increase was primarily due to the upfront fee related to verily collaboration agreement costs , additional headcount and costs to support development of future products . significant elements of the increase in research and development costs included $ 36.5 story_separator_special_tag if our available cash , cash equivalents and marketable securities are insufficient to satisfy our liquidity requirements , or if we develop additional products or new markets for our existing products , we may seek to sell additional equity or debt securities or obtain an additional credit facility . the sale of additional equity and debt securities may result in additional dilution to our stockholders . if we raise additional funds through the issuance of debt securities or preferred stock , these securities could have rights senior to those of our common stock and could contain covenants that would restrict our operations . we may require additional capital beyond our currently forecasted amounts . any such required additional capital may not be available on reasonable terms , if at all . additionally , we can not guarantee that we will be successful in obtaining additional cash contributions from future partnership arrangements . our ability to transition to , and maintain profitable operations is dependent upon achieving a level of revenues adequate to support our cost structure . if events or circumstances occur such that we do not meet our operating plan as expected , or if we are unable to obtain additional financing , we may be required to reduce planned increases in compensation related expenses or other operating expenses related to research , development , and commercialization activities , which could have an adverse impact on our ability to achieve our intended business objectives . because of the numerous risks and uncertainties associated with the development of continuous glucose monitoring technologies , we are unable to estimate the exact amounts of capital outlays and operating expenditures associated with our current and anticipated clinical trials . our future funding requirements will depend on many factors , including , but not limited to : the revenue generated by sales of our approved products and other future products ; the expenses we incur in manufacturing , developing , selling and marketing our products ; the quality levels of our products and services ; the third-party reimbursement of our products for our customers ; our ability to efficiently scale our manufacturing operations to meet demand for our current and any future products ; the costs , timing and risks of delays of additional regulatory approvals ; the costs of filing , prosecuting , defending and enforcing any patent claims and other intellectual property rights ; the rate of progress and cost of our clinical trials and other development activities ; the success of our research and development efforts ; the emergence of competing or complementary technological developments ; the terms and timing of any collaborative , licensing and other arrangements that we may establish ; and the acquisition of businesses , products and technologies and our ability to integrate and manage any acquired businesses , products and technologies . contractual obligations we are party to various purchase arrangements related to components used in manufacturing and research and development activities . as of december 31 , 2016 , we had firm purchase commitments with certain vendors totaling approximately $ 39.0 million due within one year . there are no material purchase commitments due beyond one year . we are party to various leasing arrangements primarily for office , manufacturing and warehouse space that expire at various times through march 2028. we have entered into the following new significant leasing arrangements during the twelve months ended december 31 , 2016 : on february 1 , 2016 , we entered into a sublease ( the “ sublease ” ) with entropic communications , llc with respect to the building at 6350 sequence drive in san diego , california ( the “ 6350 building ” ) . under the sublease , we have leased approximately 132,600 square feet of space in the 6350 building . the lease term extends through january 2022. the total obligation for rent under the life of the lease is $ 14.5 million , excluding real estate taxes and operating costs . on april 28 , 2016 , we entered into a certain industrial net lease ( the “ mesa lease ” ) with pra/lb , l.l.c . with respect to facilities in the building at 232 south dobson road in mesa , arizona ( the “ mesa building '' ) . under the 53 mesa lease , we have leased approximately 148,797 square feet of space in the mesa building , of which approximately 78,000 square feet was available to us on may 1 , 2016 and the remaining portion of the mesa building will become available to us on or around january 1 , 2018. the term of the mesa lease extends through march 2028 with four extension options , each with five year terms . the total obligation for rent under the lease term ending march 2028 is approximately $ 15.3 million , excluding real estate taxes and operating costs . the following table summarizes our outstanding contractual obligations as of december 31 , 2016 in future periods ( in millions ) : replace_table_token_4_th other on may 2 , 2016 , we entered into that certain standard form of agreement ( the “ skanska contract ” ) with skanska usa building inc. ( the “ contractor ” ) , providing for construction and design services to build out our new manufacturing facility in the mesa building . the first phase of construction began in the second quarter of 2016 and is expected to be completed during 2018 at the earliest subject to fda approval . the total expenditures under the skanska contract are currently anticipated to be approximately $ 30 million . as of december 31 , 2016 we have paid $ 15.2 million under the skanska contract . off-balance sheet arrangements we have not engaged in any off-balance sheet activities . 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 we have prepared in accordance with u.s. gaap .
| results of operations fiscal year ended december 31 , 2016 compared to december 31 , 2015 revenue , cost of sales and gross profit total revenues increased $ 171.3 million to $ 573.3 million for the twelve months ended december 31 , 2016 compared to $ 402.0 million for the twelve months ended december 31 , 2015 based primarily on increased sales volume of our disposable sensors due to the continued growth of our installed base of customers using our g4 platinum and g5 mobile systems , and durable systems to both new and existing customers . revenue attributable to our disposable sensors and durable systems was approximately 70 % and 30 % , respectively , of total revenue , for each of the twelve months ended december 31 , 2016 and 2015 . total revenue for the twelve months ended december 31 , 2015 also included development grant and other revenues of $ 1.3 million attributable to a $ 1.0 million milestone payments related to our development agreement with tandem and services associated with clinical supply and services agreements . revenue from products shipped to our drop-ship distributors ' customers was $ 22.3 million , or 4 % , of our total revenues for the twelve months ended december 31 , 2016 compared to $ 39.0 million , or 10 % , of our total revenues for the twelve months ended december 31 , 2015 . revenue from products shipped to stocking distributors was $ 389.5 million , or 68 % , of our total revenues for the twelve months ended december 31 , 2016 compared to $ 244.0 million , or 61 % , of our total revenues for the twelve months ended december 31 , 2015 .
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we are using these technologies to develop targeted immunotherapeutics comprised of protein-based molecules such as vaccines , antibodies and antibody-drug conjugates that are used to treat specific types of cancer or other diseases . our latest stage drug candidate , rintega ( also referred to as rindopepimut and cdx-110 ) is a therapeutic vaccine in clinical studies for the treatment of glioblastoma patients that express a specific cancer marker known as egfrviii . in february 2015 , the u.s. food and drug administration , or fda , granted rintega breakthrough therapy designation for the treatment of adult patients with egfrviii-positive glioblastoma . we completed enrollment in december 2014 in act iv , a pivotal phase 3 study in front-line glioblastoma . act iv completed its first interim analysis at 50 % of events ( deaths ) in june 2015 , and an independent data safety and monitoring board recommended that the study continue as planned . the required number of events to perform the second interim analysis of act iv were reached in late 2015 and the analysis is expected to occur in march 2016. final data from act iv are expected by the end of 2016 , although our expectations regarding the timing for the final data read out may change based on event rates.we have also completed a phase 2 study in patients with recurrent egfrviii-positive glioblastoma . updated results from this randomized study comparing rintega added to the standard of care , or soc , compared to soc alone were presented in november 2015. a statistically significant overall survival benefit and the emergence of a long-term survival benefit were observed . the primary endpoint of the study , progression-free survival at six months , or pfs6 , was met . glembatumumab vedotin ( also referred to as cdx-011 ) is a targeted antibody-drug conjugate in a randomized , phase 2b study for the treatment of triple negative breast cancer and a phase 2 study for the treatment of metastatic melanoma . varlilumab ( also referred to as cdx-1127 ) is an immune modulating antibody that is designed to enhance a patient 's immune response against their cancer . we established proof of concept in a phase 1 study with varlilumab , which has allowed several combination studies to begin in various indications . we also have a number of earlier stage drug candidates in clinical development , including cdx-1401 , a targeted immunotherapeutic aimed at antigen presenting cells , or apc , for cancer indications and cdx-301 , an immune cell mobilizing agent and dendritic cell growth factor . our drug candidates address market opportunities for which we believe current therapies are inadequate or non-existent . we are building a fully integrated , commercial-stage biopharmaceutical company that develops important therapies for patients with unmet medical needs . our program assets provide us with the strategic options to either retain full economic rights to our innovative therapies or seek favorable economic terms through advantageous commercial partnerships . this approach allows us to maximize the overall value of our technology and product portfolio while best ensuring the expeditious development of each individual product . 62 the following table includes the programs that we currently believe are significant to our business : replace_table_token_12_th the expenditures that will be necessary to execute our business plan are subject to numerous uncertainties . completion of clinical trials may take several years or more , and the length of time generally varies substantially according to the type , complexity , novelty and intended use of a product candidate . it is not unusual for the clinical development of these types of product candidates to each take five years or more , and for total development costs to exceed $ 100 million for each product candidate . we estimate that clinical trials of the type we generally conduct are typically completed over the following timelines : clinical phase estimated completion period phase 1 1 - 2 years phase 2 1 - 5 years phase 3 1 - 5 years the duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during the clinical trial protocol , including , among others , the following : the number of patients that ultimately participate in the trial ; the duration of patient follow-up that seems appropriate in view of results ; the number of clinical sites included in the trials ; the length of time required to enroll suitable patient subjects ; and the efficacy and safety profile of the product candidate . we test potential product candidates in numerous preclinical studies for safety , toxicology and immunogenicity . we may then conduct multiple clinical trials for each product candidate . as we obtain results from trials , we may elect to discontinue or delay clinical trials for certain product candidates in order to focus our resources on more promising product candidates . an element of our business strategy is to pursue the research and development of a broad portfolio of product candidates . this is intended to allow us to diversify the risks associated with our research and development expenditures . to the extent we are unable to maintain a broad range of product candidates , our dependence on the success of one or a few product candidates increases . regulatory approval is required before we can market our product candidates as therapeutic products . in order to proceed to subsequent clinical trial stages and to ultimately achieve regulatory approval , the regulatory agency must conclude that our clinical data is safe and effective . historically , the results from preclinical testing and early clinical trials ( through phase 2 ) have often not been predictive of results obtained in later clinical trials . a number of new drugs and biologics have shown 63 promising results in early clinical trials , but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals . story_separator_special_tag in total , over 4,800 tissue samples from gbm patients were submitted for egfrviii evaluation from more than 200 clinical trial sites across 22 countries and , consistent with prior studies , 30 % were positive for the egfrviii mutation . the study enrolled 745 patients to reach the required 374 patients with minimal residual disease ( assessed by central review ) needed for analysis of the primary overall survival endpoint . all patients , including patients with disease that exceed this threshold , will be included in a secondary analysis of overall survival as well as analyses of progression-free survival , safety and tolerability , and quality of life . the timing of the overall survival primary endpoint data is event-driven . the study 65 design requires interim analyses to be conducted by an independent data safety and monitoring board ( dsmb ) at 50 % and 75 % of events ( deaths ) . the first interim analysis occurred in june 2015 , and the dsmb recommended continuation of the study as planned . the required number of events to perform the second interim analysis of act iv were reached in late 2015 , and the analysis is expected to occur in march 2016. final data from act iv are expected by the end of 2016 , although our expectations regarding the timing for the final data read out may change based on event rates . in december 2011 , we also initiated react , a phase 2 study of rintega in combination with avastin® in patients with recurrent egfrviii-positive gbm . this study completed enrollment in 2014 and includes 3 groups . group 1 consists of 73 patients who had not previously received avastin and were randomized to receive either rintega and avastin or a control injection of klh and avastin in a blinded fashion . group 2 includes 25 patients who are refractory to avastin having received avastin in either the frontline or recurrent setting with subsequent progression and who received rintega plus avastin in a single treatment arm . in august 2013 , we announced the addition of an expansion cohort of up to 75 patients , called group 2c , to better characterize the potential activity of rintega in this refractory patient population . this decision was based on early evidence of anti-tumor activity , including stable disease , tumor shrinkage and investigator-reported response . in total , group 2c enrolled 28 patients . the primary endpoint is six month progression-free survival rate ( pfs-6 ) for groups 1 and 2 and objective response rate ( orr ) for group 2c . other study endpoints include pfs-6 , orr , pfs , overall survival , or os and safety and tolerability . in november 2015 , we reported the following mature data from group 1 of the react study . tumor responses were evaluated in accordance with response assessment in neuro-oncology ( rano ) criteria by an independent expert review committee blinded to treatment group assignment . data for this long-term update included study results through september 1 , 2015. pfs6 : as previously reported in may 2015 , the primary endpoint of the study , pfs6 , was met . in the intent to treat ( itt ) population , 28 % of patients on the rintega arm were progression free at six months compared to 16 % of patients on the control arm ( p=0.1163 ) . survival : mature overall survival ( os ) data continue to show a marked benefit [ hazard ratio = 0.53 ( 0.32 , 0.88 ) ; p=0.0137 ] with a long-term survival benefit observed in the rintega arm . consistent with previous studies of rintega and the published data observed for immune-mediated therapeutics , this survival benefit includes multiple patients exceeding what is customary survival for egfrviii-positive glioblastoma , also referred to as a tail on the survival curve . at two years , the survival rate for rintega patients in the itt population is 25 % versus 0 % for control patients . overall survival ( os ) , intent to treat ( itt ) population replace_table_token_15_th objective response rate ( orr ) : nine out of 30 evaluable itt patients ( 30 % ) on the rintega arm experienced a confirmed objective response versus six out of 34 evaluable patients ( 18 % ) on the control arm . five patients on the rintega arm experienced durable responses greater than six months , and three of these patients experienced durable responses greater than 18 months ( range of 18.6+ to 22.2 months ) . in contrast , only two patients on the control arm experienced a durable response greater than six months , and none experienced a response greater than 7.4 months . 66 steroid use : further emphasizing the level of disease control , 50 % of the 18 patients on the rintega arm who were on steroids at the start of treatment were able to stop steroids for at least two months during treatment versus only 26 % of the 19 patients on the control arm who were on steroids at the start of treatment . 33 % of patients on the rintega arm were able to stop steroids for more than six months , and , of these , three were able to stop for more than one year versus none on the control arm for either time point . immune response : prolonged survival was associated with high anti-egfrviii humoral responses . recent in vivo experiments have shown those immune responses had tumor killing function through antibody dependent cellular cytotoxicity ( adcc ) of egfrviii-expressing tumor cells . this biologic effector function is rarely proven for immune therapies . importantly , rapid generation of anti-egfrviii humoral response correlated with longer survival ; however , even those with slower development of immune responses benefitted . no patient in the control arm had detectable egfrviii specific antibody response . this effect is consistent with rintega 's proposed mechanism of action as a targeted immunotherapeutic vaccine .
| results of operations year ended december 31 , 2015 compared with year ended december 31 , 2014 replace_table_token_18_th net loss the $ 9.1 million increase in net loss for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 was primarily the result of an increase in general and administrative expenses , partially offset by a decrease in research and development expenses . revenue the $ 0.6 million increase in product development and licensing agreements revenue for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 was primarily related to our bms agreement . in may 2014 , we entered into a clinical trial collaboration with bms whereby bms made a one-time payment to us of $ 5.0 million which we are recognizing as revenue along with bms 's 50 % share of the clinical trial cost over our estimated performance period of five years . the 77 $ 1.3 million increase in contracts and grants revenue for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 was primarily related to our rockefeller university agreement pursuant to which we perform research and development services for rockefeller . research and development expense research and development expenses consist primarily of ( i ) personnel expenses , ( ii ) laboratory supply expenses relating to the development of our technology , ( iii ) facility expenses , ( iv ) license fees and ( v ) product development expenses associated with our drug candidates as follows : replace_table_token_19_th personnel expenses primarily include salary , benefits , stock-based compensation and payroll taxes . the $ 9.1 million increase in personnel expenses for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 was primarily due to increased headcount and higher stock-based compensation of $ 2.7 million .
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the company 's internal control over financial reporting is a process designed under the supervision of the company 's principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the company 's financial statements for external reporting purposes in accordance with u.s. generally accepted accounting principles . our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that , in reasonable detail , accurately and fairly reflect transactions and dispositions of assets ; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with u.s. generally accepted accounting principles , and that receipts and expenditures are being made only story_separator_special_tag story_separator_special_tag operations for the three years ended december 31 , 2013 , 2012 and 2011 ( in thousands ) : 14 business segment net sales : replace_table_token_4_th business segment earnings from operations : replace_table_token_5_th fiscal year 2013 compared to fiscal year 2012 ( all amounts in thousands , except share and per share data ) net sales net sales for 2013 were $ 337,173 as compared with $ 310,393 for 2012 , an increase of $ 26,780 or 8.6 % . net sales for the specialty products segment were $ 51,086 for 2013 , as compared with $ 49,990 for 2012 , an increase of $ 1,096 or 2.2 % . approximately 79 % of this increase in sales was from propylene oxide products for use in industrial applications and nutmeat fumigation . the balance of the increased sales is principally a result of higher sales from ethylene oxide products for use in medical device sterilization . net sales for the food , pharma & nutrition segment were $ 47,569 for 2013 compared with $ 44,070 for 2012 , an increase of $ 3,499 or 7.9 % . this result was primarily due to a 10.2 % increase in sales in the food sector , principally due to higher volumes and product mix of encapsulated ingredients for baking and food preservation end markets . also contributing to the higher sales was an increase in sales of 28.2 % for vitashure ® products for nutritional enhancement , including sustained release amino acid products for sports performance products . net sales of $ 238,518 were realized for 2013 for the animal nutrition & health segment , as compared with $ 216,333 for the prior year , an increase of $ 22,185 or 10.3 % . the anh specialty ingredients , largely targeted to the ruminant and companion animal markets , realized 6.6 % sales growth from the prior year comparable period . the improvement was due to higher sales of non-aminoshure ® products , which were up 22.5 % compared with prior year , and were led by strong volume growth of reashure , nitroshure and chelated minerals . this was partially offset by lower volumes of aminoshure products , related mainly to the adverse impact of the previously announced suspension of sales of aminoshure–l , 52 % lysine ( the “ product ” ) in the second quarter of 2012. global feed grade choline product sales increased by approximately 5.1 % due to modest price increases , implemented globally , to partially offset increased raw material costs . the company experienced increased sales of various choline and choline derivative products used for industrial applications , predominantly in north america , including usage in fracking for natural gas . industrial sales grew 20.4 % over the prior year with the increase coming primarily from higher volumes for usage in fracking . sales for industrial applications comprised approximately 34.7 % of the sales in this segment for 2013. gross margin gross margin for 2013 increased to $ 97,421 compared to $ 89,539 for 2012 , an increase of 8.8 % . this $ 7,882 increase was principally a result of higher sales volumes . gross margin percentage for 2013 increased to 28.9 % as compared to 28.8 % in the prior year comparative period , primarily due to operating efficiencies from higher volumes , which were partially offset by increases in certain key raw material costs . gross margin percentage for the specialty products segment increased by 0.7 % primarily due to product mix and operating efficiencies from higher volumes . gross margin percentage in the food , pharma & nutrition segment decreased by 2.3 % primarily due to higher raw material costs for human choline products . gross 15 margin percentage in the animal nutrition and health segment increased by 0.9 % , principally due to operating efficiencies from increased volumes . operating expenses operating expenses for 2013 were $ 31,819 , as compared to $ 29,762 for 2012 , an increase of $ 2,057 or 6.9 % . this was principally due to an increase of employee headcount and additional compensation-related expenses totaling $ 1,039 , higher outside services and professional fees of $ 277 and increased advertising of $ 238. operating expenses were 9.4 % of sales or 0.2 percentage points less than the operating expenses as a percentage of sales in the prior year . during 2013 and 2012 , the company spent $ 3,622 and $ 3,422 respectively , on research and development programs , most of which pertained to the company 's food , pharma & nutrition and animal nutrition & health segments . earnings from operations principally as a result of the above-noted details , earnings from operations for 2013 were $ 65,602 as compared to $ 59,777 for 2012 , an increase of $ 5,825 or 9.7 % . earnings from operations as a percentage of sales ( “ operating margin ” ) for 2013 increased to 19.5 % from 19.3 % for 2012. the company is continuing to focus on leveraging its plant capabilities , driving efficiencies from core volume growth , broadening product applications of human and animal health specialty products into both the domestic and international markets , as well as capitalizing logistically on the company 's varied choline production capabilities . story_separator_special_tag partially offsetting this was a favorable product mix . gross margin percentage for the specialty products segment increased by 0.7 % primarily due to a favorable product mix . gross margin percentage in the food , pharma & nutrition segment decreased by 0.8 % primarily due to higher raw material costs and an unfavorable product mix . partially offsetting this was the sale of the non-core calcium carbonate product line in the fourth quarter of 2010 , which was winding down in 2011. gross margin percentage in the animal nutrition and health segment decreased by 0.6 % , principally from increases in the cost of certain petro-chemical raw materials used to manufacture choline and the impact of the product sales suspension , partially offset by higher overall animal nutrition & health sales volumes and a favorable product mix . 17 operating expenses operating expenses for 2012 were $ 29,762 , or flat as compared to $ 29,776 for 2011. this was principally due to lower consultancy fees of $ 413 primarily incurred to study acquisition opportunities and related to the 2010 aberco acquisition that were incurred during 2011. also contributing to the decrease was lower advertising of $ 168. offsetting this was increased research costs of $ 377 and $ 160 related to the product sales suspension . operating expenses were 9.6 % of sales or 0.6 percentage points less than the operating expenses as a percentage of sales in last year 's comparable period . during 2012 and 2011 , the company spent $ 3,422 and $ 2,890 respectively , on research and development programs , substantially all of which pertained to the company 's food , pharma & nutrition and animal nutrition & health segments . earnings from operations principally as a result of the above-noted details , earnings from operations for 2012 increased to $ 59,777 as compared to $ 56,225 for 2011 , an increase of $ 3,552 or 6.3 % . earnings from operations as a percentage of sales ( “ operating margin ” ) for 2012 was 19.3 % , which was equivalent to 2011. the company is continuing to focus on leveraging its plant capabilities , driving efficiencies from core volume growth , broadening product applications of human and animal health specialty products into both the domestic and international markets , as well as capitalizing logistically on the company 's varied choline production capabilities . earnings from operations for the specialty products segment were $ 20,332 , an increase of $ 1,696 or 9.1 % , primarily due to the above-noted higher sales of ethylene oxide and propylene oxide , and certain lower operating expenses . this was partially offset by the aforementioned higher raw material costs . earnings from operations for food , pharma & nutrition were $ 11,335 , an increase of $ 222 or 2.0 % , due largely to the above-noted increased sales of human choline products and the sale of the non-core calcium carbonate product line in the fourth quarter of 2010 , which generated an operating loss in 2011. partially offsetting this was lower sales volumes in the food market and higher raw material costs . earnings from operations for animal nutrition & health increased by $ 1,634 to $ 28,110 , a 6.2 % increase from the prior year comparable period , principally due to the aforementioned increased sales , favorable product mix , and certain lower operating expenses , partially offset by increases in the cost of certain petro-chemical raw materials used to manufacture choline and the impact of the product sales suspension . other expenses ( income ) interest income for 2012 totaled $ 10 as compared to $ 184 for 2011. interest expense was $ 10 for 2012 compared to $ 84 for 2011. other income of $ 67 for 2012 is primarily the result of a favorable adjustment related to a prior year sale of a non-core calcium carbonate product line . other income of $ 413 for 2011 is primarily the result of a net gain of $ 243 related to the sale of a non-core calcium carbonate product line and favorable fluctuations in foreign currency exchange rates between the u.s. dollar ( the reporting currency ) and functional foreign currencies . income tax expense the company 's effective tax rate for 2012 and 2011 was 33.2 % and 31.7 % , respectively . this increase in the effective tax rate is primarily attributable to a change in apportionment relating to state income taxes and the timing of certain tax credits . net earnings principally as a result of the above-noted details , net earnings were $ 40,005 for 2012 , as compared with $ 38,765 for 2011 , an increase of 3.2 % . 18 liquidity and capital resources ( all amounts in thousands , except share and per share data ) contractual obligations the company 's contractual obligations as of december 31 , 2013 , are summarized in the table below : replace_table_token_6_th ( 1 ) principally includes obligations associated with future minimum non-cancelable operating lease obligations ( including the headquarters office space entered into in 2002 and extended in 2012 for six ( 6 ) years ) . ( 2 ) principally includes open purchase orders with vendors for inventory not yet received or recorded on our balance sheet . the table above excludes a $ 2,374 liability for uncertain tax positions , including the related interest and penalties , recorded in accordance with asc 740-10 , as we are unable to reasonably estimate the timing of settlement , if any . the company knows of no current or pending demands on , or commitments for , its liquid assets that will materially affect its liquidity . the company expects its operations to continue generating sufficient cash flow to fund working capital requirements and necessary capital investments . the company is actively pursuing additional acquisition candidates .
| overview we develop , manufacture , distribute and market specialty performance ingredients and products for the food , nutritional , pharmaceutical , animal health and medical device sterilization industries . our reportable segments are strategic businesses that offer industrial products and services to different markets . we presently have three reportable segments : specialty products ; food , pharma & nutrition ; and animal nutrition & health . the following discussion and analysis of our financial condition and results of operations should be read in conjunction with item 6 — “ selected financial data ” and our consolidated financial statements and the related notes included in this report . those statements in the following discussion that are not historical in nature should be considered to be forward-looking statements that are inherently uncertain . see “ cautionary statement regarding forward-looking statements. ” specialty products our specialty products segment operates in industry as arc specialty products . ethylene oxide , at the 100 % level , is sold as a sterilant gas , primarily for use in the health care industry . it is used to sterilize a wide range of medical devices because of its versatility and effectiveness in treating hard or soft surfaces , composites , metals , tubing and different types of plastics without negatively impacting the performance of the device being sterilized . our 100 % ethylene oxide product is distributed in uniquely designed , recyclable , double-walled , stainless steel drums to assure compliance with safety , quality and environmental standards as outlined by the epa and the dot . our inventory of these specially built drums , along with our two filling facilities , represents a significant capital investment . contract sterilizers and medical device manufacturers are our principal customers for this product . in addition , we also sell single use canisters with 100 % ethylene oxide for use in medical device sterilization . as a fumigant , ethylene oxide blends are highly effective in killing bacteria , fungi , and insects in spices and other seasoning materials .
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our primary business is the development , manufacture , sale and servicing of test handling , burn-in , thermal sub-systems and mems test solutions for the global semiconductor industry through our wholly-owned subsidiaries , delta design , inc. and rasco gmbh . this business is significantly dependent on capital expenditures by semiconductor manufacturers and test subcontractors , which in turn is dependent on the current and anticipated market demand for semiconductors that is subject to cyclical trends . we expect that the semiconductor equipment industry will continue to be cyclical and volatile in part because consumer electronics , the principal end market for integrated circuits , is a highly dynamic industry and demand is difficult to accurately predict . our other businesses produce mobile microwave communications equipment ( broadcast microwave services , inc. ) and video cameras and accessories ( cohu electronics division ) . industry analyst gartner , inc. said that the worldwide semiconductor market has slowed throughout 2011 and that three key factors are shaping the short-term outlook for semiconductor equipment : excess inventory , manufacturing overcapacity and slowing demand due to economic weakness . orders for semiconductor test and assembly equipment as reported by semiconductor equipment and materials international ( semi ) decreased during the second half of 2011 and were essentially flat from august through december , indicating order levels may have reached the bottom . over the long-term , we are optimistic about the prospects for the semiconductor equipment industry due to expanding applications and growing integrated circuit content in consumer , industrial and automotive applications . however , near-term business conditions are more uncertain as some of our customers are being cautious due in part to uncertainties in the macro-economic environment that are affecting consumer confidence and spending . recently , we have seen increased customer activity , particularly in automotive and consumer applications , which is an encouraging sign . however , we will continue to take prudent steps to control costs without compromising the funding of key product development programs . our non-semiconductor equipment businesses comprised approximately 19 % of our consolidated revenues during the three-year period ended december 31 , 2011 and were approximately 16 % for the year ended december 31 , 2011. our microwave communications equipment business develops , manufactures and sells mobile microwave communications equipment , antenna systems and associated equipment . these products are used in the transmission of video , audio , and telemetry data . applications for these microwave data-links include unmanned aerial vehicles ( uavs ) , public safety , security , surveillance , and electronic news gathering . customers for these products are government agencies , public safety organizations , uav program contractors , television broadcasters , and other commercial entities . our microwave communications equipment business continues to capitalize on its focus on the surveillance , uav and law enforcement markets . our video camera segment develops , manufactures and sells a wide variety of video cameras and related products , specializing in video solutions for security , surveillance and traffic monitoring . customers for these products are distributed among security , surveillance , traffic control/management , scientific imaging and machine vision . during fiscal 2011 , sales and operating income for our video camera operation benefitted from demand for our new helios product line . 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 . our most critical accounting estimates that we believe are the most important to an investor 's understanding of our financial results and condition and require complex management judgment include : revenue recognition , including the deferral of revenue on sales to customers , which impacts our results of operations ; estimation of valuation allowances and accrued liabilities , specifically product warranty , inventory reserves and allowance for bad debts , which impact gross margin or operating expenses ; 19 the recognition and measurement of current and deferred income tax assets and liabilities , unrecognized tax benefits and the valuation allowance on deferred tax assets , which impact our tax provision ; the assessment of recoverability of long-lived assets including goodwill and other intangible assets , which primarily impacts gross margin or operating expenses if we are required to record impairments of assets or accelerate their depreciation ; and the valuation and recognition of share-based compensation , which impacts gross margin , research and development expense , and selling , general and administrative expense . below , we discuss these policies further , as well as the estimates and judgments involved . we also have other policies that we consider key accounting policies ; however , these policies typically do not require us to make estimates or judgments that are difficult or subjective . revenue recognition : we generally recognize revenue upon shipment and title passage for established products ( i.e. , those that have previously satisfied customer acceptance requirements ) that provide for full payment tied to shipment . revenue for products that have not previously satisfied customer acceptance requirements or from sales where customer payment dates are not determinable is recognized upon customer acceptance . story_separator_special_tag as of december 31 , 2011 we do not believe there have been any events or circumstances that would require us to perform an interim goodwill impairment review , however , a sustained decline in cohu 's market capitalization below its book value could lead us to determine , in a future period , that an interim goodwill impairment review is required and may result in an impairment charge which would have a negative impact on our results of operations . long-lived assets , other than goodwill , are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable . conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset , a significant change in the extent or manner in which an asset is used , or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable . for long-lived assets , impairment losses are only recorded if the asset 's carrying amount is not recoverable through its undiscounted , probability-weighted future cash flows . we measure the impairment loss based on the difference between the carrying amount and estimated fair value . contingencies : we are subject to certain contingencies that arise in the ordinary course of our businesses which require us to assess the likelihood that future events will confirm the existence of a loss or an impairment of an asset . if a loss or asset impairment is probable and the amount of the loss or impairment is reasonably estimable , we accrue a charge to operations in the period such conditions become known . share-based compensation : share-based compensation expense related to stock options is recorded based on the fair value of the award on its grant date which we estimate using the black-scholes valuation model . share-based compensation expense related to restricted stock unit awards is calculated based on the market price of our common stock on the grant date , reduced by the present value of dividends expected to be paid on our common stock prior to vesting of the restricted stock unit . recent accounting pronouncements for a description of accounting changes and recent accounting pronouncements , including the expected dates of adoption and estimated effects , if any , on our consolidated financial statements , see note 1 , `` recent accounting pronouncements '' in part iv , item 15 ( a ) of this form 10-k. 21 story_separator_special_tag deferred tax liability recorded as part of the 2008 acquisition of rasco , a german corporation , was not a source of taxable income in assessing the realization of our dtas in the u.s. for a full reconciliation of our effective tax rate to the u.s. federal statutory rate and further explanation of our provision for income taxes , see note 6 , income taxes , included in part iv , item 15 ( a ) of this form 10-k , which is incorporated herein by reference . as a result of the factors set forth above , our net income was $ 15.7 million in 2011 , compared to net income of $ 24.6 million in 2010 . 23 2010 compared to 2009 net sales during 2010 , our consolidated net sales were approximately $ 322.7 million , an increase of 88.4 % from the prior year . sales of semiconductor equipment increased 128.0 % to $ 273.6 million and accounted for 84.8 % of consolidated net sales in 2010 versus 70.1 % in 2009. during fiscal 2010 the sales of our semiconductor equipment business improved significantly as a result of high rates of equipment utilization on customer test floors that required investment in additional capacity , market share gains , and the sales synergies of our broad product line . sales of microwave communications equipment accounted for approximately $ 31.7 million or 9.8 % of consolidated net sales in 2010 , a decrease of 7.0 % when compared to 2009. the decrease during 2010 was primarily a result of lower sales to customers in the government surveillance market . additionally , 2009 sales included approximately $ 4.6 million of revenue previously deferred compared to approximately $ 3.1 million of revenue deferred from 2010 to a future year , in accordance with our revenue recognition policy . sales of video cameras accounted for 5.4 % of consolidated net sales in 2010 and increased $ 0.2 million or 1.3 % when compared 2009. gross margin our gross margin , as a percentage of net sales , increased to 34.1 % in 2010 from 30.6 % in 2009. while higher than 2009 , due to the leverage generated by increased business volume and lower charges for excess and obsolete inventory , our gross margin in 2010 was impacted by higher costs due to the unforecasted production of our new test handlers in our poway plant , rather than at lower cost subcontractors , to meet customer delivery requirements and other new product start-up costs . during 2010 and 2009 , we recorded net charges to cost of sales of approximately $ 1.7 million and $ 4.4 million , respectively , for excess and obsolete inventory . research and development expense during 2010 r & d expense as a percentage of net sales was 11.2 % compared to 18.7 % in 2009 , increasing in absolute dollars from $ 32.0 million in 2009 to $ 36.2 million in 2010. during 2010 , r & d spending increased , primarily within our semiconductor equipment business , as a result of reinstating employee pay cuts that were in effect during 2009 and increased material costs related to product development .
| results of operations the following table summarizes certain operating data from continuing operations as a percentage of net sales in each of the last three years . replace_table_token_9_th 2011 compared to 2010 net sales during 2011 , our consolidated net sales were approximately $ 309.0 million , a decrease of 4.2 % from the prior year . sales of semiconductor equipment decreased 4.7 % from $ 273.6 million to $ 260.6 million and accounted for 84.4 % of consolidated net sales in 2011 versus 84.8 % in 2010. during 2011 , sales of our semiconductor equipment business were impacted by excess semiconductor inventory , manufacturing overcapacity and slowing semiconductor demand due to continued economic weakness that resulted in lower equipment utilization and reduced orders during the second half of the year . conversely , in 2010 our sales of semiconductor equipment benefitted from high rates of equipment utilization which required our customers to invest in additional capacity . our sales in 2010 also benefitted from market share gains and capacity additions on new test floors . sales of microwave communications equipment accounted for approximately $ 30.0 million or 9.7 % of consolidated net sales in 2011 and decreased 5.5 % when compared to 2010. the sales decrease during 2011 was due to lower sales of antenna systems to customers in the government surveillance market resulting primarily from a delay in the receipt of certain customer orders that were delayed to fiscal 2012. sales of video cameras accounted for 5.9 % of consolidated net sales in 2011 and increased $ 1.0 million or 5.5 % when compared to 2010. the increase in 2011 sales resulted from increased demand for high definition traffic monitoring products . gross margin gross margin consists of net sales less cost of sales . cost of sales consists primarily of the cost of materials , assembly and test labor and overhead from operations .
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long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell . no 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 breakthrough 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 methemo-globinemia , which occurs as a reaction to some common drugs used in hospitals and outpatient procedures . our pvi ® parameter measures dynamic changes in 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 . 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 3 , 2015 we estimate that the worldwide installed base of our pulse oximeters and oem monitors that incorporate masimo set ® and rainbow ® set ® was more than 1.3 million 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 ® , pronto-7 ® , 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 . our technology is supported by a substantial intellectual property portfolio that we have built through internal development and , to a lesser extent , acquisitions and license agreements . as of january 3 , 2015 , we had 702 issued and pending patents worldwide . we have exclusively licensed from our development partner , cercacor , the right to oem rainbow ® technology and incorporate rainbow ® technology into our products intended to be used by professional caregivers , including , but not limited to , hospital caregivers and alternate care facility caregivers . dividend payments our board of directors ( board ) continuously evaluates a variety of options to return value to stockholders , including acquisition opportunities , stock buy-back programs and dividends . in 2012 , after considering all available options at those times , our board concluded that the best and most direct way to reward stockholders for their continued investment and confidence in masimo was through the declaration of cash dividends . story_separator_special_tag the acquisition of phasein 's technologies complements our breakthrough innovations for patient monitoring with a portfolio of products ranging from oem solutions for external “ plug-in-and-measure ” capnography and gas analyzers and integrated modules to handheld capnometer devices . with multiple measurements delivered through either mainstream or sidestream options , our customers can benefit from co 2 , n 2 o , o 2 and anesthetic agent monitoring in many hospital environments , such as operating rooms , procedural sedation and intensive care units . for additional information , see note 4 to our accompanying consolidated financial statements . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > and december 28 , 2013 , respectively . litigation award and defense costs . litigation award and defense costs for fiscal years 2014 and 2013 were as follows ( dollars in thousands ) : replace_table_token_9_th two of our former physician office sales representatives filed employment-related claims against us in 2011 regarding our noninvasive hemoglobin monitoring products . in january 2014 , an arbitrator awarded the plaintiffs approximately $ 5.4 million in damages . as a result of this award , we recorded a charge of $ 8.0 million in the fiscal quarter ended december 28 , 2013 , which included $ 5.4 million in damages and $ 2.6 million in defense-related costs . we challenged the award in the u.s. district court 61 for the central district of california , and in april 2014 , the district court vacated the award . accordingly , we reversed the previous $ 8.0 million charge in the fiscal quarter ended march 29 , 2014. 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 , is not included in “ net income attributable to masimo corporation stockholders ” within our results of operations . non-operating expense . non-operating expense consists primarily of interest income , interest expense and foreign exchange losses . non-operating expense for fiscal years 2014 and 2013 were as follows ( dollars in thousands ) : replace_table_token_10_th non-operating expense was $ 1.5 million for the year ended january 3 , 2015 , as compared to $ 4.0 million for the year ended december 28 , 2013 . this net change of $ 2.5 million was primarily due to the recognition of $ 1.0 million of net realized and unrealized losses on foreign currency denominated transactions during the year ended january 3 , 2015 , as compared to $ 4.0 million during the year ended december 28 , 2013 . 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 . the net realized and unrealized losses recognized during the year ended december 28 , 2013 resulted primarily from the strengthening of the u.s. dollar against the japanese yen , partially offset by the weakening of the u.s. dollar against the euro . we also incurred higher interest expense of approximately $ 0.6 million during the year ended january 3 , 2015 related to borrowings under our revolving credit agreement . provision for income taxes . our provision for income taxes for fiscal years 2014 and 2013 were as follows ( dollars in thousands ) : replace_table_token_11_th our provision for income taxes was $ 27.7 million for the year ended january 3 , 2015 compared to $ 20.0 million for the year ended december 28 , 2013 . our effective tax rate was 27.1 % for the year ended january 3 , 2015 compared to 26.4 % for the year ended december 28 , 2013 . this increase in our effective tax rate during the year ended january 3 , 2015 was primarily due to the realization of a one-time tax rate benefit of 1.4 % during the year ended december 28 , 2013 related to the american taxpayer relief act of 2012 ( tax act ) , which retroactively reinstated the federal research tax credit back to fiscal year 2012. also contributing to the increased tax rate during the year ended january 3 , 2015 was an unfavorable shift in the geographic composition of our pre-tax earnings between higher tax and lower tax jurisdictions during the year ended january 3 , 2015 . partially offsetting these increases was the non-recurrence of a $ 2.0 million tax charge recorded during the year ended december 28 , 2013 related to the establishment of a valuation allowance against the net deferred tax assets of cercacor . this $ 2.0 million charge was entirely attributable to noncontrolling interests , and therefore , is not included in “ net income attributable to masimo corporation stockholders ” within our results of operations . 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
| 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_3_th 59 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 the company 's 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_4_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 . approximately $ 5.0 million of this increase was due to the extra week in the current fiscal year ( which consisted of 53 weeks versus 52 weeks in the prior fiscal year ) and higher consumable product sales resulting from an increase in our installed base of circuit boards and pulse oximeters , which we estimate totaled 1,313,000 units at january 3 , 2015 , up from 1,205,000 units at december 28 , 2013 . offsetting this increase was approximately $ 4.3 million related to unfavorable movements in foreign exchange rates during the year that reduced the u.s. dollar value of foreign sales denominated in various foreign currencies relative to fiscal 2013. total rainbow ® product revenue increased $ 2.9 million , or 6.0 % , to $ 51.8 million in the year ended january 3 , 2015 from $ 48.8 million in the year ended december 28 , 2013 . our royalty revenue increased $ 0.1 million to $ 29.9 million in the year ended january 3 , 2015 , from $ 29.8
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inputs may be observable , meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources , or unobservable , meaning those that reflect the reporting entity 's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information story_separator_special_tag the following section discusses management 's view of the financial condition , results of operations and cash flows of diodes incorporated and its subsidiaries ( collectively , the company , our company , we , our , ours , or us ) and should be read together with the consolidated financial statements and the notes to consolidated financial statements included elsewhere in this form 10-k. the following discussion contains forward-looking statements and information relating to our company . we generally identify forward-looking statements by the use of terminology such as may , will , could , should , potential , continue , expect , intend , plan , estimate , anticipate , believe , project , or similar phrases or the negatives of such terms . we base these statements on our beliefs as well as assumptions we made using information currently available to us . such statements are subject to risks , uncertainties and assumptions , including those identified in part i , item 1a.risk factors , as well as other matters not yet known to us or not currently considered material by us . should one or more of these risks or uncertainties materialize , or should underlying assumptions prove incorrect , actual results may vary materially from those anticipated , estimated or projected . given these risks and uncertainties , prospective investors are cautioned not to place undue reliance on such forward-looking statements . forward-looking statements do not guarantee future performance and should not be considered as statements of fact . you should not unduly rely on these forward-looking statements , which speak only as of the date of this annual report on form 10-k. unless required by law , we undertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise . the private securities litigation reform act of 1995 ( the act ) provides certain safe harbor provisions for forward-looking statements . all forward-looking statements made in this annual report on form 10-k are made pursuant to the act . summary of the year ended december 31 , 2012 net sales for 2012 was $ 634 million , compared to $ 635 million in 2011 ; gross profit for 2012 was $ 162 million , or 25 % of net sales , a decrease of 17 % from the $ 194 million , or 30 % of net sales , in 2011 ; net income attributable to common stockholders for 2012 was $ 24 million , or $ 0.51 per diluted share , a decrease of 53 % from the $ 51 million , or $ 1.09 per diluted share , in 2011 ; cash flow from operations for 2012 was $ 64 million , an increase of 4 % from the $ 62 million in 2011 ; and announced three acquisitions as part of our strategy to purse selective strategic acquisitions . overview of 2012 late in the first quarter of 2012 , we began to see signs of a recovery in our end-markets . we took advantage of this renewed strength by significantly reducing our lower margin finished goods inventory , which helped to support revenue and secure incremental market share gains . as a result , we achieved moderate sequential revenue growth , which was significantly better than the typical seasonal slowness . however , our decision to reduce inventory combined with increased pricing pressure and lower utilization , continued to impact margins during the quarter . we believed that the first quarter represented the low point in the cycle and that overall demand was beginning to improve across all of our geographies . as such , we shifted our strategy back to our growth model to aggressively capture additional market share . we begun adding capacity for new , more advanced packaging at our shanghai facilities to support our anticipated growth . as the demand and pricing environment improves further , we will transition available capacity to higher margin products to enhance our product mix and margins going forward . during the second quarter of 2012 , we had 10 % sequential growth in net sales driven by improved demand across all of our geographies and end-markets as we continued to gain market share . the second quarter benefited from the ramping of new projects for our products used in smartphones and tablets , where we are very well positioned . our growth was particularly noteworthy considering our stronger than seasonal results in the first quarter , which traditionally is the low point in the demand cycle . margins also improved in the second quarter as we began to slowly shift to higher margin products , while also benefiting from new product initiatives and manufacturing efficiency improvements . in addition , we have made targeted capital expenditures in our shanghai facilities to increase capacity for specific packages and products . despite the slowdown in the general market during the third quarter of 2012 , we were able to achieve 5 % sequential growth and meet our expectations due to past design wins and new product initiatives that drove further market share gains . the third quarter was our third consecutive quarter of growth as we continued to increase sales for our products used in smartphones and tablets , while also benefiting from a rebound in led tvs and a strong quarter in automotive . gross margin improved moderately in the third quarter but remained under pressure primarily due to the effects of the generally weak global economy . story_separator_special_tag see risk factors we are and will continue to be under continuous pressure from our customers and competitors to reduce the price of our products , which could adversely affect our growth and profit margins in part i , item 1a of this annual report for additional information . for the years ended december 31 , 2012 , 2011 and 2010 , our original equipment manufacturers ( oem ) and electronic manufacturing services ( ems ) customers together accounted for 47 % , 47 % and 46 % of net sales , respectively , while our global network of distributors accounted for 53 % , 53 % and 54 % of net sales , respectively . our gross profit margin was 25 % in 2012 , compared to 30 % in 2011 and 37 % in 2010. our gross profit margin decreased in 2012 primarily due to a weaker pricing environment and product mix coupled with increased manufacturing costs due mainly to raw materials cost increases , particularly gold , and lower equipment utilization . future gross profit margins will depend primarily on our product mix , manufacturing cost savings , and the demand for our products . for 2012 , the percentage of our net sales derived from our asian subsidiaries was 79 % , compared to 75 % in 2011 and 73 % in 2010. the 2012 increase in sales in asia was helped by the increased demand for smartphones and tablets . europe accounted for approximately 11 % , 13 % and 12 % of our net sales in 2012 , 2011 and 2010 , respectively . the 2012 decrease in europe was mainly due to continued economic uncertainty . in addition , north america accounted for approximately 10 % , 12 % and 15 % of our net sales in 2012 , 2011 and 2010 , respectively . the 2012 decrease in north america was mainly due to the decline in the industrial market . as of december 31 , 2012 , we had invested approximately $ 398 million in our manufacturing facilities in china . during 2012 , we invested approximately $ 50 million in these manufacturing facilities , and we expect to continue to invest in our manufacturing facilities , although the amount to be invested will depend on product demand and new product developments . for 2012 , our capital expenditures , excluding capital expenditures related to our manufacturing facilities in chengdu , china , were approximately 7 % of our net sales , which is lower than our historical 10 % to 12 % of net sales model as we delayed capital investments in the third and fourth quarters in response to market conditions . for 2013 , based on current market conditions and excluding chengdu building expenditures , we expect capital expenditures to be 7 % to 9 % of net sales . our investment in research and development for 2012 increased to $ 34 million , or 5 % of net sales , compared to $ 27 million , or 4 % of net sales , in 2011. we expect research and development costs to continue to increase as we look to invest in developing new products . description of sales and expenses net sales the principal factors that have affected or could affect our net sales from period to period are : the condition of the economy in general and of the semiconductor industry in particular , our customers ' adjustments in their order levels , changes in our pricing policies or the pricing policies of our competitors or suppliers , the addition or termination of key supplier relationships , the rate of introduction and acceptance by our customers of new products , our ability to compete effectively with our current and future competitors , our ability to enter into and renew key corporate and strategic relationships with our customers , vendors and strategic alliances , changes in foreign currency exchange rates , a major disruption of our information technology infrastructure , unforeseen catastrophic events , such as armed conflict , terrorism , fires , typhoons and earthquakes , and any other disruptions , such as labor shortages , unplanned maintenance or other manufacturing problems . -31- cost of goods sold cost of goods sold includes manufacturing costs for our semiconductors and our wafers . these costs include raw materials used in our manufacturing processes as well as labor costs and overhead expenses . cost of goods sold is also impacted by yield improvements , capacity utilization and manufacturing efficiencies . in addition , cost of goods sold includes the cost of products that we purchase from other manufacturers and sell to our customers . cost of goods sold is also affected by inventory obsolescence if our inventory management is not efficient . selling , general and administrative expenses selling , general and administrative expenses relate primarily to compensation and associated expenses for personnel in general management , sales and marketing , information technology , engineering , human resources , procurement , planning and finance , and sales commissions , as well as outside legal , accounting and consulting expenses , and other operating expenses . research and development expenses research and development expenses consist of compensation and associated costs of employees engaged in research and development projects , as well as materials and equipment used for these projects . research and development expenses are primarily associated with our wafer facilities near kansas city , missouri and manchester , united kingdom ( u.k. ) and our manufacturing facilities in china , as well as with our engineers in the u.s. and taiwan . all research and development expenses are expensed as incurred . amortization of acquisition-related intangible assets amortization of acquisition-related intangible assets consists of amortization of acquisition-related intangible assets , such as developed technologies and customer relationships . gain on sale of assets gain on sale of assets consists of the sale of certain assets such as intangibles or buildings . interest income / expense interest income consists of interest earned on our cash and investment balances .
| results of operations the following table sets forth , for the periods indicated , the percentage that certain items in the statement of income bear to net sales and the percentage dollar increase ( decrease ) of such items from period to period . replace_table_token_6_th the following discussion explains in greater detail our consolidated operating results and financial condition . this discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this annual report ( in thousands ) . year 2012 compared to year 2011 replace_table_token_7_th net sales for 2012 decreased $ 1 million to $ 634 million from $ 635 million for 2011. the small decrease in net sales represented an approximately 10 % increase in units sold , which was offset by a 10 % decrease in asp . asp was impacted by pricing pressure and product mix . -33- the following table sets forth the geographic breakdown of our net sales for the periods indicated based on the country to which the product is billed : replace_table_token_8_th replace_table_token_9_th cost of goods sold increased $ 31 million , or 7 % , for 2012 to $ 472 million , compared to $ 442 million for 2011. as a percent of sales , cost of goods sold increased from 70 % for 2011 to 75 % for 2012. our average unit cost ( aup ) decreased approximately 3 % . although aup decreased , it was not enough to offset the reduction in asp . gross profit for 2012 decreased 17 % to $ 162 million from $ 194 million for 2011. gross profit as a percentage of net sales was 25 % for 2012 , compared to 30 % for 2011. the decrease in gross margin was primarily due to a weaker pricing environment and product mix coupled with increased manufacturing costs due mainly to raw material cost increases , particularly gold , and lower equipment utilization .
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the tax benefit of these excess deductions story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with the section titled selected financial data and our audited financial statements and related notes which are included elsewhere in this annual report on form 10-k. our actual results could differ materially from those anticipated in the forward-looking statements included in this discussion as a result of certain factors , including , but not limited to , those discussed in risk factors included elsewhere in this annual report on form 10-k. overview we are a leading provider of cloud-based supply chain management solutions , providing prewired , proven integrations and comprehensive retail performance analytics to thousands of customers worldwide . we provide our solutions through the sps commerce platform , a cloud-based services suite that improves the way suppliers , retailers , distributors and other customers manage and fulfill orders . we derive the majority of our revenues from thousands of monthly recurring subscriptions from businesses that utilize our solutions . we plan to continue to grow our business by further penetrating the supply chain management market , increasing revenues from our customers as their businesses grow , expanding our distribution channels , expanding our international presence and , from time to time , developing new solutions and applications . we also intend to selectively pursue acquisitions that will add customers , allow us to expand into new regions or allow us to offer new functionalities . for 2013 , 2012 and 2011 , we generated revenues of $ 104.4 million , $ 77.1 million and $ 58.0 million , respectively . our fiscal quarter ended december 31 , 2013 represented our 52 nd consecutive quarter of increased revenues . recurring revenues from recurring revenue customers accounted for 89 % , 88 % and 85 % of our total revenues for 2013 , 2012 and 2011 , respectively . our revenues are not concentrated with any customer , as our largest customer represented 2 % or less of total revenues in 2013 , 2012 and 2011. key financial terms and metrics sources of revenues trading partner integration . our revenues primarily consist of monthly revenues from our customers for our trading partner integration solution . this solution consists of a monthly subscription fee and a transaction-based fee . we also receive set-up fees for initial integration services we provide to our customers . most of our customers have contracts with us that may be terminated by the customer by providing 30 days prior notice . trading partner enablement . our trading partner enablement solution helps organizations , typically large retailers , to implement new integrations with trading partners . this solution ranges from electronic data interchange testing and certification to more complex business workflow automation and results in a one-time payment to us . trading partner intelligence . our trading partner intelligence solution consists of data analytics applications which allow our customers to improve their visibility across , and analysis of , their supply chains . through interactive data analysis , our retailer customers improve their visibility into supplier performance and their understanding of product sell-through . our revenues for this solution primarily consist of a monthly subscription fee . other trading partner solutions . the remainder of our revenues is derived from solutions that allow our customers to perform tasks such as barcode labeling or picking-and-packaging information tracking as well as purchases of miscellaneous supplies . these revenues are primarily transaction-based . 30 cost of revenues and operating expenses overhead allocation . we allocate overhead expenses such as rent , certain employee benefit costs , office supplies and depreciation of general office assets to cost of revenues and operating expenses categories based on headcount . cost of revenues . cost of revenues consist primarily of personnel costs for our implementation teams , customer support personnel and application support personnel . cost of revenues also includes our cost of network services , which is primarily data center costs for the locations where we keep the equipment that serves our customers , and connectivity costs that facilitate electronic data transmission between our customers and their trading partners . sales and marketing expenses . sales and marketing expenses consist primarily of personnel costs for our sales , marketing and product management teams , commissions earned by our sales personnel and marketing costs . in order to expand our business , we will continue to add resources to our sales and marketing efforts over time . research and development expenses . research and development expenses consist primarily of personnel costs for development and maintenance of existing solutions . our research and development group is also responsible for enhancing existing solutions and applications as well as internal tools and developing new information maps that integrate our customers to their trading partners in compliance with those trading partners ' requirements . general and administrative expenses . general and administrative expenses consist primarily of personnel costs for finance , human resources and internal information technology support , as well as legal , accounting and other fees , such as credit card processing fees . other metrics recurring revenue customers . as of december 31 , 2013 , we had approximately 19,700 customers with contracts to pay us monthly fees , which we refer to as recurring revenue customers . we report recurring revenue customers at the end of a period . a small portion of our recurring revenue customers consists of separate units within a larger organization . we treat each of these units , which may include divisions , departments , affiliates and franchises , as distinct customers . average recurring revenues per recurring revenue customer . we calculate average recurring revenues per recurring revenue customer , which we also refer to as wallet share , by dividing the recurring revenues from recurring revenue customers for the period by the average of the beginning and ending number of recurring revenue customers for the period . story_separator_special_tag to the extent that our future collections differ from our assumptions based on historical experience , the amount of our bad debt and allowance recorded may be different . income taxes we account for income taxes using the liability method , which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements . under this method , deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse . deferred tax assets are reduced by a valuation allowance when it is not more likely than not that the deferred tax asset will be utilized . we assess our ability to realize our deferred tax assets on a regular and periodic basis . realization of our deferred tax assets is contingent upon future taxable earnings . accordingly , this assessment requires significant estimates and judgment . if the estimates of future taxable income vary from actual results , our assessment regarding the realization of these deferred tax assets could change . future changes in the estimated amount of deferred taxes expected to be realized will be reflected in our consolidated financial statements in the period the estimate is changed , with a corresponding adjustment to our operating results . we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit . for tax positions meeting the more likely than not threshold , the amount recognized in the financial statements is the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement with the relevant tax authority . stock-based compensation stock-based compensation is measured at the grant date , based on the fair value of the award , and is recognized as an expense over the vesting period of the award . determining the appropriate fair value model and calculating the fair value of stock-based payment awards require the use of subjective assumptions , including the expected life of the stock-based payment awards and stock price volatility . we use the black-scholes option pricing model to value our award grants and determine the related compensation expense . the assumptions used in calculating the fair value of stock-based payment awards represent management 's best estimates , but the estimates involve inherent uncertainties and the application of management judgment . as a result , if factors change and we use different assumptions , our stock-based compensation expense could be materially different in the future . we expect to continue to grant stock-based awards in the future , and to the extent that we do , our actual stock-based compensation expense recognized in future periods will likely increase . prior to becoming a public entity in 2010 , historic volatility was not available for our shares . as a result , we estimated volatility based on a peer group of companies , which collectively provided a reasonable basis for estimating volatility . we intend to continue to consistently use the same group of publicly traded peer companies to determine volatility in the future until sufficient information regarding volatility of our share price becomes available or the selected companies are no longer suitable for this purpose . valuation of goodwill and purchased intangible assets goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination . assets acquired may include identifiable intangible assets , such as subscriber 33 relationships , which are recognized separately from goodwill . historically , we have engaged a third-party valuation firm to assist us in the determination of the value and useful lives of the purchased intangible assets using certain estimates and assumptions . we test goodwill for impairment annually at december 31 , or more frequently if events or changes in circumstances indicate that the asset might be impaired . the impairment test is conducted by comparing the fair value of the net assets with the carrying value of the reporting unit . fair value is determined using the direct market observation of market price and outstanding equity of the reporting unit at december 31. if the carrying value of the goodwill were to exceed the fair value of the reporting unit , the goodwill may be impaired . if this were to occur , the fair value would then be allocated to assets and liabilities in a manner similar to a purchase price allocation in order to determine the implied fair value of the goodwill . this implied fair value would then be compared to the carrying amount of the goodwill and , if it were less , an impairment loss would be recognized . story_separator_special_tag :0px '' > replace_table_token_10_th non-gaap income per share . non-gaap income per share , which is also a non-gaap measure of financial performance , consists of net income plus non-cash , stock-based compensation expense and amortization expense related to intangible assets divided by the weighted average number of shares of common stock outstanding during each period . the following table provides a reconciliation of net income to non-gaap income per share ( in thousands , except per share amounts ) : replace_table_token_11_th 36 year ended december 31 , 2012 compared to year ended december 31 , 2011 the following table presents our results of operations for the periods indicated ( dollars in thousands ) : replace_table_token_12_th due to rounding , totals may not equal the sum of the line items in the table above * percentage is not meaningful revenues . revenues for 2012 increased $ 19.1 million , or 33 % , to $ 77.1 million from $ 58.0 million for 2011. the increase in revenues resulted from two primary factors : the increase in recurring revenue customers and the increase in average recurring revenues per recurring revenue customer .
| results of operations year ended december 31 , 2013 compared to year ended december 31 , 2012 the following table presents our results of operations for the periods indicated ( dollars in thousands ) : replace_table_token_9_th due to rounding , totals may not equal the sum of the line items in the table above revenues . revenues for 2013 increased $ 27.3 million , or 35 % , to $ 104.4 million from $ 77.1 million for 2012. the increase in revenues resulted from two primary factors : the increase in recurring revenue customers and the increase in average recurring revenues per recurring revenue customer , which we also refer to as wallet share . the number of recurring revenue customers increased 10 % to 19,690 at december 31 , 2013 from 17,977 at december 31 , 2012 . 34 average recurring revenues per recurring revenue customer , or wallet share , increased 24 % to $ 4,920 for 2013 from $ 3,964 for 2012. this increase in wallet share was primarily attributable to increased fees resulting from increased usage of our solutions by our recurring revenue customers and growth in larger customers , including those acquired from edifice in 2012. recurring revenues from recurring revenue customers accounted for 89 % of our total revenues for 2013 , compared to 88 % for 2012. we anticipate that the number of recurring revenue customers and wallet share will continue to increase as we increase the number of solutions we offer and increase the penetration of those solutions across our customer base . cost of revenues . cost of revenues for 2013 were $ 31.8 million , an increase of $ 9.7 million , or 44 % , from $ 22.0 million for 2012. this increase was primarily due to increased headcount in 2013 which resulted in higher personnel costs .
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controls and procedures disclosure controls and procedures the company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the company files or submits under the securities exchange act of 1934 is recorded , processed , summarized , and reported within story_separator_special_tag overview we are a domestic provider of it and specialized healthcare staffing services to mostly large and medium-sized organizations . from july 1986 until our september 30 , 2008 spin-off , we conducted our business as subsidiaries of igate . we do not sell , lease or otherwise market any computer software or hardware , and 100 % of our revenues are derived from the sale of information technology and specialized healthcare staffing services . on january 2 , 2010 , we acquired curastat , inc. , an arizona-based provider of specialized healthcare staffing services . this acquisition furthers our growth and service offering diversification strategies by providing an entry point into the specialized healthcare staffing space . during 2010 and 2011 , we expanded these operations geographically and added to our portfolio of service offerings . this acquisition is more fully discussed in note 2 , acquisition , to the consolidated financial statements contained in item 8 of this form 10-k. on january 11 , 2010 , the company sold its brokerage operations service offerings ( operated under the name global financial services of nevada ) , as more fully discussed in note 17 , divestiture of our brokerage operations service offerings to the consolidated financial statements contained in item 8 of this form 10-k. economic trends and outlook generally , our business outlook is highly correlated to general u.s. economic conditions . during periods of increasing employment and economic expansion , demand for our services tends to increase . conversely , during periods of contracting employment and / or a slowing domestic economy , demand for our services tends to decline . as the economy slowed during the last half of 2007 and recessionary conditions emerged in 2008 and during much of 2009 , we experienced less demand for our staffing services . during the second half of 2009 , we began to see signs of market stabilization and a modest pick-up in activity levels within certain sales channels and technologies . during 2010 , market conditions continued to strengthen over the course of the year and activity levels within most of our sales channels progressively improved . in 2011 , activity levels have continued to trend up in most technologies and sales channels . as we enter 2012 , we are encouraged by the recent strengthening of the domestic job market . however , concern and uncertainty about the global economy is reason for caution when assessing expectations for 2012. in addition to tracking general u.s. economic conditions , a large portion of our revenues are generated from a limited number of clients ( see item 1a , the risk factor entitled our revenues are highly concentrated and the loss of a significant client would adversely affect our business and revenues ) . accordingly , our trends and outlook are additionally impacted by the prospects and well-being of these specific clients . by way of illustration , during the second half of 2006 , while general u.s. economic conditions were positive , we experienced a decline in billable headcount and negative sequential quarterly revenue growth due to client-specific conditions at two of our larger clients . this account concentration factor may result in our results of operations deviating from the prevailing u.s. economic trends from time to time . in recent years , a larger portion of our revenues have come from our wholesale it sales channel , which consists largely of strategic relationships with systems integrators and other staffing organizations . this channel tends to carry lower gross margins , but provides higher volume opportunities . should this trend in our business mix continue , it is likely that our overall gross margins will decline . within our retail it sales channel , many larger users of it staffing services are employing managed service providers ( msp ) to manage their contractor spending in an effort to drive down overall costs . should the trend towards utilizing the msp model continue , it is likely that our gross margins will be pressured in the future . 21 recent developments on february 7 , 2012 , the company announced that it was commencing a modified dutch auction tender offer to repurchase up to 608,000 shares of its common stock , in accordance with schedule to , filed with the securities and exchange commission on february 7 , 2012. the results of this corporate action was the repurchase of 429,886 shares of the company 's common stock on march 13 , 2012 , at a price of $ 5.50 per share . the total cash outlay needed to complete this transaction was provided from cash on hand . the acquired shares will be held in treasury . story_separator_special_tag style= '' border-collapse : collapse '' width= '' 100 % '' > general and administrative expenses increased by $ 0.7 million . severance expense related to the elimination of several executive positions was responsible for $ 0.4 million of this increase . higher bonus and business travel expenses largely accounted for the balance of the increase in 2011. other income / ( expense ) components in 2011 , other income / ( expense ) consisted of net interest expense of $ 38,000 , foreign exchange losses of $ 26,000 and a $ 5,000 loss related to the closure of a joint venture . in 2010 , other income / ( expense ) consisted of $ 22,000 of net interest expense and $ 4,000 in foreign exchange losses . story_separator_special_tag the severance expense incurred in 2009 largely related to the company 's leadership change . 25 other income / ( expense ) components in 2010 , other income / ( expense ) consisted of net interest expense of $ 22,000 and foreign exchange losses of $ 4,000. in 2009 , other income / ( expense ) consisted of $ 17,000 of net interest expense , a $ 21,000 loss in a joint venture , and $ 11,000 in foreign exchange losses . income tax expense income tax expense for 2010 was $ 375,000 , representing an effective tax rate on pre-tax income of 36.1 % , compared to $ 875,000 for 2009 , which represented an effective tax rate on pre-tax income of 38.5 % . the lower effective tax rate in 2010 reflected a lower aggregate state income tax rate , compared to 2009 , and a favorable accrual adjustment related to our 2009 federal income tax return . liquidity and capital resources financial condition and liquidity at december 31 , 2011 , we had $ 5.8 million of cash and equivalents , no outstanding debt , and a tangible net worth of $ 12.5 million . this compares to $ 6.3 million of cash and equivalents , no outstanding debt , and a tangible net worth of $ 11.9 million at december 31 , 2010. in addition to our cash balances , we have access to a revolving credit facility with $ 19 million of maximum availability under which our borrowing base was $ 13.7 million as of december 31 , 2011. on august 31 , 2011 , the company entered into a three-year credit facility with pnc bank , n.a . ( pnc ) , replacing its previous pnc credit facility that was set to expire on october 15 , 2011. the amended facility increases maximum credit capacity to $ 19 million from $ 10 million under the previous facility . this facility is more fully described in note 7 credit facility , to the consolidated financial statements , included in item 8 herein . historically , we have funded our business needs with cash generated from operating activities . in the staffing services industry , investment in operating working capital levels ( defined as current assets minus cash and cash equivalents and current liabilities ) is a significant use of cash . controlling our operating working capital levels by closely managing our accounts receivable balance is an important element of cash preservation . our accounts receivable days sales outstanding ( dso's ) measurement was 47 days at december 31 , 2011 and 46 days at december 31 , 2010. we believe that effectively managing our dso 's has been an important factor in maximizing our cash flows in recent years . cash provided by operating activities , our cash and cash equivalents balances on hand at december 31 , 2011 and current availability under our credit facility are expected to be adequate to fund our business needs over the next 12 months . below is a tabular presentation of cash flow activities for the periods discussed : replace_table_token_6_th operating activities cash provided by operating activities for the years ended december 31 , 2011 , 2010 and 2009 totaled $ 0.4 million , $ 0.4 million and $ 2.7 million , respectively . factors contributing to cash flows during the 2011 period included net income of $ 1.1 million , non-cash charges of $ 0.3 million ( principally related to stock-based compensation and depreciation & amortization expense ) offset by an increase in operating working capital of $ 1.0 million . in 2010 , cash flows from operating activities included net income of $ 0.7 million , non-cash charges 26 of $ 0.5 million and an offsetting increase in operating working capital of $ 0.8 million . the increase in operating working capital reflects higher activity levels and revenue growth experienced in both 2011 and 2010. in 2009 , cash flows from operating activities included net income of $ 1.4 million , non-cash charges of $ 0.7 million and a decrease in operating working capital of $ 0.6 million . the decline in operating working capital was largely due to lower activity levels experienced during 2009. we would expect operating working capital levels to increase should revenue growth continue in 2012. such an increase would have a negative impact on cash generated from operating activities . we believe that dso 's are likely to remain in the 47 to 50-day range in 2012. investing activities cash used in investing activities for the years ended december 31 , 2011 , 2010 and 2009 totaled approximately $ 0.2 million , $ 1.3 million and $ 0.2 million , respectively . in 2011 and 2009 , capital expenditures accounted for all uses of cash in investing activities . in 2010 , the acquisition of curastat , inc. accounted for $ 1.1 million and capital expenditures approximated $ 0.2 million . we believe that investments in capital expenditures should approximate $ 0.3 million in 2012. financing activities in 2011 , cash used in financing activities totaled $ 0.7 million and principally related to common stock purchased under the company 's share repurchase program and deferred financing costs incurred in connection with our amended credit facility with pnc bank . in 2010 , financing activities largely consisted of approximately $ 0.1 million of net proceeds from stock option exercises . in 2009 , financing activity generated $ 0.2 million of cash flow related to excess tax benefits from share-based payments and proceeds from the exercise of stock options by our employees . contractual obligations and off-balance sheet arrangements we have financial commitments related to existing operating leases , primarily for office space that we occupy . our commitments are as follows : replace_table_token_7_th we do not have any off-balance sheet arrangements . inflation we do not believe that inflation had a significant impact on our results of operations for the periods presented .
| results of operations below is a tabular presentation of revenues and gross profit margins by sales channel for the periods discussed : revenues & gross margin by sales channel ( amounts in millions ) replace_table_token_4_th * permanent placement / fees are generated from clients within all three of our existing sales channels . in order to minimize the impact of the industry trends mentioned above on our operating margin , the company will need to continue lowering its operating cost structure as a percentage of total revenue through innovation and greater efficiencies . investments in our global recruitment centers , offshore telesales group , and technological improvements , coupled with continued cost rationalization efforts , should provide us with a cost-effective platform in which to deliver our services . 22 below is a tabular presentation of operating expenses by sales , operations and general and administrative categories for the periods discussed : selling , general & administrative ( s , g & a ) expense details ( amounts in millions ) replace_table_token_5_th 2011 compared to 2010 revenues revenues for the year ended december 31 , 2011 totaled $ 89.4 million , compared to $ 71.8 million for the year ended december 31 , 2010. this 24 % increase largely reflected higher demand for the company 's it staffing services and the geographical expansion of our healthcare staffing business . billable it consultant headcount at december 31 , 2011 increased by approximately 22 % to 555-consultants , compared to 456-consultants at december 31 , 2010. revenues from our wholesale it channel increased by approximately 25 % in 2011 compared to 2010. higher revenue levels from both staffing clients ( up 27 % ) and integrator clients ( up 24 % ) were driven by stronger demand for it services . retail it channel revenues increased by 14 % in 2011 compared to a year earlier . much of this increase came from higher demand at many of our msp clients .
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the following table summarizes the activity related to the company 's unrecognized tax benefits for the years ended december 31 , 2020 and 2019 ( in thousands ) : balance as of december 31 , 2018 $ 1,507 decreases related to tax positions taken during the prior year ( 80 ) increases related to tax positions taken during the current year 1,608 balance as of december 31 , 2019 3,035 decreases related to tax positions taken during the prior year ( 446 ) increases related to tax positions taken during the current year 2,003 balance as of december 31 , 2020 $ 4,592 if the unrecognized tax 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 elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties , including those described in the section titled “ special note regarding forward looking statements. ” our actual results and the timing of selected events could differ materially from those discussed below . factors that could cause or contribute to such differences include , but are not limited to , those identified below and those set forth under the section titled “ risk factors ” included elsewhere in this report . overview we are a clinical stage biopharmaceutical company pioneering immuno-neurology , a novel therapeutic approach for the treatment of neurodegeneration . immuno-neurology targets immune dysfunction as a root cause of multiple pathologies that are drivers of degenerative brain disorders . we are developing therapies designed to simultaneously counteract these pathologies by restoring healthy immune function to the brain . supporting our scientific approach , our discovery platform enables us to advance a broad portfolio of product candidates , validated by human genetics , which we believe will improve the probability of technical success over shorter development timelines . as a result we have identified over 100 immune system targets , have advanced four product candidates , al001 , al002 , al003 , and al101 into clinical development , and continue to develop our research pipeline . our operations have been financed primarily through the issuance and sale of convertible preferred stock , our collaboration with abbvie , and issuance of common stock upon the completion of our ipo . we completed our ipo in february 2019 , and received $ 168.2 million net proceeds , after deducting underwriting discounts and commissions and offering expenses . we completed a follow-on offering in january 2020 and received $ 224.5 million net proceeds , after deducting underwriting discounts and commissions and estimated offering expenses . to date , we have not had any products approved for sale and have not generated any revenue from product sales nor been profitable . further , we do not expect to generate revenue from product sales until such time , if ever , that we are able to successfully complete the development and obtain marketing approval for one of our product candidates . we will continue to require additional capital to develop our product candidates and fund operations for the foreseeable future . we have incurred net losses in each year since inception and expect to continue to incur net losses for the foreseeable future . our ability to generate product revenue will depend on the successful development and eventual commercialization of one or more of our product candidates . our net losses were $ 190.2 million , $ 105.4 million , and $ 52.2 million for the years ended december 31 , 2020 , 2019 , and 2018 , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 410.0 million . substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations . we expect our expenses will increase substantially in connection with our ongoing activities , as we : advance product candidates through preclinical studies and clinical trials ; pursue regulatory approval of product candidates ; hire additional personnel ; continue to operate as a public company ; acquire , discover , validate , and develop additional product candidates ; require the manufacture of supplies for our preclinical studies and clinical trials ; and obtain , maintain , expand , and protect our intellectual property portfolio . components of results of operations revenue we have not generated any revenue from product sales and do not expect to do so in the near future . our revenue to date has been primarily related to the abbvie agreement to co-develop product candidates in two 98 programs in clinical development with abbvie . we recognize revenue related to our research and development grant as the related research services are performed . we recognize revenue from the upfront payments under the abbvie agreement over time as the services are provided . revenues are recognized as the program costs are incurred by measuring actual costs incurred to date compared to the overall total expected costs to satisfy the performance obligation . in addition to receiving the upfront payments , we may also be entitled to development and regulatory milestone payments , opt-in payments for continued development after proof-of-concept for al002 and al003 , and other future payments from profit sharing or royalties after commercialization of product candidates from such programs . we expect that our revenue for the next several years will be derived primarily from the abbvie agreement . the balance of deferred revenue was $ 132.3 million as of december 31 , 2020. the deferred revenue is expected to be recognized over the research and development period of the programs through the completion of proof-of-concept for al002 and al003 . research and development expenses research and development expenses account for a significant portion of our operating expenses . we record research and development expenses as incurred . story_separator_special_tag the increase is also due to a $ 4.5 million increase in legal expense due to increased costs of operating as a public company , increased patent costs , and our arbitration proceeding that we commenced in june 2019. other income , net other income , net was $ 9.0 million for the year ended december 31 , 2019 , compared to $ 5.0 million for the year ended december 31 , 2018. the increase of $ 4.0 million was due to interest income earned after we invested the proceeds from the issuance of common stock upon completion of the ipo into marketable securities . liquidity and capital resources since our inception through december 31 , 2020 , our operations have been financed primarily by net proceeds of $ 210.5 million from sales of our convertible preferred stock and through the $ 205.0 million in upfront payments from the abbvie agreement . in addition , on february 7 , 2019 , we completed our ipo through issuing and selling 9,739,541 shares of common stock at a public offering price of $ 19.00 per share , including 489,541 shares sold pursuant to the underwriters ' partial exercise of their option to purchase additional shares , resulting in aggregate net proceeds from the offering of $ 168.2 million , after deducting underwriting discounts and commissions and offering costs . on january 30 , 2020 , we completed a follow-on offering through issuing and selling 9,602,500 shares of common stock at a public offering price of $ 25.00 per share , including 1,252,500 shares sold pursuant to the underwriters ' full exercise of their option to purchase additional shares , resulting in aggregate net proceeds of $ 224.5 million , after deducting underwriting discounts and commissions and estimated offering costs . as of december 31 , 2020 , we had $ 413.3 million of cash , cash equivalents , and marketable securities . as of december 31 , 2020 , we had an accumulated deficit of $ 410.0 million . 103 future funding requirements our primary uses of cash are to fund our operations , which consist primarily of research and development expenditures related to our programs , and to a lesser extent , general and administrative expenditures . we expect our expenses to continue to increase in connection with our ongoing activities , in particular as we continue to advance our product candidates and our discovery programs . in addition , we expect to incur additional costs associated with operating as a public company . based on our current operating plan , we believe that our existing cash , cash equivalents , and marketable securities will enable us to fund our operating expenses and capital expenditure requirements through at least mid-2022 . we have based this estimate on assumptions that may prove to be wrong , and we could utilize our available capital resources sooner than we currently expect . we may also choose to seek additional financing opportunistically . we expect to need to obtain substantial additional funding in the future for our research and development activities and continuing operations . if we were unable to raise capital when needed or on favorable terms , we would be forced to delay , reduce , or eliminate our research and development programs or future commercialization efforts . our future capital requirements will depend on many factors , including : the timing and progress of preclinical and clinical development activities ; the number and scope of preclinical and clinical programs we decide to pursue ; successful enrollment in and completion of clinical trials ; our ability to establish agreements with third-party manufacturers for clinical supply for our clinical trials and , if our product candidates are approved , commercial manufacturing ; our ability to maintain our current research and development programs and establish new research and development programs ; addition and retention of key research and development personnel ; our efforts to enhance operational , financial , and information management systems , and hire additional personnel , including personnel to support development of our product candidates ; negotiating favorable terms in any collaboration , licensing , or other arrangements into which we may enter and performing our obligations in such collaborations ; the timing and amount of milestone and other payments we may receive under our collaboration arrangements ; our eventual commercialization plans for our product candidates ; the costs involved in prosecuting , defending , and enforcing patent claims and other intellectual property claims , including related to the ongoing arbitration proceeding that we commenced in june 2019 ; and the costs and timing of regulatory approvals . a change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate . furthermore , our operating plans may change in the future , and we may need additional funds to meet operational needs and capital requirements associated with such operating plans . 104 cash flows the following table summarizes our cash flows for the periods indicated ( in thousands ) : replace_table_token_5_th operating activities for the year ended december 31 , 2020 , cash used in operating activities was $ 166.7 million . this was mainly due to the net loss of $ 190.2 million and the decrease in deferred revenue of $ 21.1 million as revenue was recognized related to the abbvie agreement . this was partially offset by a non-cash charges of $ 30.5 million for stock-based compensation and $ 5.9 million for depreciation and amortization expense . we also had an increase of $ 12.2 million in accrued liabilities and accrued clinical supply costs , which offset the cash used in operating activities . for the year ended december 31 , 2019 , cash used in operating activities was $ 99.3 million .
| results of operations comparison of the years ended december 31 , 2020 and 2019 replace_table_token_1_th revenue collaboration revenue was $ 21.1 million for the year ended december 31 , 2020 , compared to $ 21.2 million for the year ended december 31 , 2019. we recognize revenue from the upfront payments under the abbvie agreement over time as the services are provided . revenues are recognized as the program costs are incurred by measuring actual costs incurred to date compared to the overall total expected costs to satisfy the performance obligation . changes in estimates for revenue recognized over time are recognized on a cumulative basis . revenue decreased by $ 0.1 million , reflecting the level of our estimated cumulative research activities on the al002 and al003 programs under the abbvie agreement . 100 research and development expenses research and development expenses were $ 156.9 million for the year ended december 31 , 2020 , compared to $ 100.5 million for the year ended december 31 , 2019. the increase of $ 56.3 million was driven by a $ 23.3 million increase in al001 related to manufacturing runs and continued progression through clinical trials . we had a $ 15.6 million increase in personnel-related expenses , including stock-based compensation , due to an increase in headcount and issuance of option grants to employees . in addition , expenses increased by $ 9.9 million for al044 , a recent program to progress to preclinical trials , and increased by $ 6.6 million for other early stage programs as we continue to invest in developing our pipeline .
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these indices are weighted based upon the extent to which plan assets are invested in the particular categories in arriving at our determination of a composite expected return . the expected rate of return assumption that will be used to determine net periodic cost for 2015 is 6.75 % . the assumed health care cost trend rate used to calculate other postretirement employee benefit obligations as of december 31 , 2014 was 5.7 % for a certain group of participants under age 65 in our hourly plan and our arkansas participants covered by a collective bargaining agreement , grading ratably to an assumption of 4.3 % in 2094 . 64 / potlatch corporation a one percentage point change in the health care cost trend rates would have the following effects on our december 31 , 2014 consolidated financial statements : replace_table_token_51_th note 14. commitments and contingencies we have operating leases covering office space , equipment , land and vehicles expiring at various dates through 2033. as leases expire , story_separator_special_tag overview we delivered solid financial results in 2014 , raised our dividend , completed a strategic acquisition of approximately 201,000 acres of timberlands in alabama and mississippi , and preserved our investment grade rating . resource segment income increased approximately 16 % in 2014 , due largely to an increase in northern sawlog prices . lumber prices remained strong , which resulted in another strong year for our wood products segment . real estate activity included two large , opportunistic sales in 2014 , which resulted in a 48 % increase in the segment 's earnings . according to industry forecasts , total demand for north american lumber is anticipated to increase an additional 4 billion board feet , or approximately 8 % , over 2014 levels . the majority of the growth is expected in the new home construction market segment as the u.s. housing market continues its gradual recovery . factors such as home price increases , the cost of new mortgages , the mortgage approval process and the availability of desirable building lots will continue to play into the pace of the housing recovery . participation by first-time homebuyers has been low to this point in the recovery by historical standards , and would provide an additional boost to demand . we anticipate southern pine sawlog prices will remain flat in 2015. factors influencing our results of operations and cash flows the operating results of our resource , wood products and real estate business segments have been and will continue to be influenced by a variety of factors , including the cyclical nature of the forest products industry , changes in timber prices and in harvest levels from our timberlands , competition , timberland valuations , demand for our non-strategic timberland for higher and better use purposes , the efficiency and level of capacity utilization of our wood products manufacturing operations , changes in our principal expenses such as log costs , asset dispositions or acquisitions , and other factors . see part i - item 1. business for additional information . results of operations our business is organized into three reporting segments : resource , wood products and real estate . sales between segments are recorded as intersegment revenues based on prevailing market prices . approximately one-quarter of the resource segment 's sales have been to our wood products segment the last three years . our other segments generally do not generate intersegment revenues . in the period-to-period discussions of our consolidated results of operations , our revenues are reported after elimination of intersegment revenues . in the discussions by business segments , each segment 's revenues are presented before elimination of intersegment revenues . 28 / potlatch corporation consolidated results comparing 2014 with 2013 the following table sets forth year-to-year changes in items included in our consolidated statements of income for the years ended december 31 , 2014 and 2013 . replace_table_token_6_th revenues . revenues from all three business segments increased in 2014 over 2013. higher resource segment revenues were primarily due to increased prices . our real estate segment had a much higher volume of acres sold in 2014 and our wood products segment experienced both higher prices and increased shipments for manufactured wood products . a more detailed discussion of revenues follows in the operating results by business segments . cost of goods sold . cost of goods sold increased in 2014 over 2013 primarily due to higher log costs and labor-related expenses due to increased shipments by our wood products segment , increased acres sold by our real estate segment , and higher logging costs , forest management expenses and road costs in our resource business . selling , general and administrative expenses . selling , general and administrative expenses decreased in 2014 from 2013 primarily due to lower incentive plan expenses and non-cash mark-to-market adjustments related to our deferred compensation plans . environmental remediation charge . in 2013 , we recorded pre-tax charges of $ 3.5 million for remediation costs related to our avery landing site in idaho . physical clean-up activities at the site were completed in 2013. income taxes . our effective tax rate for 2014 was 18.0 % compared to 16.4 % in 2013. the increase resulted primarily from proportionately higher operating income in the trs . 2014 form 10-k / 29 business segment results comparing 2014 with 2013 resource segment replace_table_token_7_th revenues increased in 2014 over 2013 due to increased prices , primarily for sawlogs and pulpwood in idaho , and the increased volume of pulpwood harvested in idaho . higher prices accounted for $ 15.3 million of the revenue variance , while the decrease in total harvest volume accounted for a negative $ 3.2 million impact on the variance . in our northern region , approximately two-thirds of our sawlog sales are indexed to the price of lumber . sawlog prices increased due to improved lumber prices and stronger demand overall . story_separator_special_tag net cash from operations net cash provided from operating activities was : $ 131.4 million in 2014 , $ 90.3 million in 2013 and $ 80.0 million in 2012 . 34 / potlatch corporation year ended december 31 , 2014 compared to year ended december 31 , 2013 net cash from operating activities in 2014 increased $ 41.1 million from 2013 : cash received from customers increased $ 49.6 million , primarily due to increased sales and cash received by the resource , wood products and real estate segments . a more detailed discussion of revenues is included in the business segment results section . net cash outflows related to income taxes decreased $ 2.0 million . net cash paid for taxes in 2014 was $ 18.1 million compared to $ 20.1 million in 2013. partially offsetting the increase was : cash paid to employees , suppliers and others increased $ 8.2 million in 2014 from 2013 primarily due to higher log costs and labor-related expenses due to increased shipments by our wood products segment . cash contributions to our qualified pension plans increased $ 3.6 million in 2014 from 2013 , as we did not make a qualified pension plan contribution in 2013. year ended december 31 , 2013 compared to year ended december 31 , 2012 net cash from operating activities in 2013 increased $ 10.3 million from 2012 : cash received from customers increased $ 36.4 million , primarily due to increased sales and cash received by our resource and wood products segments , partially offset by decreased sales and cash received from our real estate segment . a more detailed discussion of revenues is included in the story_separator_special_tag # 000000 ; padding-left:2px ; padding-top:2px ; padding-bottom:2px ; padding-right:2px ; '' > actuals at december 31 , 2014 minimum interest coverage ratio 3.00 to 1.00 7.45 to 1.00 maximum leverage ratio 40 % 27 % maximum allowable acres that may be sold 433,051 6,822 the interest coverage ratio is our twelve months ended ebitdda , which is defined as net income adjusted for interest expense , income taxes , depreciation , depletion and amortization , the basis of real estate sold and non-cash equity compensation expense , divided by interest expense for the same period . the leverage ratio is our total funded indebtedness divided by our total asset value . our total funded indebtedness consists of our long-term debt , including any current portion of long-term debt , plus the total amount outstanding under the letter of credit subfacility . our total asset value per the credit agreement is defined as the value of our timberlands , the book basis of our wood products manufacturing facilities , cash and cash equivalents , short-term investments , the cash value of our company-owned life insurance ( coli ) , and the purchase price of timberlands acquired . the book basis of our wood products manufacturing facilities and the cash value of our coli are each limited to 5 % of total asset value . term loans on december 5 , 2014 , we entered into an amended and restated term loan agreement totaling $ 322 million , consisting of $ 310 million of new term loans to fund the acquisition of timberlands in alabama and mississippi and $ 12 million of term loans that we incurred in december 2012 to fund two timberland acquisitions in arkansas . the new debt consists of six tranches of term loans , with $ 40 million maturing each year from 2019 through 2023 and $ 110 million maturing in 2024. the first three tranches are variable rate term loans based on 3-month libor plus a spread between 1.65 % and 1.90 % . the last three tranches are fixed rate term loans with interest rates between 4.29 % and 4.64 % . our original term loans from 2012 consist of two $ 6 million tranches , with rates of 2.95 % on the 2017 maturity and 3.70 % on the 2020 maturity . the term loan agreement contains the same covenants and restrictions as those in our bank credit facility . senior notes in 2009 , we sold $ 150 million aggregate principal amount of 7.5 % senior notes . the terms of these notes limit our ability , and the ability of any subsidiary guarantors , to borrow money , pay dividends , redeem or repurchase capital stock , enter into sale and leaseback transactions , and create liens . dividends and the repurchase of our capital stock , are permitted as follows : we may use 100 % of our funds available for distribution , or fad , for the period january 1 , 2010 through the end of the quarter preceding the payment date , less cumulative restricted payments previously made 36 / potlatch corporation from fad during that period , to make restricted payments . our cumulative fad less our dividends paid was $ 95.7 million at december 31 , 2014. if our cumulative fad , less cumulative restricted payments previously made from fad , is insufficient to cover a restricted payment , then we are permitted to make payments from a basket amount , which was approximately $ 90.1 million at december 31 , 2014. if our cumulative fad less our aggregate restricted payments made from fad is insufficient to cover a restricted payment and we have depleted the basket , we may still make a restricted payment , so long as , after giving effect to the payment , our ratio of indebtedness to earnings before interest , taxes , depreciation , depletion , amortization and basis of real estate sold , or ebitdda , from continuing operations for the preceding four full fiscal quarters does not exceed 4.25 to 1.00. fad , as defined in the indenture governing the senior notes , is earnings from continuing operations , plus depreciation , depletion and amortization , plus basis of real estate sold , and minus capital expenditures .
| business segment results section . qualified pension plan contributions decreased $ 21.6 million in 2013 from 2012 , as we did not make a qualified pension plan contribution in 2013. partially offsetting increased cash from customers were : cash paid to employees , suppliers and others increased $ 29.4 million in 2013 from 2012 primarily due to higher log costs in wood products and higher logging and hauling costs in our resource segment as a result of higher harvest volumes . net cash outflows related to income taxes increased $ 20.0 million . net cash paid in taxes in 2013 was $ 20.1 million compared to $ 0.1 million in 2012. the 2012 income tax liability was lower due primarily to use of net operating loss carryforwards . net cash flows from investing activities net cash used for investing activities was $ 382.7 million in 2014 , $ 12.0 million in 2013 and $ 8.6 million in 2012. in 2014 , we used $ 389.0 million for the acquisition of timber and timberlands and $ 24.2 million for capital expenditures , partially offset by $ 25.9 million provided by short-term investments . in 2013 , we used $ 22.6 million for capital expenditures partially offset by $ 10.8 million provided by short term investments . in 2012 , we used $ 29.2 million for capital expenditures and timberland acquisitions , which was partially offset by the $ 21.8 million we borrowed against our coli plan to fund our 2012 qualified pension contributions . we anticipate that we will spend $ 36 million for capital expenditures in 2015. our capital spending is primarily related to reforestation expenditures , logging road construction , and high-return discretionary projects and routine general replacement projects for our wood products manufacturing facilities .
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these fees and costs were fully amortized on july 16 , 2020 , when the debt facility was terminated . the amortization of these costs is recorded as interest expense in the statements of operations . derivative instrument the fund used derivative instruments to manage its exposure to changes in interest rates on expected borrowings under its debt facility , as the fund originates fixed rate loans ( see note 8 ) . derivative instruments were primarily valued on the basis of quotes obtained from banks , brokers and dealers and adjusted for counterparty risk and the optionality of the interest rate terms . the valuation of the derivative instruments also considers the future expected interest rates on the notional principal balance remaining which is comparable to what a prospective acquirer would pay on the measurement date . valuation pricing models consider inputs such as forward rates , anticipated interest rate volatility relating to the reference rate , as well as time value and other factors underlying derivative instruments . the fund is a party to a master netting arrangement with mufg union bank , n.a . , however , the fund has elected not to offset assets and liabilities under these arrangements for financial statement presentation purposes . the contract is recorded at gross fair value in either derivative asset or derivative liability in the condensed statements of assets and liabilities , depending on whether the value of the contract is in favor of the fund or the counterparty . the changes in fair value are recorded in net change in unrealized gain ( loss ) from derivative instrument in the condensed statements of operations and the quarterly interest received or paid on the derivative instruments , if any , is recorded in net realized gain ( loss ) from derivative instrument in the condensed statements of operations . the fund utilized the cancellation option to terminate the cancellable interest rate swap early effective as of may 28 , 2020 . 3. fair value disclosures the fund provides asset-based financing primarily to start-up and emerging growth venture-backed companies pursuant to commitments whereby the fund agrees to finance assets and provide working or growth capital up to a specified amount for the term of the commitment , upon the terms and subject to the conditions specified by such commitment . even though these loans are generally secured by the assets of the borrowers , the fund in most cases is subject to the credit risk of such companies . as of december 31 , 2020 and 2019 , the fund 's investments in loans were primarily to companies based within the united states and were diversified among borrowers in the industry segments shown in the schedules of investments . all loans are senior to unsecured creditors and other secured creditors , unless as indicated in the schedules of investments . the fund defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date ; that is , an exit price . the exit price assumes the asset or liability was exchanged in an orderly transaction ; it was not a forced liquidation or distressed sale . because there is no readily available market price and no secondary market for substantially all of the loan investments made by the fund to borrowing portfolio companies , management determines fair value ( or estimated exit value ) based on a hypothetical market , and several factors related to each borrower . loan balances in the schedules of investments are listed by borrower . typically , a borrower 's balance will be composed of several loans drawn under a commitment made by the fund with the interest rate on each loan fixed at the time each loan is funded . each loan drawn under a commitment has a different maturity date and amount . 48 for the years ended december 31 , 2020 and 2019 , the weighted-average interest rate on performing loans was 14.08 % and 17.76 % , respectively , which was inclusive of both cash and non-cash interest income . for the same periods , the weighted-average interest rate on the cash portion of the interest income was 12.07 % and 15.39 % , respectively . for the years ended december 31 , 2020 and 2019 , the weighted-average interest rate on all loans was 10.38 % and 16.00 % , respectively , which was inclusive of both cash and non-cash interest income . for the same periods , the weighted-average interest rate on the cash portion of the interest income was 8.90 % and 13.90 % , respectively . interest is calculated using the effective interest method , and rates earned by the fund will fluctuate based on many factors including early payoffs , volatility of values ascribed to warrants and new loans funded during the year . the risk profile of a loan changes when events occur story_separator_special_tag story_separator_special_tag in net assets resulting from operations as well as assets . sec disclosure updates in april 2020 , the sec issued final rule no . 33-10771 , “ securities offering reform for closed-end investment companies. ” financial statements and disclosures . ” this final rule would modify the registration , communications , and offering processes for business development companies ( “ bdcs ” ) . one of the amendments included in the final rule removed the exclusion of bdcs from the inline xbrl financial tagging requirement . story_separator_special_tag interest expense decreased primarily because the remaining outstanding debt balance was fully paid off and the debt facility was terminated in july 2020. banking and professional fees were $ 0.4 million and $ 0.5 million for the years ended december 31 , 2020 and 2019 respectively . the banking and professional fees were comprised of legal , audit , banking and other professional fees . the banking and professional fees decreased primarily due to decreased in legal fees and audit fees which were commensurate with the decrease in the fund 's investment activities . other operating expenses were $ 0.2 million for both the years ended december 31 , 2020 and 2019. these expenses included director fees , custody fees , tax fees and other expenses related to the operations of the fund . net investment income for the years ended december 31 , 2020 and 2019 , was $ 3.6 million and $ 15.9 million respectively . net realized loss from loans was $ 2.0 million $ 13.2 million for the years ended december 31 , 2020 and 2019 respectively . the realized loss will vacillate based on the timing of the ultimate resolution of certain loans . net realized gain ( loss ) from derivative instrument was $ ( 0.1 ) million and $ 0.2 million for the years ended december 31 , 2020 and 2019 respectively . this was actual cash paid to derivative instrument during the year as a result of actual libor interest rate fluctuation . net change in unrealized gain from loans was $ 5.5 million and $ 4.6 million for the years ended december 31 , 2020 and 2019 respectively . the net change in unrealized gain consisted of fair value adjustments taken against loans as a result of an improvement or deterioration in certain portfolio companies ' performance as well as reversal of prior adjustments on realized loan losses . net change in unrealized gain ( loss ) from derivative instrument was less than $ 0.1 million and $ ( 0.4 ) million for the years ended december 31 , 2020 and 2019 respectively . the net change in unrealized gain and loss from derivative instruments consisted of fair market value adjustments to the interest rate swap . the unrealized gain in 2020 was primarily due to the reversal of prior fair value adjustments as a result of derivative instrument termination . the fund utilized the cancellation option to terminate the interest rate swap early effective as of may 28 , 2020. net increase in net assets resulting from operations for the years ended december 31 , 2020 and 2019 was $ 7.0 million and $ 7.1 million , respectively . on a per share basis , the net increase in net assets resulting from operations was $ 69.94 and $ 71.02 for the years ended december 31 , 2020 and 2019 , respectively . liquidity and capital resources -- december 31 , 2020 and 2019 for the most recent discussion on the liquidity and capital resources for the year ended december 31 , 2019 , refer to the management discussion and analysis on the annual report , form 10-k , filed on march 16 , 2020. the fund is owned entirely by the company . as of both december 31 , 2020 and 2019 , the company had subscriptions for capital in the amount of $ 375.0 million , of which all had been called and received as of both periods . total capital contributed to the fund was $ 323.8 million and $ 323.2 million as of december 31 , 2020 and 2019 , respectively . effective june 30 , 2017 , the fund was no longer permitted to enter new commitments to borrowers ; however , the fund was permitted to fund existing commitments . the fund 's last commitment expired on july 31 , 2018. the change in cash held by the funds for the years ended december 31 , 2020 and 2019 was as follows : replace_table_token_1_th as of december 31 , 2020 and 2019 , 4.58 % and 0.50 % , respectively , of the fund 's net assets consisted of cash and cash equivalents . on july 18 , 2013 , the fund established a secured , syndicated revolving loan facility in an initial amount of up to $ 125.0 million led by wells fargo , n.a . and mufg union bank , n.a . in november 2014 , the borrowing availability thereunder was increased to $ 255.0 million . all of the assets of the fund collateralize borrowings by the fund . the fund paid interest on its borrowings and a fee on the unused portion of the facility . the facility was renewed and amended on october 30 , 2017. the amended facility had a term of three years but could be accelerated in the event of default , such as failure by the fund to make timely interest or principal payments . beginning march 29 , 2019 , 22 the lenders ' commitments automatically and permanently reduce each fiscal quarter by an amount equal to 12.5 % of the aggregate amount of such commitments . on july 8 , 2020 , the fund paid off its remaining outstanding debt balance under the facility . on july 9 , 2020 , the fund notified its lenders of its intention to permanently reduce its aggregate commitments to zero , terminating the debt facility effective july 16 , 2020. for the years ended december 31 , 2020 and 2019 , the fund investments primarily consisted of venture loans . no amounts were disbursed under the fund 's loan commitments for the years ended december 31 , 2020 and 2019 , respectively . net loan amounts outstanding after amortization and valuation adjustments decreased by $ 47.1 million for the year ended december 31 , 2020. replace_table_token_2_th because venture loans are privately negotiated transactions , investments in these assets are relatively illiquid . the fund seeks to
| overview the fund is 100 % owned by the company . the fund 's shares of common stock , at $ 0.001 par value , were sold to its sole shareholder , the company , under a stock purchase agreement . the fund has issued 100,000 of the fund 's 10,000,000 authorized shares . the company may make additional capital contributions to the fund . the fund provides financing and advisory services to a variety of carefully selected venture-backed companies primarily throughout the united states , with a focus on growth oriented companies . the fund 's portfolio consists of companies in the communications , information services , media , technology ( including software and technology-enabled business services ) , biotechnology , and medical devices industry sectors , among others . the fund 's capital is generally used by its portfolio companies to finance acquisitions of fixed assets and working capital . on december 18 , 2012 , the company completed its first closing of capital contributions and the fund made its first investment and became a non-diversified , closed-end investment company that elected to be treated as a bdc under the 1940 act . while the fund intends to operate as a non-diversified investment company within the meaning of section 5 ( b ) ( 2 ) of the 1940 act , from time to time the fund may act as a diversified investment company within the meaning of section 5 ( b ) ( 1 ) of the 1940 act . the fund elected to be treated for federal income tax purposes as a ric under the code with the filing of its federal corporate income tax return for 2013. pursuant to this election , the fund generally will not have to pay corporate-level taxes on any income distributed to its shareholder as dividends , allowing the company to substantially reduce or eliminate its corporate-level tax liability .
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during the years ended december 31 , 2013 and 2012 , rent expense was $ 116,569 and $ 116,732 , respectively and as of december 31 , 2013 story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations includes a number of forward-looking statements that reflect management 's current views with respect to future events and financial performance . you can identify these statements by forward-looking words such as “ may ” “ will , ” “ expect , ” “ anticipate , ” “ believe , ” “ estimate ” and “ continue , ” or similar words . those statements include statements regarding the intent , belief or current expectations of us and members of its management team as well as the assumptions on which such statements are based . prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties , and that actual results may differ materially from those contemplated by such forward-looking statements . readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the securities and exchange commission . important factors known to us could cause actual results to differ materially from those in forward-looking statements . we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions , the occurrence of unanticipated events or changes in the future operating results over time . we believe that its assumptions are based upon reasonable data derived from and known about our business and operations and the business and operations of the company . no assurances are made that actual results of operations or the results of our future activities will not differ materially from its assumptions . factors that could cause differences include , but are not limited to , expected market demand for the company 's services , fluctuations in pricing for materials , and competition . business overview we are a pharmaceutical company dedicated to the development of novel pharmaceutical products for challenging disorders of the cns . we have a pipeline of product candidates led by tnx-102 sl , which is in pivotal development for fm and represents a new class of medication for this disorder . we expect to report initial results from our ongoing phase 2b/3 trial of tnx-102 sl in fm in the fourth quarter of 2014. tnx-102 sl is also in development for ptsd , and is expected to enter a phase 2 trial in this indication in the third quarter of 2014. we are developing tnx-201 for the treatment of etth , and we plan to begin clinical studies of tnx-201 in the fourth quarter of 2014. we hold worldwide commercialization rights to tnx-102 sl and tnx-201 . our pipeline also includes a program for the treatment of alcohol abuse and dependence , and protection from smallpox and radiation exposure . we are pursuing fm as our lead indication for tnx-102 sl . our therapeutic strategy is supported by positive results from a phase 2a trial of tnx-102 capsules in fm patients , which demonstrated a significant decrease in pain and other symptoms after eight weeks of treatment . following the completion of this study , as well the completion of several clinical pharmacokinetic studies of tnx-102 sl , we met with the fda and announced that the agency indicated that positive results from two adequate , well-controlled safety and efficacy studies as well as the fulfillment of long-term safety exposure requirements for chronic use would support the approval of tnx-102 sl for the management of fm . we are currently conducting a phase 2b/3 clinical trial of tnx-102 sl for the improvement of pain in people with fm ( the bestfit trial ) , from which we expect to report initial results in the fourth quarter of 2014. we are also conducting a 12-month open-label extension study of tnx-102 sl , into which patients who have completed the bestfit study may enroll . following the completion of the bestfit trial , we plan to complete the remaining aspects of our development program that are needed for an nda submission under section 505 ( b ) ( 2 ) , including the conduct at least one more pivotal trial in fm . we believe that tnx-102 sl also has the potential to address a range of other neuropsychiatric conditions , including ptsd . we have met with the fda to discuss the development of tnx-102 sl for ptsd , and we plan to begin a phase 2 trial to evaluate its efficacy and safety as a treatment for patients with ptsd in the third quarter of 2014. we are developing another candidate , tnx-201 , for the treatment of etth . we have met with the fda to discuss the development of tnx-201 for etth , and we plan to conduct a human pharmacology study in the fourth quarter of 2014. although the development of tnx-201 will be based on the available information of previously-approved , but currently-unapproved , products that contain the active pharmaceutical ingredient in tnx-201 , we believe the marketing approval of tnx-201 will be required to conform with the nda requirements under section 505 ( b ) ( 1 ) . we also have a pipeline of other product candidates , including tnx-301 . we intend to develop tnx-301 under the 505 ( b ) ( 2 ) provision as a treatment for alcohol abuse and dependence , and plan to begin formulation work on tnx-301 in 2014. we also recently acquired rights to intellectual property on two biodefense technologies : one relates to the development of novel smallpox vaccines , and the other the development of protective agents against radiation exposure . we plan to perform non-clinical research and development on these programs in 2014. as we interact with the united states department of defense and related biodefense agencies regarding our development of tnx-102 sl for ptsd , we believe these technologies will expand our interaction and cooperation with such agencies . story_separator_special_tag a significant portion of the accounts payable and accrued expenses are due to work performed in relation to our ongoing phase 2b/3 clinical trial of tnx-102 sl in fm . for the year ended december 31 , 2013 and 2012 , we used approximately $ 8,517,000 and $ 5,713,000 of cash in operating activities , respectively , which represent cash outlays for research and development and general and administrative expenses in such periods . increases in cash outlays principally resulted from manufacturing , pre-clinical and clinical cost and activities , regulatory cost , and payroll . for the year ended december 31 , 2013 , net proceeds from financing activities were from the sale of our common stock and warrants of approximately $ 10,042,000 , the exercise of warrants of $ 4,581,000 , and from the sale of promissory notes to related parties for $ 280,000. in the comparable 2012 period , approximately $ 6,933,000 was raised through the sale of shares of common stock and warrants , $ 320,000 from sale of notes payable and $ 390,000 from the sale of convertible debentures , net with $ 150,000 repayments . at december 31 , 2013 , we had cash of $ 8,201,622 compared to $ 1,785,390 at december 31 , 2012. our cash is held in bank deposit accounts . 46 cash used in investing activities for the year ended december 31 , 2013 was approximately $ 15,000 reflecting purchase of equipment as compared to cash used for the year ended december 31 , 2012 of approximately $ 36,000 also reflecting purchase of equipment . august 2013 public offering on august 9 , 2013 , we entered into an underwriting agreement ( the “ underwriting agreement ” ) with roth capital partners , llc , as representative of the underwriters named therein ( the “ underwriters ” ) ( the “ underwriters ” ) , pursuant to which we agreed to offer to the public through the underwriters an aggregate of 2,680,000 units ( each a “ unit ” , and collectively , the “ units ” ) at a public offering price of $ 4.25 per unit in an underwritten public offering ( the `` offering '' ) . each unit consists of ( i ) one share of our common stock and ( ii ) one series a warrant ( the “ warrants ” ) to purchase one share of common stock . pursuant to the underwriting agreement , we also granted the underwriters an option for a period of 45 days to purchase up to ( i ) 402,000 additional units or ( ii ) 402,000 additional shares of common stock and or additional warrants to purchase up to 402,000 shares of common stock , on the same terms , to cover any over-allotments , if any . the offering closed on august 14 , 2013. the underwriters purchased the units at an eight-percent discount to the public offering price , for an aggregate discount of approximately $ 0.34. we received net cash proceeds of $ 10,038,013 after deducting underwriting discounts and commissions and offering expenses of $ 440,787 payable by us associated with the offering . on august 14 , 2013 , the underwriters exercised their over-allotment option to purchase additional warrants to purchase 402,000 shares of common stock . the underwriters also received warrants to purchase up to an aggregate of 107,200 shares of common stock , or four percent of the total number of shares included in the units . the warrants are exercisable at an exercise price of $ 4.25 per share , subject to anti-dilutive adjustment , and expire on the fifth anniversary of the date of issuance . the warrants will be exercisable on a `` cashless '' basis in certain circumstances . as of march 26 , 2014 , 1,184,264 of the warrants remain outstanding . the exercise price and number of shares of common stock issuable upon exercise of the warrants will be subject to adjustment in the event of any stock split , reverse stock split , stock dividend , recapitalization , reorganization or similar transaction , as described in the warrants . january 2014 public offering on january 24 , 2014 , we entered into an underwriting agreement ( the “ second underwriting agreement ” ) with roth capital partners , llc , as representative of several underwriters ( collectively , the “ second underwriters ” ) , relating to the issuance and sale of 2,898,550 shares of our common stock . the public offering price for each share of common stock was $ 15.00. the net proceeds to the company from the sale of the shares of common stock was approximately $ 40.7 million , after deducting underwriting discounts and commissions and other offering expenses payable by the company . the company granted the underwriters a 45-day option to purchase up to an additional 434,782 shares of common stock to cover over-allotments , if any . the offering closed on january 29 , 2014 and the over-allotment option expired unexercised . future liquidity requirements we expect to incur losses from operations for the near future . we expect to incur increasing research and development expenses , including expenses related to additional clinical trials . we expect that our general and administrative expenses will increase in the future as we expand our business development , add infrastructure and incur additional costs related to being a public company , including incremental audit fees , investor relations programs and increased professional services . our future capital requirements will depend on a number of factors , including the progress of our research and development of product candidates , the timing and outcome of regulatory approvals , the costs involved in preparing , filing , prosecuting , maintaining , defending and enforcing patent claims and other intellectual property rights , the status of competitive products , the availability of financing and our success in developing markets for our product candidates .
| results of operations we anticipate that our results of operations will fluctuate for the foreseeable future due to several factors , such as the progress of our research and development efforts and the timing and outcome of regulatory submissions . due to these uncertainties , accurate predictions of future operations are difficult or impossible to make . fiscal year ended december 31 , 2013 compared to fiscal year ended december 31 , 2012 revenues and cost of goods sold . we had no revenues or cost of goods sold during the fiscal years ended december 31 , 2013 and 2012 . 45 research and development expenses . research and development expenses for the fiscal year ended december 31 , 2013 were $ 4,649,782 , an increase of $ 2,066,474 , or 80 % , from $ 2,583,308 for the fiscal year ended december 31 , 2012. this increase is primarily due to increased development work related to tnx-102 sl , including formulation development , manufacturing , human safety and efficacy as well as pharmacokinetic studies , offset by a decrease in non-clinical studies . in 2013 , we incurred $ 1,161,098 , $ 1,418,589 and $ 431,871 in manufacturing cost , clinical activities and cost , and non-clinical activities and cost , respectively , as compared to $ 552,953 , $ 836,278 and $ 468,509 in 2012 , respectively . general and administrative expenses . general and administrative expenses for the fiscal year ended december 31 , 2013 were $ 6,238,661 , an increase of $ 2,160,559 , or 53 % , from $ 4,078,102 incurred in the fiscal year ended december 31 , 2012. this increase is primarily due to payroll related expenses and professional services . payroll related expenses increased to $ 3,247,689 in the current year from $ 1,820,877 for the fiscal year ended december 31 , 2012 , an increase of $ 1,426,812 , or 78 % .
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even if the company qualifies for taxation as a reit , it may be story_separator_special_tag the following discussion and analysis should be read in conjunction with the accompanying financial statements . the following information contains forward-looking statements , which are subject to risks and uncertainties . should one or more of these risks or uncertainties materialize , actual results may differ materially from those expressed or implied by the forward-looking statements . please see `` forward-looking statements '' elsewhere in this report for a description of these risks and uncertainties . overview we were incorporated on july 13 , 2011 as a maryland corporation that intends to qualify as a reit for u.s. federal income tax purposes beginning with the taxable year ending december 31 , 2012. on april 20 , 2012 , we commenced our ipo on a “ reasonable best efforts ” basis of up to 150.0 million shares of common stock , $ 0.01 par value per share , at a price of $ 10.00 per share , subject to certain volume and other discounts , pursuant to a registration statement on form s-11 ( file no . 333-177563 ) ( the `` registration statement ) filed with the securities and exchange commission ( `` sec '' ) under the securities act of 1933 , as amended . the registration statement also covers up to 25.0 million shares of common stock pursuant to a distribution reinvestment plan ( the “ drip ” ) under which the company 's common stockholders may elect to have their distributions reinvested in additional shares of our common stock . on october 24 , 2012 , we received and accepted subscriptions in excess of the minimum offering amount of $ 2.0 million in shares , broke escrow and issued shares of common stock to our initial investors who were admitted as stockholders . as of december 31 , 2012 , we had 0.3 million shares of stock outstanding , including unvested restricted shares and had received total gross proceeds from the ipo of $ 2.2 million . as of december 31 , 2012 , the aggregate value of all issuances and subscriptions of common stock outstanding was $ 2.5 million based on a per share value of $ 10.00. until the first quarter following our acquisition of at least $ 1.2 billion in total investment portfolio assets , the per share purchase price in the ipo will be up to $ 10.00 per share ( including maximum allowed to be charged for commissions and fees ) and shares issued under the drip will be initially equal to $ 9.50 per share , which is 95 % of the initial offering price in the ipo . thereafter , the per share purchase price will vary quarterly and will be equal to nav divided by the number of shares outstanding as of the end of business on the first day of each fiscal quarter after giving effect to any share purchases or repurchases effected in the prior quarter plus applicable commissions and fees , and the per share purchase price of the drip will be equal to the nav per share . we were formed to primarily acquire a diversified portfolio of commercial properties , with an emphasis on sale-leaseback transactions involving single tenant net-leased commercial properties . our primary geographic target will be the united states , although up to 40 % of our portfolio may consist of properties purchased in europe and up to an additional 10 % may consist of properties purchased elsewhere internationally . all such properties may be acquired and operated by us alone or jointly with another party . we may also originate or acquire first mortgage loans secured by real estate . we purchased our first property and commenced active operations in october 2012. as of december 31 , 2012 , we owned one property consisting of 9,094 rentable square feet , which were 100 % leased , with a remaining lease term of 11.2 years . substantially all of our business is conducted through the op . we are the sole general partner and hold substantially all of the units of limited partner interests in the op ( `` op units '' ) . american realty capital global special limited partner , llc ( the “ special limited partner ” ) , an entity wholly owned by ar capital global holdings , llc ( the “ sponsor ” ) , contributed $ 200 to the op in exchange for 22 op units , which represents a nominal percentage of the aggregate op ownership . after one year , the limited partner interests have the right to convert op units for the cash value of a corresponding number of shares of common stock or , at the option of the op , a corresponding number of shares of common stock , as allowed by the limited partnership agreement of the op . the remaining rights of the limited partner interests are limited , however , and do not include the ability to replace the general partner or to approve the sale , purchase or refinancing of the op 's assets . we have no paid employees . american realty capital global advisors , llc ( the `` advisor '' ) has been retained to manage our affairs on a day-to-day basis . the properties are managed and leased by american realty capital global properties , llc ( the “ property manager ” ) . realty capital securites , llc ( the `` dealer manager '' ) serves as the dealer manager of the ipo . the advisor , property manager and dealer manager are affiliates of the sponsor and special limited partner . these related parties receive compensation and fees for services related to the ipo and for the investment and management of our assets . these entities receive fees during the offering , acquisition , operational and liquidation stages . story_separator_special_tag additionally , decisions regarding when a property should be classified as held for sale are also highly subjective and require significant management judgment . events or changes in circumstances that could cause an evaluation for impairment include the following : a significant decrease in the market price of a long-lived asset ; a significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition ; 53 a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset , including an adverse action or assessment by a regulator ; an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset ; and a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset . we review our portfolio on an ongoing basis to evaluate the existence of any of the aforementioned events or changes in circumstances that would require us to test for recoverability . in general , our review of recoverability is based on an estimate of the future undiscounted cash flows , excluding interest charges , expected to result from the property 's use and eventual disposition . these estimates consider factors such as expected future operating income , market and other applicable trends and residual value expected , as well as the effects of leasing demand , competition and other factors . if impairment exists due to the inability to recover the carrying value of a property , an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property . we are required to make subjective assessments as to whether there are impairments in the values of our investments in real estate . these assessments have a direct impact on our net income because recording an impairment loss results in an immediate negative adjustment to net income . purchase price allocation we allocate the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their respective fair values . tangible assets include land , land improvements , buildings , fixtures and tenant improvements on an as-if vacant basis . we utilize various estimates , processes and information to determine the as-if vacant property value . estimates of value are made using customary methods , including data from appraisals , comparable sales , discounted cash flow analysis and other methods . amounts allocated to land , land improvements , buildings and fixtures are based on cost segregation studies performed by independent third-parties or on our analysis of comparable properties in our portfolio . identifiable intangible assets include amounts allocated to acquire leases for above- and below-market lease rates , the value of in-place leases , and the value of customer relationships , as applicable . the aggregate value of intangible assets related to in-place leases is primarily the difference between the property valued with existing in-place leases adjusted to market rental rates and the property valued as if vacant . factors considered by us in our analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property , taking into account current market conditions and costs to execute similar leases . in estimating carrying costs , we include real estate taxes , insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up period , which typically ranges from six to 12 months . we also estimate costs to execute similar leases including leasing commissions , legal and other related expenses . above-market and below-market in-place lease values for owned properties are recorded based on the present value ( using an interest rate which reflects the risks associated with the leases acquired ) of the difference between the contractual amounts to be paid pursuant to the in-place leases and management 's estimate of fair market lease rates for the corresponding in-place leases , measured over a period equal to the remaining non-cancelable term of the lease . the capitalized above-market lease intangibles are amortized as a decrease to rental income over the remaining term of the lease . the capitalized below-market lease values are amortized as an increase to rental income over the remaining term and any fixed rate renewal periods provided within the respective leases . in determining the amortization period for below-market lease intangibles , we initially will consider , and periodically evaluate on a quarterly basis , the likelihood that a lessee will execute the renewal option . the likelihood that a lessee will execute the renewal option is determined by taking into consideration the tenant 's payment history , the financial condition of the tenant , business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located . the aggregate value of intangible assets related to customer relationship is measured based on our evaluation of the specific characteristics of each tenant 's lease and our overall relationship with the tenant . characteristics considered by us in determining these values include the nature and extent of our existing business relationships with the tenant , growth prospects for developing new business with the tenant , the tenant 's credit quality and expectations of lease renewals , among other factors . the value of in-place leases is amortized to expense over the initial term of the respective leases , which is approximately 11 years . the value of customer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases , but in no event does the amortization period for intangible assets exceed the remaining depreciable life of the building . if a tenant terminates its lease , the unamortized portion of the in-place lease value and customer relationship intangibles is charged to expense .
| results of operations we purchased our first property and commenced our real estate operations in october 2012. as of december 31 , 2012 , we owned one property with a purchase price of $ 2.6 million , which was 100 % leased . as of december 31 , 2011 , we had not commenced active real estate operations . accordingly , our results of operations for the year ended december 31 , 2012 as compared to the period from july 13 , 2011 ( date of inception ) to december 31 , 2011 reflect significant increases in most categories . comparison of the year ended december 31 , 2012 to the period from july 13 , 2011 ( date of inception ) to december 31 , 2011 revenues revenues for the year ended december 31 , 2012 were approximately $ 30,000 . rental income was driven by our acquisition of one property in october 2012 , for a purchase price of $ 2.6 million , which was 100 % leased . we did not own any properties and therefore had no revenues for the period from july 13 , 2011 ( date of inception ) to december 31 , 2011. operating fees to affiliates our advisor and property manager are entitled to fees for the management of our properties . our advisor and property manager elected to waive a portion of these fees for the year ended december 31 , 2012 . for the year ended december 31 , 2012 , we incurred approximately $ 1,000 and would have incurred additional aggregate asset management and property management fees of approximately $ 3,000 had these fees not been waived .
| 3,498 |
fpi burlington farms llc entered into new leases with story_separator_special_tag included in item 7 of this report . replace_table_token_6_th ( 1 ) for definitions and reconciliations of net income to earnings before interest , taxes , depreciation and amortization , or ebitda , adjusted ebitda , funds from operations , or ffo , and adjusted ffo , or affo , as well as a statement disclosing the reasons why our management believes that ebitda , adjusted ebitda , ffo and affo provide useful information to investors and , to the extent material any additional purposes for which our management uses such measures , see “ management 's discussion and analysis of financial condition and results of operations – non-gaap financial measures. ” 41 item 7. management 's discussion and analysis of financial condition and results of operations . the following analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the notes thereto contained elsewhere in this form 10-k. overview and background we are an internally managed real estate company that owns and seeks to acquire high-quality farmland located in agricultural markets throughout north america . as of december 31 , 2014 , our portfolio consisted of 87 farms in illinois , nebraska , colorado , arkansas , south carolina , mississippi , louisiana and kansas , totaling approximately 46,460 acres . the substantial majority of our farms are devoted to primary crops , such as corn , soybeans , rice and wheat , because we believe primary crop farmland is likely to provide attractive risk-adjusted returns over time through a combination of stable rental income generation and value appreciation . we were incorporated in maryland on september 27 , 2013 , and we are the sole member of the general partner of farmland partners operating partnership , lp ( the “ operating partnership ” ) , a delaware limited partnership that was formed on september 27 , 2013. all of our assets are held by , and our operations are primarily conducted through , the operating partnership and its wholly owned subsidiaries . we succeeded to the operations of our predecessor , fp land llc , a delaware limited liability company ( “ fp land ” or our “ predecessor ” ) upon completion of the underwritten initial public offering of 3,800,000 shares of our common stock ( the “ ipo ” ) on april 16 , 2014. concurrently with the completion of the ipo , fp land merged with and into the operating partnership , with the operating partnership surviving ( the “ fp land merger ” ) . as consideration for the fp land merger , the operating partnership issued 1,945,000 op units to pittman hough farms llc ( “ pittman hough farms ” ) , which was the sole member of fp land and is 75 % owned by paul a. pittman , our executive chairman , president and chief executive officer . as a result of the fp land merger , the operating partnership acquired the 38 farms and three grain storage facilities owned indirectly by our predecessor and assumed the ownership and operation of our predecessor 's business . as of december 31 , 2014 , we owned 79.9 % of the op units in the operating partnership . we intend to elect to be taxed as a reit under sections 856 through 860 of the code , as amended , commencing with our short taxable year ended december 31 , 2014 . 42 recent developments completed acquisitions since the completion of the ipo , we have completed 33 acquisitions , which are described in further detail below . twenty of these completed acquisitions are in geographic areas in which we had limited or no prior presence ( high plains , mississippi delta and the southeast ) . we also diversified our crop exposure with significantly more wheat ( a crop to which we previously had only nominal exposure ) , cotton and rice . replace_table_token_7_th we received rent for 2014 in its entirety , without proration , on the erker , hudye , ruder , ballymore and broadwater farm acquisitions . we received pro rata rent for 2014 on the davis , bonita brake , vendome , diantha west and long prairie farm acquisitions , based on the date of acquisition . for the other acquisitions , we received no rent for 2014 due to the timing of closing . 43 ( 1 ) on june 12 , 2014 , the company acquired all of the outstanding stock in hudye farms u.s. , inc. ( “ hfusi ” ) , which owned an approximately 12,500-acre farm ( referred to as the hudye farm ) located primarily in eastern colorado , for $ 24.5 million , excluding related acquisition costs of $ 63,836. the company funded this business combination with cash available from the ipo . all tenant leases were terminated by the previous owner prior to the closing of the acquisition . on june 20 , 2014 , hfusi was merged with and into fpi burlington farms llc , a wholly owned subsidiary of the company , with fpi burlington farms llc surviving . fpi burlington farms llc entered into new leases with tenants on june 23 , 2014. the new leases provide for aggregate annual cash rent of $ 1.2 million . rent for 2014 was paid at lease execution in its entirety , without proration . in conjunction with the business combination , the company acquired a tax built-in gain of $ 17.8 million . no deferred tax liability was recorded with respect to the tax built-in gain as the company has the ability and intent to hold the property for the required holding period . ( 2 ) on december 22 , 2014 , the company acquired the justice farm . in conjunction with the allocation of the purchase price , the company allocated $ 185,000 to the value of harvestable timber . story_separator_special_tag although the amount of global cropland in use has gradually increased over time , growth has plateaued over the last 20 years . cropland area continues to increase in developing countries , but after accounting for expected continuing cropland loss , the un fao projects only 173 million acres will be added from 2005-2007 to 2050 , a 4.3 % increase . in comparison , world population is expected to grow over the same period to 9.5 billion , a nearly 38 % increase . while we expect growth in the global supply of arable land , we also expect that landowners will only put that land into production if increases in commodity prices and the value of farmland cause landowners to benefit economically from using the land for farming rather than alternative uses . we also believe that decreases in the amount of arable land in the united states and globally as a result of increasing urbanization will partially offset the impact of additional supply of farmland . the global supply of food is also impacted by the productivity per acre of tillable land . historically , productivity gains ( measured by average crop yields ) have been driven by advances in seed technology , farm equipment , irrigation techniques and chemical fertilizers and pesticides . furthermore , we expect the increasing shortage of water in many irrigated growing regions in the united states and other growing regions around the globe , often as a result of new water restrictions imposed by laws or regulations , to lead to decreased productivity growth on many acres and , in some cases , cause yields to decline on those acres . conditions in our existing markets the market for farmland is dominated by buyers who are existing farm owners and operators . as a result of increasing commodity prices and the relatively low return on alternative investments , farmland values in many agricultural markets have increased in recent years and capitalization rates have decreased . although farmland prices may show a decline from time to time , we do not expect a major 45 long-term reduction in farmland values , and believe any reduction in land values is likely to be short-lived as global demand for food and agricultural commodities continues to outpace supply . on the other hand , we do not expect farmland values to continue to rise as rapidly as they have in recent years . we believe quality farmland in the united states has a near-zero vacancy rate as a result of the supply and demand fundamentals discussed above . we believe rental rates for farmland are a function of farmland operators ' view of the long-term profitability of farmland , and that many farm operators will continue to compete for farmland even during periods of decreased profitability due to the scarcity of farmland available to rent . in particular , we believe that due to the relatively high fixed costs associated with farming operations ( including equipment , labor and knowledge ) , many farm operators in some circumstances will rent additional acres of farmland when it becomes available in order to allocate their fixed costs over more acres . furthermore , because it is generally customary in the farming industry to provide the existing tenant with the opportunity to re-lease the land at the end of each lease term , we believe that many farm operators will rent additional land that becomes available in order to control the ability to farm that land in future periods when profitability is higher . as a result , in our experience , many farm operators will aggressively pursue rental opportunities in close proximity to their existing operations when they arise , even when the farmer anticipates lower current returns or short-term losses . in addition , because many farmers both own farmland and rent additional farmland from other landowners , we believe that many farmers will choose to subsidize losses on rented land during periods of lower profitability with relatively higher profits generated by land that they own and that has comparatively lower fixed costs . lease expirations farm leases are often short-term in nature . our portfolio as of december 31 , 2014 has the following lease expirations as a percentage of approximate acres leased and annualized minimum cash rents : replace_table_token_8_th we are currently negotiating leases on 2,556 acres , have 6,591 acres which have lease payments based on a percentage of farming revenues or crops and have 563 acres which will be leased to our taxable reit subsidiary , which are not included in the table above . we expect market rents in the coming year to be consistent with expiring rents . rental revenues our revenues are generated from renting farmland to operators of farming businesses . primary crop farmland leases typically have terms of between one and three years . our leases have terms ranging from one to five years . although our leases do not provide the tenant with a contractual right to renew the lease upon its expiration , we believe it is customary to provide the existing tenant with the opportunity to renew the lease , subject to any increase in the rental rate that we may establish . if the tenant elects not to renew the lease at the end of the lease term , the land will be offered to a new tenant . the leases for the majority of the properties in our portfolio provide that tenants must pay us 100 % of the annual rent in advance of each spring planting season . as a result , we expect to collect 100 % of the annual rent in the first calendar quarter of each year for the majority of the farms in our portfolio .
| results of operations comparison of the year ended december 31 , 2014 to the year ended december 31 , 2013 replace_table_token_9_th nm = not meaningful our rental income for the periods presented was impacted by 29 acquisitions made during the year ended december 31 , 2014 and one acquisition made during the year ended december 31 , 2013. to highlight the effect of changes due to acquisitions , we have separately discussed the rental income for the same-property portfolio , which includes only properties owned and operated for the entirety of both periods presented . the same-property portfolio for the periods presented excludes the 29 acquisitions of which , included 49 farms in 2014 and the smith farm , which was acquired in june 2013. total rental income increased approximately $ 1.6 million , or 69.0 % , for the year ended december 31 , 2014 , as compared to the year ended december 31 , 2013 , primarily resulting from the completion of 29 acquisitions during 2014 , 19 of whic h were completed in december . for the year ended december 31 , 2014 , the average annual cash rent for the entire portfolio decreased to $ 179 per acre from $ 326 per acre in 2013. the decrease in average annual cash rent per acre is a result of an emphasis of our acquisition activity on farmland characterized by lower price and rent per acre than the pre-existing portfolio .
| 3,499 |
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