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considering the lack of historical company data related to any realized loan losses since its inception , the company elected to estimate its cecl reserve by using a probability-weighted analytical model that considers the likelihood of default and loss-given-default for each story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes included elsewhere in this annual report on form 10-k. in addition to historical data , this discussion contains forward-looking statements about our business , operations and financial performance based on current expectations that involve risks , uncertainties and assumptions . our actual results may differ materially from those in this discussion as a result of various factors , including , but not limited to , those discussed in part i - item 1a risk factors , in this annual report on form 10-k. 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 our annual report on form 10-k for the fiscal year ended december 31 , 2018. our company granite point mortgage trust inc. focuses primarily on directly originating , investing in and managing senior floating-rate commercial mortgage loans and other debt and debt-like commercial real estate investments . we are currently externally managed by pine river capital management l.p. , or our manager . we operate as a real estate investment trust , or reit , as defined under the internal revenue code of 1986 , as amended , or the code . we also operate our business in a manner that will permit us to maintain our exclusion from registration under the investment company act of 1940 , as amended , or the investment company act . we were formed to continue and expand the commercial real estate lending business established by two harbors investment corp. , or two harbors , a publicly traded hybrid mortgage real estate investment trust . in the first quarter of 2015 , two harbors established its commercial real estate lending business , th commercial holdings llc ( now known as gp commercial holdings llc ) , collectively with its subsidiaries , our predecessor . concurrently with the closing of our initial public offering , or the ipo , on june 28 , 2017 , we completed a formation transaction , or the formation transaction , pursuant to which we acquired from two harbors the equity interests in our predecessor , including its portfolio of commercial real estate debt investments and related financing . in exchange , we issued 33,071,000 shares of our common stock and 1,000 shares of our 10 % cumulative redeemable preferred stock to two harbors . upon the completion of the formation transaction , our predecessor became our wholly owned indirect subsidiary . on november 1 , 2017 , two harbors distributed to its common stockholders the 33,071,000 shares of our common stock it had acquired in connection with the formation transaction , allowing our market capitalization to be fully floating . we recently announced that we have agreed to a process with our manager to internalize the company 's management function . a committee comprised entirely of independent members of our board of directors , or the independent committee , has been negotiating the internalization on our behalf and has retained independent advisors . in connection with the completion of the internalization , we expect to continue to be managed by our strong senior management team along with other personnel providing services to us , who are currently employed by our manager , and to whom the independent committee expects to extend offers of employment . details are expected to be announced once finalized in several months , and a final agreement and definitive documentation are expected to be delivered and executed at that time . there can be no assurance that the internalization will be consummated . see “ risk factors - risks related to our relationship with our manager ” in item 1a of this annual report on form 10-k. 2019 highlights operating results net income of $ 70.1 million and core earnings of $ 74.6 million for the year ended december 31 , 2019 , an increase of $ 7.1 million and $ 8.3 million , respectively , as compared to the year ended december 31 , 2018. declared aggregate dividends of $ 91.0 million , or $ 1.68 per share in 2019 , resulting in an annualized dividend yield of 9.0 % on our december 31 , 2019 book value per common share of $ 18.58. loan origination and investment portfolio activity originated 45 senior commercial real estate loans with a total commitment of $ 2.0 billion , an increase of 27 % over 2018 , with an average loan size of approximately $ 45 million . funded $ 1.8 billion in aggregate loan balances , inclusive of $ 237.6 million in connection with existing loan funding commitments . received cash proceeds of $ 778.5 million from principal repayments and amortization . portfolio of 122 investments as of december 31 , 2019 , with a stabilized weighted average loan-to-value ratio of 64.2 % and a weighted average all-in yield at origination of l+4.26 % . 44 portfolio financing closed our second collateralized loan obligation , or clo , financing 28 existing senior loan investments with an aggregate principal balance of approximately $ 825 million , further diversifying our funding mix and increasing matched-term , non-recourse and non-mark-to-market financing of our loan portfolio . closed a non-mark-to-market financing facility of up to $ 150 million . renegotiated various terms of our financing facilities , including modifications of leverage covenants , extending maturities and increasing the overall borrowing capacity , among others . story_separator_special_tag under the management agreement with our manager , we pay all costs and expenses of our manager incurred on our behalf in order to operate our business , as well as all compensation costs for certain personnel providing services to us under the management agreement , other than personnel directly involved in supporting the investment function . we also pay our manager a quarterly base management fee equal to 0.375 % ( a 1.50 % annual rate ) of our equity and an incentive fee , which is payable , if earned , beginning in the fourth quarter of 2018 , as defined in the management agreement . see further discussion of the base management fee and incentive fee calculations in note 12 - commitments and contingencies of the notes to the consolidated financial statements included under item 8 of this annual report on form 10-k. we recently announced that we have agreed to a process with our manager to internalize the company 's management function . if the internalization is completed , the management agreement will be terminated and therefore we will no longer pay a management fee and reimburse expenses . details of the internalization are expected to be announced once finalized in several months , and a final agreement and definitive documentation are expected to be delivered and executed at that time . see “ business - our manager ” in item 1 and “ risks relating to our relationship with our manager ” in item 1a of this annual report on form 10-k. market conditions we believe that the commercial real estate debt markets continue to offer compelling investment opportunities , especially when approached fundamentally , with a focus on strong credit and cash flow characteristics and high quality borrowers and sponsors . these investment opportunities are supported by active real estate transaction volumes , continuous need for refinancing of legacy loans and borrower and sponsor demand for debt capital to renovate , reposition or redevelop their properties . additionally , the stricter regulatory environment after the financial crisis from 2007 to 2009 for traditional providers of financing in this market , such as banks and insurance companies , limits the capacity of available funding for certain types of commercial real estate loans which comprise a large part of our target investments . we believe that this reduced funding capacity in the market , combined with strong demand from borrowers , continues to provide us with the opportunities consistent with our investment strategy to invest our capital and generate attractive , risk-adjusted returns for our stockholders . changes in the fair value of our investments we intend to hold our target investments for the long-term and , as such , they are carried at amortized cost on our consolidated balance sheets . we evaluate our investments for impairment on a quarterly basis and impairments are recognized when it is probable that we will not be able to collect all amounts estimated to be collected at the time of origination of the investment . we evaluate impairment ( both interest and principal ) based on the present value of expected future cash flows , discounted at the investment 's effective interest rate or the fair value of the collateral , less estimated costs to sell . although we intend to hold our target investments for the long-term , we may occasionally classify some of our investments as afs . investments classified as afs are carried at their fair value , with changes in fair value recorded through accumulated other comprehensive income , a component of stockholders ' equity , rather than through earnings . we do not intend to hold any of our investments for trading purposes . 46 changes in market interest rates although our strategy is to primarily originate , invest in and manage senior floating-rate commercial mortgage loans , from time-to-time we may acquire fixed-rate investments , which exposes our operating results to the risks posed by fluctuations in interest rates . to the extent that this applies to us , we may choose to actively manage this risk through the use of hedging strategies . critical accounting policies and use of estimates the preparation of financial statements in accordance with gaap requires us to make certain judgments and assumptions , based on information available at the time , of our preparation of the financial statements , in determining accounting estimates used in preparation of the statements . our significant accounting policies are described in note 2 - basis of presentation and significant accounting policies to the consolidated financial statements , included under item 8 of this annual report on form 10-k. our most critical accounting policies involve decisions and assessments that could affect our reported assets and liabilities , as well as its reported revenues and expenses . we believe that all of the decisions and assessments used to prepare our financial statements are based upon reasonable assumptions given the information available at that time . the accounting policies and estimates that we believe are most critical to a stockholder 's understanding of our financial results and condition are discussed below . revenue recognition interest income from loans receivable is recognized over the life of each investment using the effective interest method and is recorded on an accrual basis . recognition of fees , premiums and discounts associated with these investments is deferred until the loan is advanced and is then recorded over the term of the loan as an adjustment to yield . income accrual is generally suspended for loans at the earlier of the date at which payments become more than 90 days past due or when recovery of income and principal becomes doubtful . income is then recorded on the basis of cash received until accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed . in addition , for loans originated , the related origination expenses are similarly deferred , however expenses related to loans acquired are included in general and administrative expenses as incurred .
| results of operations the following analysis focuses on our financial results during the three and twelve months ended december 31 , 2019 and 2018 . the analysis of our financial results during the three and twelve months ended december 31 , 2018 and 2017 is omitted from this form 10-k and is included in part ii item 7 of our annual report on form 10-k for the year ended december 31 , 2018 . interest income interest income increased from $ 52.8 million and $ 183.9 million , respectively , for the three and twelve months ended december 31 , 2018 to $ 64.7 million and $ 246.3 million , respectively , for the same periods in 2019 , due to the origination of 45 commercial real estate loans with a principal balance of $ 1.6 billion , additional fundings of $ 237.6 million provided on existing loan commitments and upsizings of $ 9.4 million , offset by repayments of $ 778.4 million during the year ended december 31 , 2019 . interest expense interest expense increased from $ 28.6 million and $ 91.5 million , respectively , for the three and twelve months ended december 31 , 2018 to $ 36.3 million and $ 137.0 million , respectively , for the same periods in 2019 , due to increased financing on the originations and additional fundings described above . 51 net interest income the following table presents the components of interest income and average annualized net asset yield earned by asset type , the components of interest expense and average annualized cost of funds on borrowings incurred by collateral type , and net interest income and average annualized net interest rate spread for the three and twelve months ended december 31 , 2019 and 2018 : replace_table_token_10_th 52 replace_table_token_11_th ( 1 ) includes amortization of deferred debt issuance costs .
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in some cases , you can identify forward-looking statements by terminology such as “ may , ” “ will , ” “ should , ” “ expect , ” “ plan , ” “ anticipate , ” “ believe , ” “ estimate , ” “ predict , ” “ potential ” or “ continue , ” the negative of such terms or other comparable terminology . these statements are only predictions . actual events or results may differ materially . 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 : our history of losses ; our lack of products that have received regulatory approval ; uncertainties inherent in clinical trials and product development programs , including but not limited to the fact that pre-clinical and clinical results may not be indicative of results achievable in other trials or for other indications , that results from one study may not necessarily be reflected or supported by the results of other similar studies , that results from an animal study may not be indicative of results achievable in human studies , that clinical testing is expensive and can take many years to complete , that the outcome of any clinical trial is uncertain and failure can occur at any time during the clinical trial process , and that our electroporation technology and dna vaccines may fail to show the desired safety and efficacy traits in clinical trials ; the availability of funding ; the ability to manufacture vaccine candidates ; the availability or potential availability of alternative therapies or treatments for the conditions targeted by us or our collaborators , including alternatives that may be more efficacious or cost-effective than any therapy or treatment that we and our collaborators hope to develop ; whether our proprietary rights are enforceable or defensible or infringe or allegedly infringe on rights of others or can withstand claims of invalidity ; and the impact of government healthcare proposals . overview inovio is developing active dna immunotherapies and vaccines focused on treating and preventing cancers and infectious diseases . our dna-based immunotherapies , in combination with our proprietary electroporation delivery devices , are intended to generate robust immune responses , in particular t cells , to fight target diseases . in 2014 we reported that in a controlled phase 2 clinical study we generated significant , functional antigen-specific t cells that correlated to clinically relevant efficacy against hpv-associated cervical dysplasia ( precancer ) . this data was published in the lancet in september 2015. we are planning to take this product , vgx-3100 , into a phase 3 study for cervical dysplasia in 2017. our novel syncon ® immunotherapy design has shown the ability to help break the immune system 's tolerance of cancerous cells . our syncon ® product design approach is also intended to facilitate cross-strain protection against known and new unmatched strains of pathogens such as influenza . given the recognized role of cd8+ killer t cells in eliminating cancerous or infected cells from the body and our published phase 2 results , our scientists believe our active immunotherapies may play an important role in helping fight multiple cancers and infectious diseases . human data to date have shown a favorable safety profile of our dna immunotherapies delivered using electroporation . we or our collaborators are currently conducting or planning clinical studies of our proprietary syncon ® immunotherapies for hpv-caused pre-cancers ( including cervical , anal and vulvar neoplasia ) , hpv-caused cancers ( head and neck and cervical ) , prostate cancer , breast/lung/pancreatic cancer , hepatitis c virus ( hcv ) , hepatitis b virus ( hbv ) , hiv , ebola , mers ( middle east respiratory syndrome ) and zika virus . our corporate strategy is to advance and protect our differentiated immunotherapy platform and use its unique capabilities to design and develop an array of cancer and infectious disease immunotherapy and vaccine products . we aim to advance products through to commercialization . we continue to leverage third party resources through collaborations and partnerships including product license agreements . our partners and collaborators include medimmune , llc , the wistar institute , university of pennsylvania , geneone life science inc. , apollobio corporation , plumbline life sciences , inc. , drexel university , national microbiology laboratory of the public health agency of canada , national institute of allergy and infectious diseases ( “ niaid ” ) , united states military hiv research program ( “ usmhrp ” ) , u.s. army medical research 57 institute of infectious diseases ( “ usamriid ” ) , hiv vaccines trial network ( “ hvtn ” ) , and defense advanced research projects agency ( “ darpa ” ) . all of our potential human products are in research and development phases . we have not generated any revenues from the sale of any such products , and we do not expect to generate any such revenues for at least the next several years . story_separator_special_tag government grants towards current expenditures are recorded as revenue when there is reasonable assurance that the company has complied with all conditions necessary to receive the grants , collectability is reasonably assured , and as the expenditures are incurred . license fee and milestone revenue the company has adopted a strategy of co-developing or licensing its gene delivery technology for specific genes or specific medical indications . accordingly , the company has entered into collaborative research and development agreements and has received funding for pre-clinical research and clinical trials . agreements that contain multiple elements are analyzed to determine whether the deliverables within the agreement can be separated or whether they must be accounted for as a single unit of accounting in accordance with the financial accounting standards board 's ( “ fasb ” ) accounting standards update ( “ asu ” ) no . 2009-13 , revenue recognition ( topic 605 ) : multiple-deliverable revenue arrangements . analyzing the arrangement to identify deliverables requires the use of judgment , and each deliverable may be an obligation to deliver services , a right or license to use an asset , or another performance obligation . the delivered item ( s ) were considered a separate unit of accounting if all of the following criteria were met : ( 1 ) the delivered item ( s ) has value to the customer on a standalone basis ; ( 2 ) there is objective and reliable evidence of the fair value of the undelivered item ( s ) ; and ( 3 ) if the arrangement includes a general right of return relative to the delivered item , delivery or performance of the undelivered item ( s ) is considered probable and substantially in our control . if these criteria were not met , the deliverable was combined with other deliverables in the arrangement and accounted for as a combined unit of accounting . arrangement consideration is allocated at the inception of the agreement to all identified units of accounting based on their relative selling price . the relative selling price for each deliverable is determined using vendor specific objective evidence ( “ vsoe ” ) , of selling price or third-party evidence of selling price if vsoe does not exist . if neither vsoe nor third-party evidence of selling price exists , we use our best estimate of the selling price for the deliverable . the amount of allocable arrangement consideration is limited to amounts that are fixed or determinable . the consideration received is allocated among the separate units of accounting , and the applicable revenue recognition criteria are applied to each of the separate units . changes in the allocation of the sales price between delivered and undelivered elements can impact revenue recognition but do not change the total revenue recognized under any agreement . upfront license fee payments are recognized upon delivery of the license if facts and circumstances dictate that the license has standalone value from the undelivered items , the relative selling price allocation of the license is equal to or exceeds the upfront license fee , persuasive evidence of an arrangement exists , our price to the collaborator is fixed or determinable , and collectability is reasonably assured . upfront license fee payments are deferred if facts and circumstances dictate that the license does not have standalone value . the determination of the length of the period over which to defer revenue is subject to judgment and estimation and can have an impact on the amount of revenue recognized in a given period . the company applies asu no . 2010-17 , revenue recognition ( topic 605 ) : milestone method of revenue recognition ( “ milestone method ” ) . under the milestone method , the company will recognize consideration that is contingent upon the achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone is substantive in its entirety . a milestone is considered substantive when it meets all of the following criteria : 1. the consideration is commensurate with either the entity 's performance to achieve the milestone or the enhancement of the value of the delivered item ( s ) as a result of a specific outcome resulting from the entity 's performance to achieve the milestone , 2. the consideration relates solely to past performance , and 3. the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement . a milestone is defined as an event ( i ) that can only be achieved based in whole or in part on either the entity 's performance or on the occurrence of a specific outcome resulting from the entity 's performance , ( ii ) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and ( iii ) that would result in additional payments being due to the company . 59 business combinations . the cost of an acquired business is assigned to the tangible and identifiable intangible assets acquired and liabilities assumed on the basis of the estimated fair values at the date of acquisition . we assess fair value , which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date , using a variety of methods including , but not limited to , an income approach and a market approach such as the estimation of future cash flows of acquired business and current selling prices of similar assets . fair value of the assets acquired and liabilities assumed , including intangible assets , are measured based on the assumptions and estimations with regards to the variable factors such as the amount and timing of future cash flows for the asset or liability being measured , appropriate risk-adjusted discount rates , nonperformance risk , or other factors that market participants would consider .
| results of operations comparison of years ended december 31 , 2016 and 2015 the consolidated financial data for the years ended december 31 , 2016 and december 31 , 2015 is presented in the following table and the results of these two periods are used in the discussion thereafter . 60 replace_table_token_3_th revenue revenue primarily consists of revenue under collaborative research and development arrangements and grants and government contracts . our total revenue decreased $ 5.2 million or 13 % for the year ended december 31 , 2016 , as compared to the year ended december 31 , 2015 . the $ 19.8 million decrease in revenue under collaborative research and development arrangements for the year ended december 31 , 2016 as compared to 2015 was primarily due to a decrease of $ 14.5 million in revenue recognized from our agreement with medimmune entered into in august 2015 as well as a decrease of $ 5.9 million in revenue recognized from the roche agreement which include revenues previously deferred related to the partial termination of the agreement in february 2015 as well as the $ 3.0 million milestone earned during 2015. the $ 14.6 million increase in grants and miscellaneous revenue for the year ended december 31 , 2016 as compared to 2015 , was primarily due to the increase of $ 11.6 million in revenue recognized from our darpa ebola grant as well as an increase of $ 3.4 million in revenue from our darpa subcontract for the treatment of infectious diseases , offset by less revenue recognized from various grants due to the timing of work performed .
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results of operations are dependent primarily upon the company 's : existing reserve quantities ; costs associated with acquiring , exploring for and developing new reserves ; production quantities and related production costs ; and oil , ngl and natural gas sales prices . fiscal 2017 oil and natural gas production decreased 15 % and 1 % , respectively , and ngl production increased 2 % from that of 2016. the 2017 higher oil , ngl and natural gas prices ( see below ) , partially offset by overall production changes noted above , resulted in a 27 % increase in revenues from the sale of oil , ngl and natural gas . based on recent forward strip pricing , the company currently anticipates 2018 average oil , ngl and natural gas prices will be slightly higher than their corresponding average prices in 2017. the company 's proved developed oil , ngl and natural gas reserves increased in 2017 , compared to 2016 , by 30.3 bcfe , or 37 % . the increase was primarily due to positive pricing revisions , conversion from pud , additions and extensions . as of september 30 , 2017 , the company owned an average 1.2 % net revenue interest in 63 wells that were drilling or testing . other than the lease of office space , the company had no off balance sheet arrangements during 2017 or prior years . the following table reflects certain operating data for the periods presented : replace_table_token_14_th ( 34 ) story_separator_special_tag principally the result of significant new low-cost production coming on , decreased operating costs in several fields and the company selling some high operating cost wells in 2017. the decrease in loe related to field operating costs was partially offset with an increase in handling fees ( primarily gathering , transportation and marketing costs ) of $ 654,845 in 2017 , as compared to 2016. on a per mcfe basis , these fees increased $ 0.08 due mainly to a 15 % decrease in oil production versus a 1 % decrease in natural gas production . natural gas sales bear the large majority of the handling fees . handling fees are charged either as a percent of sales or based on production volumes . ( 36 ) production taxes production taxes increased $ 476,767 or 44 % in 2017 , as compared to 2016. the increase in amount was primarily the result of increased oil , ngl and natural gas sales of $ 8,524,559 during 2017. production taxes as a percentage of oil , ngl and natural gas sales increased from 3.4 % in 2016 to 3.9 % in 2017. the increase in tax rate was the result of the expiration of production tax discounts on some of the company 's horizontally drilled wells in oklahoma and arkansas . the low overall production tax rate in both years was due to a large proportion of the company 's oil and natural gas revenues coming from horizontally drilled wells , which are eligible for reduced oklahoma and arkansas production tax rates in the first few years of production . depreciation , depletion and amortization ( dd & a ) dd & a decreased $ 6,090,017 in 2017. dd & a per mcfe was $ 1.66 in 2017 , compared to $ 2.13 in 2016. dd & a decreased $ 5,249,692 as the result of a $ 0.47 decrease in the dd & a rate per mcfe . this was coupled by a decrease of $ 840,325 due to oil , ngl and natural gas production volumes decreasing 3 % collectively in 2017 , compared to 2016. the rate decrease was principally due to higher oil , ngl and natural gas prices utilized in the reserve calculations during 2017 , as compared to 2016 , lengthening the economic life of wells thus resulting in higher projected remaining reserves on a significant number of wells . the company had new high volume wells with low finding costs begin producing in the 2017 , which also contributed to the rate decrease . provision for impairment provision for impairment decreased $ 11,338,281 in 2017 , as compared to 2016. during 2017 , impairment of $ 46,279 was recorded on five fields , primarily in oklahoma and texas . another $ 616,711 of impairment was recorded on a group of wells that were held for sale at september 30 , 2017. during 2016 , impairment of $ 12,001,271 was recorded on 44 fields , primarily in oklahoma , kansas and texas . two fields in western oklahoma and the texas panhandle accounted for $ 7,548,533 or 63 % of the impairment due mainly to declining oil , ngl and natural gas prices . loss ( gain ) on asset sales and other loss ( gain ) on asset sales and other was a net loss of $ 105,830 in 2017 , as compared to a net gain of $ 2,576,237 in 2016. the net loss in 2017 was mainly due to the company selling some high operating cost wells at a loss during the year . the net gain in 2016 was largely due to the gain on sale of assets from two of the company 's partnerships . interest expense interest expense decreased $ 69,481 in 2017 , as compared to 2016. the decrease was due to a lower outstanding debt balance during 2017 . ( 37 ) general and administrative costs ( g & a ) g & a increased $ 301,514 in 2017 , as compared to 2016. this increase was primarily the result of higher legal and technical consulting fees in 2017. the legal fee increase was mainly due to additional work done around the company filing its first shelf registration . the technical consulting fee increase was due to additional work performed to analyze possible acquisitions . story_separator_special_tag the low overall production tax rate in both years was due to a large proportion of the company 's oil and natural gas revenues coming from horizontally drilled wells , which are eligible for reduced oklahoma and arkansas production tax rates in the first few years of production . depreciation , depletion and amortization ( dd & a ) dd & a increased $ 666,426 in 2016. dd & a per mcfe was $ 2.13 in 2016 , compared to $ 1.74 in 2015. dd & a increased $ 4,541,529 as the result of a $ 0.39 increase in the dd & a rate . this rate increase was principally due to lower oil , ngl and natural gas prices utilized in the reserve calculations during 2016 , as compared to 2015 , shortening the economic life of wells thus resulting in lower projected remaining reserves on a significant number of wells causing increased units of production dd & a . an offsetting decrease of $ 3,875,103 was due to oil , ngl and natural gas production volumes decreasing 16 % collectively in 2016 , compared to 2015. provision for impairment provision for impairment increased $ 6,992,080 in 2016 , as compared to 2015. during 2016 , impairment of $ 12,001,271 was recorded on 44 fields primarily in oklahoma , kansas and texas . two fields in western oklahoma and the texas panhandle accounted for $ 7,548,533 or 63 % of the impairment due mainly to declining oil , ngl and natural gas prices . during 2015 , impairment of $ 5,009,191 was recorded on 27 fields primarily in oklahoma , kansas and texas . one oil field in hemphill county , texas , accounted for $ 1,846,488 of the impairment due mainly to declining oil prices . loss ( gain ) on asset sales and other loss ( gain ) on asset sales and other was a net gain of $ 2,576,237 in 2016 , as compared to a net gain of $ 685,369 in 2015. the net gain in 2016 was largely due to the gain on sale of assets from two of the company 's partnerships . the net gain in 2015 was mainly the result of a lawsuit settlement related to participation rights on some of the company 's mineral acreage in arkansas and higher income from partnerships . ( 40 ) interest expense interest expense decreased $ 205,864 in 2016 , as compared to 2015. the decrease was due to a lower outstanding debt balance in 2016. general and administrative costs ( g & a ) g & a decreased $ 199,592 in 2016 , as compared to 2015. this decrease was primarily the result of lower legal and technical consulting fees in 2016. provision ( benefit ) for income taxes the 2016 benefit for income taxes of $ 7,711,000 was based on a pre-tax loss of $ 17,997,884 , as compared to a provision for income taxes of $ 4,836,000 in 2015 , based on a pre-tax income of $ 14,157,341. the effective tax rate for 2016 was 43 % , compared to an effective tax rate for 2015 of 34 % . when a provision for income taxes is recorded , federal and oklahoma excess percentage depletion decreases the effective tax rate , while the effect is to increase the effective tax rate when a benefit for income taxes is recorded , as was the case in 2016. liquidity and capital resources at september 30 , 2017 , the company had positive working capital of $ 6,451,356 , as compared to positive working capital of $ 1,787,560 at september 30 , 2016. liquidity cash and cash equivalents were $ 557,791 as of september 30 , 2017 , compared to $ 471,213 at september 30 , 2016 , an increase of $ 86,578. cash flows for the 12 months ended september 30 are summarized as follows : replace_table_token_17_th ( 41 ) operating activities : net cash provided by operating activities decreased $ 1,880,959 during 2017 , as compared to 2016 , the result of the following : receipts of oil , ngl and natural gas sales ( net of production taxes and gathering , transportation and marketing costs ) and other increased $ 2,467,494. decreased income tax payments of $ 1,309,905. decreased net receipts on derivative contracts of $ 4,247,270. decreased payments for interest expense of $ 152,596. decreased payments for g & a and other expense of $ 205,658. decreased payments for field operating expenses of $ 1,085,802. decreased lease bonus receipts of $ 2,855,144. investing activities : net cash used in investing activities increased $ 25,673,377 during 2017 , as compared to 2016 , due to : higher drilling and completion activity during 2017 increased capital expenditures by $ 21,821,662. lower proceeds from sale of assets of $ 3,778,026. financing activities : net cash used by financing activities decreased $ 27,773,616 during 2017 , as compared to 2016 , the result of the following : during 2017 , net borrowings increased $ 7,722,000. during 2016 , net borrowings decreased $ 20,500,000. capital resources capital expenditures to drill and complete wells increased $ 21,821,662 ( 547 % ) in 2017 , as compared to 2016. the company received 119 well proposals in fiscal 2017 , and working interest participation decisions were as follows : 41 wells met the company 's participation criteria and elections were made to participate and 78 wells did not meet participation criteria with no participation elected . ( 42 ) the company participated in eight bp operated southeastern oklahoma woodford wells with an average working interest of 20 % and an average net revenue interest of 27.4 % . all eight we lls have been drilled . four of those wells were completed and began producing in the second quarter of 2017. the remaining four wells have been completed and started producing in the third quarter of 2017. the company agreed to participate in six anadarko basin woodford wells , operated by cimarex energy , with 17.5 % working interest and 16.25 % net revenue interest .
| results of operations fiscal year 2017 compared to fiscal year 2016 overview the company recorded net income of $ 3,531,933 , or $ 0.21 per share , in 2017 , compared to net loss of $ 10,286,884 , or $ 0.61 per share , in 2016. revenues increased in 2017 primarily due to higher oil , ngl and natural gas sales and increased gains on derivative contracts partially offset by decreased lease bonuses received . expenses decreased in 2017 mainly from a lower provision for impairment , lower dd & a and lower loe partially offset by increases in g & a and production taxes and a decrease in gain on sale of assets . oil , ngl and natural gas sales oil , ngl and natural gas sales increased $ 8,524,559 , or 27 % , for 2017 , as compared to 2016. the increase was due to increased oil , ngl and natural gas prices of 26 % , 58 % and 41 % , respectively , partially offset with lower oil and natural gas volumes of 15 % and 1 % , respectively , in 2017. in the first half of 2017 , we continued to see the results of expected production decline in oil , ngl and natural gas volumes . the results of our 2017 drilling program are reflected in the third and fourth quarters as first sales of the new wells began to occur . the decrease in oil production was primarily the result of natural production decline in the eagle ford shale , which was partially offset by 2017 drilling with first sales from two wells in late april and four wells in mid-august . to a lesser extent , declining production from various fields in western oklahoma , the texas panhandle , and bakken contributed to the decrease .
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incurred . advertising expenses , which are included within story_separator_special_tag the following discussion and analysis should be read in conjunction with item 6. selected financial data and item 8. financial statements and supplementary data . this discussion contains forward-looking statements relating to our future financial performance , business strategy , financing plans and other future events that involve uncertainties and risks . you can identify these statements by forward-looking words such as anticipate , intend , plan , continue , could , grow , may , potential , predict , strive , estimate , believe , expect and similar expressions that convey uncertainty of future events or outcomes . any forward-looking statements herein are made pursuant to the safe harbor provision of the private securities litigation reform act of 1995. our actual results could differ materially from the results anticipated by these forward-looking statements as a result of many known and unknown factors that are beyond our ability to control or predict , including but not limited to those discussed above in risk factors and elsewhere in this report . see also special cautionary notice regarding forward-looking statements at the beginning of item 1. business. critical accounting policies and estimates we have based the following discussion and analysis of financial condition and results of operations on our consolidated financial statements , which we have prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . note 1 to the consolidated financial statements for the fiscal year ended april 30 , 2011 , describes the significant accounting policies that we have used in preparing our financial statements . on an ongoing basis , we evaluate our estimates , including , but not limited to , those related to revenue/vendor-specific objective evidence ( vsoe ) , bad debts , capitalized software costs , goodwill , intangible asset impairment , stock-based compensation , income taxes and contingencies . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . our actual results could differ materially from these estimates under different assumptions or conditions . we believe the critical accounting policies listed below affect significant judgments and estimates used in the preparation of the financial statements . revenue recognition . we recognize revenue in accordance with the software revenue recognition topic of the financial accounting standards board 's ( fasb ) accounting standards codification . we recognize license revenues in connection with license agreements for standard proprietary software upon delivery of the software , provided we deem collection to be probable , the fee is fixed or determinable , there is evidence of an arrangement , and vsoe exists with respect to any undelivered elements of the arrangement . we generally bill maintenance fees annually in advance and recognize the resulting revenues ratably over the term of the maintenance agreement . we derive revenues from services which primarily include consulting , implementation , and training . we bill for these services primarily under time and materials arrangements and recognize fees as we perform the services . deferred revenues represent advance payments or billings for software licenses , services , and maintenance billed in advance of the time we recognize revenues . we record revenues from sales of third-party products in accordance with principal agent considerations within the revenue recognition topic of the fasb accounting standards codification . furthermore , we evaluate sales through our indirect channel on a case-by-case basis to determine whether the transaction should be recorded gross or net , including but not limited to assessing whether or not we ( 1 ) act as principal in the transaction , ( 2 ) take title to the products , ( 3 ) have risks and rewards of ownership , such as the risk of loss for collection , delivery , or returns , and ( 4 ) act as an agent or broker with compensation on a commission or fee basis . accordingly , our sales through the dmi channel are typically recorded on a gross basis . 53 index to financial statements generally , our software products do not require significant modification or customization . installation of the products is routine and is not essential to their functionality . our sales frequently include maintenance contracts and professional services with the sale of our software licenses . we have established vsoe for our maintenance contracts and professional services . we determine fair value based upon the prices we charge to customers when we sell these elements separately . we defer maintenance revenues , including those sold with the initial license fee , based on vsoe , and recognize the revenue ratably over the maintenance contract period . we recognize consulting and training service revenues , including those sold with license fees , as we perform the services based on their established vsoe . we determine the amount of revenue we allocate to the licenses sold with services or maintenance using the residual method of accounting . under the residual method , we allocate the total value of the arrangement first to the undelivered elements based on their vsoe and allocate the remainder to license fees . allowance for doubtful accounts . we maintain allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required payments . if the financial condition of these customers were to deteriorate , resulting in an impairment of their ability to make payments , we may require additional allowances or we may defer revenue until we determine that collectibility is probable . story_separator_special_tag changes in tax laws or our interpretation of tax laws and the resolution of current and future tax audits could significantly impact the amounts provided for income taxes in our financial position and results of operations . our assumptions , judgments and estimates relative to the value of our deferred tax asset take into account our expectations of the amount and category of future taxable income . actual operating results and the underlying amount and category of income in future years , which could significantly increase tax expense , could render inaccurate our current assumptions , judgments and estimates of recoverable net deferred taxes . 55 index to financial statements story_separator_special_tag measurements ) . the new disclosures and clarifications of existing disclosures were effective for interim and annual reporting periods beginning after december 15 , 2009 , except for level 3 reconciliation disclosures , which are effective for the fiscal years and interim periods beginning after december 15 , 2010. the guidance became effective for us with 57 index to financial statements the reporting period beginning february 1 , 2010 , except for the disclosure of the roll forward activities for level 3 fair value measurements , which became effective for us with the reporting period beginning february 1 , 2011. adoption of this guidance did not have a material impact on our consolidated financial statements . in october 2009 , the fasb issued a new accounting standard which provides guidance for arrangements with multiple deliverables which are not within the scope of the current software revenue recognition guidance . specifically , the new standard requires an entity to allocate consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices . in the absence of vsoe or third-party evidence of the selling prices , consideration must be allocated to the deliverables based on management 's best estimate of the selling prices . in addition , the new standard eliminates the use of the residual method of allocation . in october 2009 , the fasb also issued a new accounting standard which changes revenue recognition for tangible products containing software and hardware elements . specifically , tangible products containing software and hardware that function together to deliver the tangible products ' essential functionality are scoped out of the existing software revenue recognition guidance and will be accounted for under the multiple-element arrangements revenue recognition guidance discussed above . both standards will be effective for us in the first quarter of fiscal 2012. we do not expect our adoption of these standards to have a material impact on our fiscal 2012 consolidated financial statements . market conditions by operating segment we operate and manage our business in three segments based on software and services provided in three key product markets : ( 1 ) supply chain management ( scm ) , which provides collaborative supply chain solutions to streamline and optimize the production , distribution and management of products between trading partners ; ( 2 ) enterprise resource planning ( erp ) , which automates customers ' internal financing , human resources , and manufacturing functions ; and ( 3 ) it consulting , which consists of it staffing and consulting services . the scm segment represents the business of logility , as well as its subsidiary , dmi . our scm segment experienced increased revenues during fiscal 2011 when compared to fiscal 2010 , due primarily to a 28 % increase in license fees , a 35 % increase in services revenues and a 10 % increase in maintenance revenues from logility customers . we believe this increase was a result of a moderate improvement in overall economic conditions , which resulted in increased capital spending in technology . the erp segment revenues decreased 14 % in fiscal 2011 when compared to fiscal 2010 , primarily due to a large erp customer that , commencing in september 2010 , did not renew a services agreement that had been in place for more than ten years . this decrease was partially offset by a 4 % increase in license fee sales in fiscal 2011 compared to fiscal 2010 due to an improvement in our ngc unit sales to the apparel industry . the erp segment services and maintenance revenues decreased 23 % and 7 % , respectively . our scm segment experienced flat revenues during fiscal 2010 when compared to fiscal 2009 , due primarily to a 5 % decrease in license fees within logility 's dmi subsidiary . we believe this decline was a result of the current weak economic conditions , which make it more difficult for small and midsize companies to access the credit markets to finance capital purchases . this was partially offset by a 2 % increase from our voyager business unit as a result of an increase in license fee sales at larger companies that do not rely as much on the capital markets to finance capital purchases . the erp segment revenues decreased 16 % in fiscal 2010 when compared to fiscal 2009. erp license fee sales decreased 23 % in fiscal 2010 compared to fiscal 2009 due to the overall poor economic conditions in the u.s. that delayed purchases of our software products and heavy competition in the erp segment from major software vendors . the erp segment services and maintenance revenues decreased 16 % and 10 % , respectively , as a result of lower license fee sales and lower maintenance retention rates . our it consulting segment experienced an increase in revenues of approximately 26 % in fiscal 2011 when compared to fiscal 2010 , due primarily to an increase in it staffing work at the home depot , our primary customer , as a result of an improving economic environment for retailers .
| results of operations the following table sets forth certain revenue and expense items as a percentage of total revenues for the three years ended april 30 , 2011 , 2010 , and 2009 and the percentage increases and decreases in those items for the years ended april 30 , 2011 and 2010 : replace_table_token_5_th nmnot meaningful economic overview and significant trends in our business corporate capital spending trends and commitments are the primary determinants of the size of the market for business software . corporate capital spending is , in turn , a function of general economic conditions in the u.s. and abroad and in particular may be affected by conditions in u.s. global credit markets . in recent years , the weakness in the overall world economy and the u.s. economy in particular has resulted in reduced expenditures in the business software market . however , we experienced some improvement in our scm business unit in the fourth quarter of fiscal 2011 due to a moderate improvement in overall capital spending and increased sales attributable to logility 's acquisition of optiant . for fiscal 2012 , we expect the world economy to remain relatively weak with some moderate improvement , which could result in a continuation of the difficult selling environment . overall information technology 56 index to financial statements spending continues to be relatively weak as a result of the current global economic environment . however , we believe that information technology spending will incrementally improve over the long term as increased global competition forces companies to improve productivity by upgrading their technology systems . although this improvement could slow or regress at any time , due in part to concerns in global capital markets and general economic conditions , we believe that our organizational and financial structure will enable us to take advantage of any sustained economic rebound .
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crp is considered our accounting predecessor and , accordingly , the following financial results and discussion and analysis reflect the results of crp prior to the closing of the business combination . silver run business combination centennial resource development , inc. ( the “ company , ” “ centennial , ” “ we , ” “ us , ” or “ our ” ) was originally incorporated in delaware on november 4 , 2015 as a special purpose acquisition company under the name silver run acquisition corporation for the purpose of effecting a merger , capital stock exchange , asset acquisition , stock purchase , reorganization or similar business combination involving us and one or more businesses . on february 29 , 2016 , we consummated our initial public offering of units each consisting of one share of class a common stock and one-third of one public warrant . on october 11 , 2016 , we consummated the acquisition of approximately 89 % of the outstanding membership interests in centennial resource production , llc , a delaware limited liability company ( “ crp ” and such acquisition , the “ business combination ” ) . the application of acquisition accounting for the business combination significantly affected certain assets , liabilities , and expenses . as a result , financial information as of december 31 , 2016 and in the period october 11 , 2016 through december 31 , 2016 is not necessarily comparable to crp 's predecessor financial information . presentation of financial and operating data as a result of the business combination , we are the acquirer for accounting purposes , and crp is the acquiree and accounting predecessor . our financial statement presentation distinguishes a “ predecessor ” for crp for periods prior to the business combination . we are the “ successor ” for periods after the business combination , which includes consolidation of crp subsequent to the business combination on october 11 , 2016. for all periods ending on or before october 15 , 2014 and for all dates on or before october 15 , 2014 , the historical financial results contained herein reflect the combined results of ( i ) crp and ( ii ) celero energy company , lp , a delaware limited partnership ( `` celero '' ) , which was formed in 2006 to focus on the development and acquisition of oil and natural gas properties in texas and new mexico , primarily in the permian basin in west texas . on october 15 , 2014 , celero conveyed substantially all of its oil and natural gas properties and other assets to crp in exchange for membership interests in crp , and as a result , subsequent to october 15 , 2014 , the historical financial results contained herein reflect the results of crp . except as the context otherwise requires , references in the following discussion to the `` company , '' `` we , '' `` our '' or `` us '' with respect to periods prior to the closing of the business combination are to crp and its operations prior to the closing of the business combination . recent developments silverback acquisition on december 28 , 2016 , we completed the acquisition ( the “ silverback acquisition ” ) of leasehold interests and related upstream assets in reeves county , texas from silverback exploration , llc and silverback operating , llc ( collectively , “ silverback ” ) for a cash purchase price of approximately $ 855.0 million , subject to customary purchase price adjustments . the assets acquired from silverback include 31 operated producing horizontal wells and approximately 35,500 net acres that directly offset our existing acreage in reeves county , texas . we operate approximately 90 % of , and have an approximate 90 % working interest in this acreage . of the net acres acquired , 1,250 net acres are subject to consents to assign , which are expected to be 45 assigned in the first quarter of 2017. the wolfcamp a and b are producing horizons on this acreage and we believe that this acreage may be prospective for the wolfcamp c and avalon and bone spring shale formations . issuance of class a common stock and preferred stock in private placements in connection with the silverback acquisition , we issued and sold in private placements ( i ) 3,473,590 shares of class a common stock and 104,400 shares of series b preferred stock to the riverstone purchasers and ( ii ) 33,012,380 shares of our class a common stock to certain other investors , resulting in gross proceeds of approximately $ 910.0 million . we used the proceeds from the private placements to fund the cash consideration for the silverback acquisition and expect to use any remaining proceeds for general corporate purposes . the shares of series b preferred stock are automatically convertible into shares of our class a common stock on a 250-to-1 basis ( subject to certain adjustments ) at such time as we receive stockholder approval for the issuance of such shares of class a common stock in compliance with nasdaq listing rules ( “ stockholder approval ” ) . we intend to call a special meeting of our stockholders in order to receive such approval . for a more detailed description of the series b preferred stock , refer to note 7—shareholders ' and owners ' equity to the consolidated and combined financial statements in part ii , item 8. financial statements and supplementary data in this annual report . credit agreement amendment on december 28 , 2016 , in connection with the closing of the silverback acquisition , crp entered into an amendment to its credit agreement to , among other things , increase the borrowing base thereunder from $ 200.0 million to $ 250.0 million . redemption of public warrants on march 1 , 2017 , the company delivered a notice of redemption of the public warrants , announcing its intention to redeem any unexercised and outstanding public warrants on march 31 , 2017 for $ 0.01 per public warrant . story_separator_special_tag per mcf change in our realized natural gas price would have resulted in a $ 0.1 million and a $ 0.3 million change in our natural gas revenues for the periods from october 11 , 2016 , through december 31 , 2016 ( successor ) and january 1 , 2016 , through october 10 , 2016 ( predecessor ) , respectively . a $ 1.00 per barrel change in our realized ngl prices would have resulted in a $ 0.1 million and a $ 0.3 million change in ngl revenues for the periods from october 11 , 2016 , through december 31 , 2016 ( successor ) and january 1 , 2016 , through october 10 , 2016 ( predecessor ) , respectively . the following table presents our average realized commodity prices , as well as the effects of derivative settlements . replace_table_token_9_th while quoted nymex oil and natural gas prices are generally used as a basis for comparison within our industry , the prices we receive are affected by quality , energy content , location and transportation differentials for these products . see “ —results of operations ” below for an analysis of the impact changes in realized prices had on our revenues . 47 operating costs and expenses costs associated with producing oil , natural gas and ngls are substantial . some of these costs vary with commodity prices , some trend with the type and volume of production , and others are a function of the number of wells we own . as of december 31 , 2016 ( successor ) and december 31 , 2015 ( predecessor ) , crp owned interests in 208 and 138 gross wells , respectively . lease operating expenses . lease operating expenses ( “ loe ” ) are the costs incurred in the operation of producing properties and workover costs . expenses for utilities , direct labor , water injection and disposal , materials and supplies comprise the most significant portion of our loe . certain items , such as direct labor and materials and supplies , generally remain relatively fixed across broad production volume ranges , but can fluctuate depending on activities performed during a specific period . for instance , repairs to our pumping equipment or surface facilities result in increased loe in periods during which they are performed . certain of our operating cost components are variable and increase or decrease as the level of produced hydrocarbons and water increases or decreases . for example , we incur power costs in connection with various production-related activities , such as pumping to recover oil and natural gas and separation and treatment of water produced in connection with our oil and natural gas production . we monitor our operations to ensure that we are incurring loe at an acceptable level . for example , we monitor our loe per boe to determine if any wells or properties should be shut in , recompleted or sold . this unit rate also allows us to monitor these costs in certain fields and geographic areas to identify trends and to benchmark against other producers . although we strive to reduce our loe , these expenses can increase or decrease on a per unit basis as a result of various factors as we operate our properties or makes acquisitions and dispositions of properties . for example , we may increase field level expenditures to optimize our operations , incurring higher expenses in one quarter relative to another , or we may acquire or dispose of properties that have different loe per boe . these initiatives would influence our overall operating cost and could cause fluctuations when comparing loe on a period to period basis . severance and ad valorem taxes . severance taxes are paid on produced oil and natural gas based on a percentage of revenues from production sold at fixed rates established by federal , state or local taxing authorities . in general , the severance taxes we pay correlate to the changes in oil , natural gas and ngls revenues . we are also subject to ad valorem taxes in the counties where our production is located . ad valorem taxes are generally based on the valuation of our oil and natural gas properties , which also trends with oil and natural gas prices . transportation , processing , gathering and other operating expenses . transportation , processing , gathering and other operating expenses principally consist of expenditures to prepare and transport production from the wellhead to a specified sales point and gas processing costs . these costs will fluctuate with increases or decreases in production volumes , contractual fees and changes in fuel and compression costs . depreciation , depletion , amortization , and accretion of asset retirement obligations . depreciation , depletion , amortization , and accretion of asset retirement obligations ( “ dd & a ” ) is the systematic expensing of the capitalized costs incurred to acquire and develop oil and natural gas properties . we use the successful efforts method of accounting for oil and natural gas activities and , as such , we capitalize all costs associated with our development and acquisition efforts and all successful exploration efforts , which are then allocated to each unit of production using the unit of production method . please read “ —critical accounting policies and estimates—successful efforts method of accounting for oil and natural gas activities ” for further discussion . impairment expense . we review our proved properties and unproved leasehold costs for impairment whenever events and changes in circumstances indicate that a decline in the recoverability of their carrying value may have occurred . please read “ —critical accounting policies and estimates—impairment of oil and natural gas properties ” for further discussion . general and administrative expenses . general and administrative ( “ g & a ” ) expenses are costs incurred for overhead , including payroll and benefits for our corporate staff , costs of maintaining our headquarters , costs of managing our production and to development operations , audit and other fees for professional services and legal compliance . interest expense .
| results of operations for the periods from october 11 , 2016 , through december 31 , 2016 ( successor ) and january 1 , 2016 , through october 10 , 2016 ( predecessor ) compared to year ended december 31 , 2015 ( predecessor ) oil , natural gas and ngl sales revenues . the following table provides the components of our revenues for the periods indicated , as well as each period 's respective average prices and production volumes : replace_table_token_10_th ( 1 ) average prices shown in the table reflect prices before the effects of our realized commodity derivative transactions . ( 2 ) total may not sum or recalculate due to rounding . as reflected in the table above , our combined revenues for 2016 were 9 % , or $ 8.4 million , higher than total revenues for 2015 . the increase was primarily due to a 15 % increase in production sold in 2016 , which was partially offset by a 5 % decrease in average sales price per boe , compared to the prior year . combined oil sales increased 8 % , or $ 6.5 million , for 2016 compared to the prior year period primarily due to a 15 % increase in oil volumes sold , partially offset by an 6 % decrease in the average sales price for oil . combined natural gas sales increased 19 % , or $ 1.5 million , for 2016 compared to the prior year period primarily due to a 23 % increase in natural gas volumes sold , partially offset by a 3 % decrease in the average sales price for natural gas . combined ngl sales increased 8 % , or $ 0.4 million , for 2016 compared to the prior year period primarily due to a 5 % increase in the ngl volumes sold . operating expenses .
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all statements other than statements of historical fact contained in this annual report on form 10-k are forward-looking statements , including statements regarding management 's expectations for future financial and operational performance and operating expenditures , expected growth , and business outlook ; statements regarding the implementation , timing , and impact of the plan ( as defined below ) ; the benefits of and demand for our service offerings ; the impact of new accounting pronouncements ; seasonality and changes in seasonality of our business ; increased automation ; changes in expenses related to operations , selling and marketing , research and development , general and administrative matters , depreciation and amortization , interest , and income taxes ; statements regarding competition ; statements regarding the impact of new legislation , including new tax legislation ; the impact of litigation ; the impact of foreign currency fluctuations ; the impact of acquisitions and associated measurements of fair value ; and liquidity matters . forward-looking statements may be identified with words such as “ will , ” “ may , ” “ expect , ” “ plan , ” “ anticipate , ” “ upcoming , ” “ believe , ” “ estimates , ” or similar terminology , and the negative of these terms . forward-looking statements are not promises or guarantees of future performance , and are subject to a variety of risks and uncertainties , many of which are beyond our control , and which could cause actual results to differ materially from those contemplated in these forward-looking statements . these factors include , among other things , those set forth in the section entitled “ risk factors ” and elsewhere in this annual report on form 10-k. although we believe that the expectations reflected in the forward-looking statements contained in this annual report on form 10-k are reasonable , we can not guarantee future results , levels of activity , performance , or achievements . except as required by law , we undertake no obligation to update or revise any of such forward-looking statements , whether as a result of new information , future events , or otherwise , after the date of this annual report on form 10-k. overview athenahealth , inc. ( which we refer to as athenahealth , the company , we , or our ) partners with hospital and ambulatory clients to drive clinical and financial results . we offer network-based medical record , revenue cycle , patient engagement , care coordination , and population health services , as well as epocrates® and other point-of-care mobile applications . our network provides clients better insight into their own organizations as well as the ability to learn from the experience of every other client on the network . through our model , we infuse the knowledge clients need to thrive in a changing industry directly into their workflow , from clinical guidelines to payer rules . we take on back-office work at scale so providers can focus on patients , not paperwork . we deliver the majority of our service offerings through a single instance of cloud-based software , which we refer to as athenanet . by combining our commitment to opening up the network , multiplying our intelligence , and freeing people to do what matters , we help healthcare providers leverage technology to automate certain back-office tasks , assist at the point of care , and adapt to changes in government regulatory schemes or the billing requirements of payers . we believe that including our clients on the same instance of software creates a network effect that enables each client to benefit from the collective experience of other clients . as our network grows , we believe these benefits expand and we can further multiply intelligence for all clients on the network . athenanet acts as a conduit for the exchange of information among clients , payers , trading partners , and our own experienced team . it enables us to learn continuously , innovate with agility , and deliver near-instant updates that we believe rapidly improve performance for our clients . in addition , our clients benefit from back-office administrative work that we perform on their behalf . this work ranges from receiving , scanning , and delivering faxes to tracking claims with payers and managing denials . we automate this work whenever possible ; when automation is not an option , we perform the work at massive scale with our internal team . the knowledge we gain from doing work for our clients and discovering ways to improve their performance is culled , curated , and captured within athenanet through mechanisms that include our proprietary billing rules engine and clinical quality management engine . using this knowledge , we also proactively coach our clients on best practices to help improve their performance . as we work with clients , payers , and other industry trading partners , more knowledge is infused into each service , which we believe makes athenanet `` smarter '' and more powerful for our clients . this unique combination of opening up the network , multiplying our intelligence , and freeing people to do what matters is fundamental to our service model and value proposition to clients . for the year ended december 31 , 2017 , we generated revenue of $ 1,220.3 million , compared to $ 1,082.9 million for the year ended december 31 , 2016 and $ 924.7 million for the year ended december 31 , 2015 . given the scope of our market opportunity , we have also increased our spending each year on growth , innovation , and infrastructure . 35 our revenue is predominately derived from core athenahealth-branded business services . in most cases , we charge clients a percentage of payments collected by us on behalf of our clients , connecting our financial results directly to those of our clients and our ability to drive revenue to medical practices . story_separator_special_tag however , upon adoption of the new revenue recognition standard on january 1 , 2018 , we expect that this will no longer be a critical judgment , as the accounting for these fees will change . 37 description judgment and uncertainties effect if actual results differ from assumptions purchased intangible assets and goodwill business combinations , including purchased intangible assets , are accounted for at fair value . acquisition costs are expensed as incurred and recorded in general and administrative expenses . measurement period adjustments relate to adjustments to the fair value of assets acquired and liabilities assumed based on information that we should have known at the time of acquisition . all changes to purchase accounting that do not qualify as measurement period adjustments are included in current period earnings . the fair value amount assigned to intangible assets is based on an exit price from a market participant 's viewpoint , and utilizes data such as discounted cash flow analysis and replacement cost models . we review acquired intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable . indefinite-lived intangible assets are reviewed for recoverability at least annually , or more frequently if indicators of impairment are present or changes in circumstances suggest that impairment may exist . goodwill is recorded as the difference , if any , between the aggregate consideration paid for an acquisition and the fair value of the identifiable net tangible and intangible assets acquired . goodwill is not amortized but is evaluated for impairment annually on november 30 th or more frequently if indicators of impairment are present or changes in circumstances suggest that impairment may exist . the first step of the goodwill impairment test compares the fair value of the reporting unit with its carrying amount , including goodwill . if the fair value of the reporting unit exceeds its carrying amount , the goodwill of the reporting unit is not considered to be impaired . if the carrying amount of the reporting unit exceeds its fair value , the second step of the goodwill impairment test is performed to measure the amount of impairment loss , if any . the second step of the goodwill impairment test , used to measure the amount of impairment loss , compares the implied fair value of the affected reporting unit 's goodwill with the carrying value of that goodwill . critical estimates in valuing certain intangible assets and the fair value of the reporting units during goodwill impairment tests include , but are not limited to , identifying reporting units , historical and projected client retention rates , anticipated growth in revenue from the acquired clients , expected future cash outflows , the allocation of those cash flows to identifiable intangible assets , estimated useful lives of these intangible assets , and a probability-weighted income approach based on scenarios in estimating achievement of operating results . testing finite-lived intangible assets for impairment includes significant judgment in the determination of the separate asset groups as well as the recoverability of those asset groups . management uses various assumptions when determining recoverability including , but not limited to , future cash flows , cash outflows necessary to obtain the cash inflows , and disposition of the asset group . testing goodwill for impairment includes significant judgment in the assessment of the number of reporting units , assigning assets and liabilities to the reporting units , and determining the fair value of each reporting unit based on management 's best estimates and assumptions , as well as other information compiled by management which sometimes include third-party valuations that utilize customary valuation procedures and techniques . management 's best estimates and assumptions are employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period . future business and economic conditions , as well as differences actually related to any of the assumptions , could materially impact the financial statements through impairment of goodwill or intangible assets and acceleration of the amortization period of the purchased intangible assets , which are finite-lived assets . as of december 31 , 2017 , the carrying amounts of goodwill and purchased intangible assets were $ 274.4 million and $ 108.6 million , respectively . as of december 31 , 2016 , the carrying amounts of goodwill and purchased intangible assets were $ 240.7 million and $ 112.1 million , respectively . 38 description judgment and uncertainties effect if actual results differ from assumptions capitalized software costs for internal use all of our software is considered internal use for accounting purposes , as we do not market or sell our software . as a result , we capitalize certain costs associated with the creation of internally-developed software for internal use ( i.e. , athenanet ) . these costs are recorded in the capitalized software costs , net line on our consolidated balance sheets . we capitalize costs incurred during the application development stage related to the development of athenanet services and other internally-developed software for internal use . costs incurred during the application development phase are capitalized only when we believe it is probable that the development will result in new or additional functionality . the types of costs capitalized during the application development phase include employee compensation ( including stock-based compensation ) , as well as external consultant fees for individuals working on these projects . costs related to the preliminary project stage and post-implementation activities are expensed as incurred . capitalized internal-use software is amortized on a straight-line basis over its estimated useful life when the asset has been placed in service . we account for costs associated with internal-use software on a project-by-project basis during initial capitalization as well as subsequent measurement .
| consolidated results of operations the following table sets forth our consolidated results of operations as a percentage of total revenue for the years ended december 31 , 2017 , 2016 , and 2015 : replace_table_token_4_th percentages for each line item may not sum to the totals or subtotals for each fiscal year due to rounding . comparison of the years ended december 31 , 2017 and 2016 replace_table_token_5_th total revenue for the year ended december 31 , 2017 increased due to an increase in collections-based revenue . the increase in collections-based revenue was primarily due to an increase in the number of clients we serve . the amount of collections processed was as follows : year ended december 31 , change 2017 2016 amount percent ( in millions ) collections processed $ 26,009.8 $ 22,615.0 $ 3,394.8 15 % replace_table_token_6_th 42 cost of revenue . cost of revenue increased primarily due to compensation costs and costs associated with our business partner outsourcing and clearing house activities . compensation costs increased $ 23.3 million in the year ended december 31 , 2017 , largely due to a $ 16.9 million increase in salaries expense as a result of a 14 % average headcount increase compared to december 31 , 2016 . compensation costs also includes a $ 6.3 million charge related to severance associated with the plan , as we decreased headcount by 7 % from the three months ended september 30 , 2017 to the three months ended december 31 , 2017. in addition , costs associated with our business partner outsourcing and clearing house activities increased $ 14.0 million , or 17 % , as the number of claims that we processed on behalf of our clients increased during those same periods . the total claims submitted on behalf of clients were as follows : replace_table_token_7_th replace_table_token_8_th selling and marketing expense . selling and marketing expense remained relatively flat for the year ended december 31 , 2017 .
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5. discontinued operations on december 20 , 2019 , the company completed the sale of lamons to two wholly-owned subsidiaries of an investment fund sponsored by first reserve , pursuant to an asset and stock purchase agreement dated as of november 1 , 2019 ( the “ purchase agreement ” ) , for a purchase story_separator_special_tag the statements in the discussion and analysis regarding industry outlook , our expectations regarding the performance of our business and the other non-historical statements in the discussion and analysis are forward-looking statements . these forward-looking statements are subject to numerous risks and uncertainties , including , but not limited to , the risks and uncertainties described in item 1a `` risk factors . '' our actual results may differ materially from those contained in or implied by any forward-looking statements . you should read the following discussion together with item 8 , `` financial statements and supplementary data . '' introduction we are a diversified manufacturer and provider of products for customers primarily in the consumer products , aerospace & defense and industrial markets . our wide range of innovative products are designed and engineered to solve application-specific challenges that our customers face . we believe our businesses share important and distinguishing characteristics , including : well-recognized and leading brand names in the focused markets we serve ; innovative product technologies and features ; a high-degree of customer approved processes and qualifications ; established distribution networks ; relatively low ongoing capital investment requirements ; strong cash flow conversion and long-term growth opportunities . while the majority of our revenue is in the united states , we manufacture and supply products globally to a wide range of companies . we report our business activity in three segments : packaging , aerospace and specialty products . in december 2019 , we completed the sale of our lamons division ( `` lamons '' ) , a manufacturer and distributor of industrial sealing , fastening and specialty products primarily used in the petrochemical and petroleum-refining industries , to two wholly-owned subsidiaries of an investment fund sponsored by first reserve . the sale of lamons was an important strategic step for trimas , in streamlining our portfolio of businesses , as it significantly reduced our exposure to the oil and gas market from over 20 % of net sales in 2019 to less than 2 % in 2020 , and allowed us to further invest in our packaging and aerospace segments . we received net after-tax proceeds from the sale of approximately $ 112.7 million . the financial results of lamons were previously reported within our specialty products segment . the financial position , results of operations and cash flows of lamons are reported as discontinued operations for all periods presented through the date of disposition . key factors and risks affecting our reported results our businesses and results of operations depend upon general economic conditions . we serve customers in industries that are highly competitive , cyclical and that may be significantly impacted by changes in economic or geopolitical conditions . in march 2020 , the president of the united states declared the coronavirus ( `` covid-19 '' ) outbreak a national emergency , as the world health organization determined it was a pandemic . in response to the covid-19 pandemic , federal , provincial , state , county and local governments and public health organizations or authorities around the world have implemented a variety of measures intended to control the spread of the virus , including quarantines , `` shelter-in-place '' or `` stay-at-home '' and similar orders , travel restrictions , business curtailments and closures , social distancing , personal hygiene requirements , and other measures . we have been , and continue to be , focused on making sure the working environments for our employees are safe so our operations have the ability to deliver the products needed to support efforts to mitigate the covid-19 pandemic . nearly all of our manufacturing sites have been deemed essential operations and remained open during the pandemic , at varying levels of capacity and efficiency , experiencing only temporary shutdowns due to country-specific government mandates or for thorough cleaning as a result of suspected covid-19 cases . the health of our employees , and the ability of our facilities to remain operational in the current regulated environment , is critical to our future results of operations . our divisions were impacted in first quarter 2020 at differing levels and times , beginning with our asian facilities and strategic supply network , both primarily in china , in late january , followed by our european ( primarily italy ) and north american facilities in february and march . we implemented new work rules and processes , which promote social distancing and increased hygiene to ensure the safety of our employees , particularly at our production facilities . these measures , while not easily quantifiable , have increased the level of manufacturing inefficiencies due to elevated levels of absenteeism , resulting in less efficient production scheduling and , in certain cases , short-term idling of production . we expect that we will continue to operate with these protocols in place , which have impacted our 2020 results . 30 overall , our 2020 net sales increased approximately $ 46.4 million compared to 2019 , primarily as a result of robust organic sales growth in our packaging segment , particularly for dispensing and closure products we supply that are used in applications to fight the spread of germs , and as a result of acquisitions . these increases more than offset declines in sales in our aerospace and specialty products segments , primarily related to the effects of the covid-19 pandemic . story_separator_special_tag rapak contributed approximately $ 13.9 million of net sales during 2020 within our packaging segment , although it is performing below break-even operating profit as demand for its products , particularly those used in quick service restaurant applications , has significantly declined from pre-acquisition levels in 2019 due to the impact of the covid-19 pandemic . in february 2020 , we completed the acquisition of rsa engineered products ( `` rsa '' ) , a provider of highly-engineered and proprietary components for air management systems used in critical flight applications , for an aggregate amount of approximately $ 83.7 million , net of cash acquired . rsa , located in simi valley , california , designs , engineers and manufactures highly-engineered components , including air ducting products , connectors and flexible joints , predominantly used in aerospace and defense engine bleed air , anti-icing and environmental control system applications . rsa contributed approximately $ 19.4 million of net sales during 2020 within our aerospace segment . during 2020 , we also undertook certain tax-planning actions with respect to intercompany debt restructuring , resulting in the recognition of approximately $ 6.4 million of income tax benefit . additional key risks that may affect our reported results the covid-19 pandemic significantly impacted our 2020 results , and we expect it will continue to impact us in the future at varying degrees . we expect the robust customer demand for our packaging segment 's dispensing pumps and closure products used in personal care and home care applications that fight the spread of germs will continue , as we believe there is a new secular trend for higher levels of health and cleanliness . we are actively collaborating with our customers and strategic supply partners to manage production capacity and supply chain availability as efficiently as possible . industrial demand in north america was lower than 2019 levels , and we are uncertain how and when demand will be impacted as many of the shelter-in-place orders are adjusted or lifted , particularly in north america , where orders for our industrial cylinders , for example , are heavily influenced by the levels of construction and hvac activity . we expect the aerospace market to continue to experience the most severe dislocation going forward . with the current travel restrictions and significant drop in passenger miles , aircraft manufacturers have now significantly slowed production , and since second quarter we have experienced a significant drop in aerospace-related sales compared to prior year levels . we expect this trend to continue for the foreseeable future . we have executed realignment actions in 2020 , primarily in our aerospace and specialty products segments , and also in certain packaging product areas where demand has fallen , such as in the quick-serve and restaurant applications , to protect against the uncertain end market demand . we will continue to assess further actions if required . however , as a result of the covid-19 pandemic 's impact on global economic activity , and the continued potential impact to our future results of operations , as well if there is an impact to trimas ' market capitalization , we may record additional cash and non-cash charges related to incremental realignment actions , as well as for uncollectible customer account balances , excess inventory and idle production equipment . despite the potential decline in future demand levels and results of operations as a result of the covid-19 pandemic , at present , we believe our capital structure is in a solid position , and we have ample cash and available liquidity under our revolving credit facility to meet our debt service obligations , capital expenditure requirements and other short-term and long-term obligations for the foreseeable future . even after deploying nearly $ 200 million in our three acquisitions and completing stock purchases totaling $ 39.4 million during 2020 , our december 31 , 2020 net leverage ratio , as defined in our credit agreement , is below our long-term target of 2.0x . the extent of the covid-19 pandemic 's effect on our operational and financial performance will depend in large part on future developments , which can not be predicted with confidence at this time . future developments include the duration , scope and severity of the pandemic , the actions taken to contain or mitigate its impact , timing of widespread vaccine availability , and the resumption of widespread economic activity . due to the inherent uncertainty of the unprecedented and rapidly evolving situation , we are unable to predict with any confidence the likely impact of the covid-19 pandemic on our future operations . 32 beyond the unique risks presented by the covid-19 pandemic , other critical factors affecting our ability to succeed include : our ability to create organic growth through product development , cross-selling and extending product-line offerings , and our ability to quickly and cost-effectively introduce and successfully launch new products ; our ability to acquire and integrate companies or products that supplement existing product lines , add new distribution channels or customers , expand our geographic coverage or enable better absorption of overhead costs ; our ability to manage our cost structure more efficiently via supply base management , internal sourcing and or purchasing of materials , selective outsourcing and or purchasing of support functions , working capital management , and greater leverage of our administrative functions . our overall business does not experience significant seasonal fluctuation , other than our fourth quarter , which has tended to be the lowest net sales quarter of the year due to holiday shutdowns at certain customers or other customers deferring capital spending to the following year . given the short-cycle nature of most of our businesses , we do not consider sales order backlog to be a material factor . a growing amount of our sales is derived from international sources , which exposes us to certain risks , including currency risks . we are sensitive to price movements and availability of our raw materials supply .
| results of operations year ended december 31 , 2020 compared with year ended december 31 , 2019 the principal factors impacting us during the year ended december 31 , 2020 , compared with the year ended december 31 , 2019 were : increases in our packaging segment 's organic sales and related operating profit as a result of significantly higher demand , primarily for our products used in applications to help fight the spread of germs ; approximately $ 134.6 million of non-cash , pre-tax goodwill and indefinite-lived intangible asset impairment charges during 2020 in our aerospace segment , primarily as a result of lower current and expected future financial results due to uncertainty around the duration and magnitude of the impact of the covid-19 pandemic ; reduced sales and related profit within our aerospace and specialty products segments , primarily as a result of the covid-19 pandemic ; a change in our accounting policy for asbestos-related defense costs during 2020 ; the impact of our recent acquisitions , primarily rsa in february 2020 and rapak in april 2020 ; realignment expenses , primarily in our aerospace and specialty products segments , in response to reduced end-market demand following the outbreak of covid-19 ; and an income tax benefit related to intercompany debt restructuring . overall , net sales increased approximately $ 46.4 million , or approximately 6.4 % , to $ 770.0 million in 2020 , as compared to $ 723.5 million in 2019. our recent acquisitions contributed approximately $ 44.1 million of inorganic sales growth .
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we own , operate and invest in a diversified group of businesses that provide services , such as bulk liquid terminalling and handling services , aircraft fueling , contracted power facilities and utility gas services to businesses , government agencies and individuals primarily in the u.s. our businesses are imtt , atlantic aviation , our interests in contracted power facilities and hawaii gas . our businesses generally operate in sectors with barriers to entry including high initial development and construction costs , long-term contracts or the requirement to obtain government approvals and a lack of immediate cost-effective alternatives to the services provided . overall they tend to generate sustainable , stable and growing cash flows over the long term . in analyzing the financial condition and results of operations of our businesses , we focus primarily on cash generation and our ability to distribute cash to shareholders in particular . the ability of our businesses to generate cash , broadly , is tied to their ability to effectively manage the volume of products sold or services provided and the margin earned on those transactions . offsetting that cash generation capability are required payments on debt facilities , cash taxes , capital expenditures necessary to maintain the productivity of the fixed assets of the businesses and pension contributions , among other items . at imtt , we focus on providing bulk liquid storage for customers who place a premium on ease of access and operational flexibility . the substantial majority of imtt 's revenue is generated pursuant to take-or-pay contracts providing access to storage tank capacity and ancillary services . at atlantic aviation , our focus is on attracting and maintaining relationships with ga aircraft owners and pilots and encouraging them to purchase refueling and other services from our fbos . atlantic aviation 's revenue is correlated with the number of ga flight movements in the u.s. and the business ' ability to service a portion of the aircraft involved in those operations . the businesses that comprise our cp & e segment generate revenue pursuant primarily to long-dated ppas and tolling agreements with creditworthy power off-takers . at hawaii gas , we focus on the provision of gas services to commercial , residential and governmental customers throughout the islands of hawaii and seek to grow by increasing the number of customers served , the volume of gas sold and the margins achieved on gas sales . hawaii gas actively markets its products and services in an effort to develop new customers throughout hawaii . recent activities conversion to corporation ( conversion ) on may 21 , 2015 , we completed the conversion from a delaware limited liability company to a delaware corporation . the conversion had no impact on the business or management of our company and has been treated as a tax-free exchange under relevant internal revenue service regulations . investors ' limited liability company interests were automatically converted to shares of common stock at the time of the conversion . we undertook the conversion in an effort to become eligible for consideration for inclusion in various stock indices and to permit investment by investors who may be precluded from investing in limited liability companies , or llcs . cp & e bayonne energy center ( bec ) acquisition on april 1 , 2015 , we completed the acquisition of a 100 % interest in bec for a purchase price of $ 718.0 million ( net of post-closing working capital adjustments ) , which consisted of $ 208.9 million in cash and the assumption of $ 509.1 million of debt , excluding transaction costs . we funded the cash consideration for the acquisition by drawing on the mic senior secured revolving credit facility and using cash on hand . bec is a 512 mw gas-fired power facility located in bayonne , new jersey , adjacent to imtt 's bayonne terminal . bec has tolling agreements with a creditworthy off-taker for 62.5 % of its power generating capacity 56 and power produced is delivered to new york city via a dedicated transmission cable under nyh . at december 31 , 2015 , tolling agreements have a megawatt-weighted average remaining life of approximately 12 years . results of operations consolidated replace_table_token_13_th nm not meaningful ( 1 ) interest expense includes losses on derivative instruments of $ 30.5 million , $ 21.3 million and $ 7.5 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively . 57 results of operations : consolidated ( continued ) key factors affecting operating results : contributions from the imtt acquisition ; improved gross profit primarily at atlantic aviation ; contributions from acquired businesses in cp & e and absence of costs related to the imtt acquisition ; offset by higher performance fees ; and increased interest expense . year ended december 31 , 2015 compared with year ended december 31 , 2014 gross profit consolidated gross profit increased from 2014 to 2015 primarily reflecting the consolidation of imtt 's results , contribution from the acquisition of bec and wind power facilities and improved results at atlantic aviation including the contribution from acquired fbos . these increases were offset by the sale of the district energy business in august 2014. selling , general and administrative expenses selling , general and administrative expenses increased in 2015 compared with 2014 primarily due to contributions from the 2015 and 2014 acquisitions at cp & e and atlantic aviation , the consolidation of imtt and costs associated with the conversion . these increases are partially offset by costs incurred for the imtt acquisition during the third quarter of 2014 and the sale of the district energy business in august 2014. fees to manager our manager is entitled to a monthly base management fee based primarily on our market capitalization , and potentially a quarterly performance fee , based on the performance of our stock relative to a u.s. utilities index . story_separator_special_tag gain from acquisition/divestiture of businesses on august 21 , 2014 , we completed the sale of our 50.01 % controlling interest in the district energy business , within cp & e , for approximately $ 270.0 million . proceeds of the sale were used to repay the outstanding debt balance . the remaining amounts were divided between us and our co-investor in the business . our share of the remaining proceeds was $ 59.6 million . as a result of this transaction , we deconsolidated the assets and liabilities of district energy business and recorded a pre-tax gain of $ 78.9 million . on july 16 , 2014 , we completed the acquisition of the remaining 50 % interest in imtt that we did not own for $ 1.029 billion . prior to this acquisition , our investment in imtt was accounted for using the equity method of accounting . as of the closing date , we have consolidated imtt 's results and the business is considered a reportable segment . the acquisition of the remaining 50 % interest in imtt requires that all assets and liabilities of imtt be recorded at fair value including our previous 50 % ownership . this resulted in a pre-tax gain of $ 948.1 million due to the remeasuring to fair value of our previous 50 % ownership of imtt . income taxes we file a consolidated federal income tax return that includes the financial results for imtt , atlantic aviation , bec , hawaii gas and our allocable share of the taxable income ( loss ) from our solar and wind power facilities , which are treated as partnerships for tax purposes . prior to july 16 , 2014 , imtt filed a separate federal income tax return . distributions we received from imtt were characterized as dividends , returns of capital or capital gains . generally , 20 % of any distribution characterized as dividend was included in our taxable income and subject to tax at our statutory rate . distributions characterized as returns of capital were not subject to current tax . distributions characterized as capital gain were subject to tax at statutory rates . subsequent to july 16 , 2014 , imtt joined the mic federal consolidated group . distributions we receive from imtt after that date generally will not be subject to tax . for 2015 , we expect to incur federal taxable losses which will increase our consolidated nol carryforward balance . notwithstanding our consolidated nols , each business records federal income taxes on a standalone basis . the current portion of the federal income taxes recorded by the businesses is eliminated in consolidation with the application of mic 's nols . 60 results of operations : consolidated ( continued ) we believe that we will be able to utilize all of our federal prior year nols , which will begin to expire after 2021 and completely expire after 2035. our federal nol balance at december 31 , 2015 was $ 426.2 million . as a result of having federal nol carryforwards , together with other planned tax strategies , we do not expect to make regular federal tax payments until the second half of 2019. for 2015 , we expect to report a current year taxable loss of $ 149.6 million and we do not expect to pay any federal alternative minimum tax . for 2015 , we recorded an income tax benefit of $ 65.2 million , which included a federal tax benefit of $ 53.6 million , a state tax benefit of $ 13.9 million , and an increase in valuation allowance of $ 2.3 million . for 2014 , we recorded an income tax benefit of $ 24.4 million , which includes a federal tax benefit of $ 22.9 million and a decrease in valuation allowances of $ 2.2 million . this is offset by state tax expense of $ 699,000. cash state and local taxes paid by our individual businesses are discussed in the sections entitled income taxes within the results of operations for each of these businesses . the increase in income tax benefit in 2015 compared with 2014 is primarily due to higher performance fees recognized in 2015. the income tax benefit in 2014 reflects the write-off of the deferred tax liability associated with the investment in imtt that had been created under the equity method of accounting , partially offset by the capital gain generated on the sale of the district energy business . valuation allowance : at december 31 , 2015 and 2014 , we do not have a valuation allowance for our consolidated federal nol carryforwards . in calculating our consolidated state income tax provision , we have provided a valuation allowance for certain state income tax nol carryforwards , the utilization of which is not assured beyond a reasonable doubt . we increased the valuation allowance by $ 2.3 million and $ 1.8 million for 2015 and 2014 , respectively , for certain state nol carryforwards . protecting americans from tax hikes act on december 18 , 2015 , president obama signed bill hr 2029 , the protecting americans from tax hikes act ( path act ) , into law . the path act retroactively extends several tax provisions applicable to corporations , including the extension of 50 % bonus depreciation for certain assets placed in service in 2015 , 2016 and 2017 , 40 % bonus depreciation for eligible property placed in service in 2018 and 30 % bonus depreciation for property placed in service in 2019. other than the extension of the bonus depreciation provision , the company does not expect the provisions of the path act to have a material effect on its tax profile . year ended december 31 , 2014 compared with year ended december 31 , 2013 gross profit consolidated gross profit increased from 2013 to 2014 primarily reflecting the consolidation of imtt 's results and improved results at atlantic aviation . this increase is offset by the sale of the district energy business on august 21 , 2014.
| key factors affecting operating results : an increase in gross profit driven by an increase in volume of gas sold ; and a decrease in selling , general and administrative costs . the hawaii economy grew at a rate of 2.0 % in 2015 with an unemployment rate 1.6 % lower than the national average . key tourism measures all grew during 2015 , including visitor arrivals , days and spending , while other key industries , including construction , have continued their gains . these trends are projected to continue in 2016. hawaii gas continues to see opportunities to deploy growth capital to support hawaii 's clean energy objectives . gross profit and operating income excluding the impact of unrealized gains and losses on commodity hedges , gross profit in 2015 increased $ 3.1 million over prior year driven by increases in volume and gross profit per therm . volume of gas sold increased by 2.4 % in 2015 compared with 2014. however , on an underlying basis , adjusting for changes in customer inventory primarily related to the timing of foreign shipments , volume of gas sold increased by 2.0 % in 2015. throughout the year , the business significantly increased its supply of lpg from off-island sources and , effective october 1 st , declined to renew its contract with hawaii independent energy . the business continues to implement several initiatives to mitigate volatility in naphtha and lpg prices and supply , including hedging , storage expansion and diversification of the supply base . selling , general and administrative expenses decreased in 2015 compared with 2014 as a result of lower promotional costs offset by legal costs associated with proceedings related to the proposed merger involving hawaii 's largest electric utility . interest expense , net interest expense includes losses on derivative instruments of $ 2.4 million and $ 2.2 million in 2015 and 2014 , respectively .
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forward-looking statements are statements other than historical information or statements of current condition and relate to matters such as future financial performance , future operational performance , the anticipated impact of specific items on future earnings , and our plans , objectives and expectations . statements containing words such as `` may , '' `` believe , '' `` anticipate , '' `` expect , '' `` intend , '' `` plan , '' `` project , '' `` estimate , '' `` should , '' `` will , '' `` designed to , '' `` projections , '' or `` business outlook , '' or other similar expressions constitute forward-looking statements . forward-looking statements involve known and unknown risks and uncertainties that could cause actual results and events to differ materially from those projected . please see special note regarding forward-looking and cautionary statements elsewhere in this annual report on form 10-k for potential factors that could cause actual results to differ materially from those in the forward-looking statements . 35 overview we are a leading global supplier of analog , mixed-signal semiconductors and advanced algorithms and were incorporated in delaware in 1960. we design , develop , manufacture and market a broad range of products that are sold principally into applications within the high-end consumer , industrial , enterprise computing and communications end-markets . the high-end consumer end-market includes handheld devices , smartphones , tablets , wireless charging , set-top boxes , digital televisions , digital video recorders , thunderbolt cables and other consumer equipment . applications for the industrial market include analog and digital video broadcast studio equipment , video-over-ip solutions , automated meter reading , smart grid , wireless charging , military and aerospace , medical , security systems , automotive , internet of things ( `` iot '' ) , industrial and home automation and other industrial equipment . enterprise computing end-markets include datacenter related equipment , passive optical networks , storage networks , desktops , notebooks , servers , printers , monitors and computer peripherals . communications end-market applications include wireless base stations , long-haul optical networks , carrier networks , switches and routers , cable modems , backplane signal conditioners , wireless lan , and other communication infrastructure equipment . our end-customers are primarily oems and their suppliers . we report results on the basis of 52 and 53 week periods and our fiscal year ends on the last sunday in january . the fiscal years ended january 28 , 2018 and january 29 , 2017 each consisted of 52 weeks . the fiscal year ended january 31 , 2016 consisted of 53 weeks . on july 1 , 2017 , we acquired aptovision technologies inc. ( `` aptovision '' ) , a privately-held provider of uncompressed , zero-frame latency , video-over-ip solutions addressing the professional audio visual market . the unique combination of aptovision 's advanced algorithms for real-time , full bandwidth video transmission over ip networks , and our industry leading high-speed signal integrity and chip development expertise is expected to enable the adoption of software defined video over ethernet ( `` sdvoe '' ) accelerating this natural progression in the evolution of video transport . under the terms of the share purchase agreement , we acquired all of the outstanding equity interest in aptovision for a cash payment of $ 17.6 million at closing , net of acquired cash , and a commitment to pay additional contingent consideration of up to a maximum of $ 47.0 million over three years if certain goals are achieved in each of the earn out periods . the fair value of the additional contingent consideration ( the `` aptovision earn-out '' ) as of january 28 , 2018 was $ 21.0 million , of which $ 8.9 million is presented within `` accrued liabilities '' and $ 12.1 million is presented within `` other long-term liabilities '' in the balance sheets . acquisition related transaction costs of $ 1.6 million are accounted for as an expense in the period in which the costs are incurred and are presented within `` selling , general and administrative '' expense in the statements of income . on march 4 , 2015 , we completed the acquisition of triune systems , l.l.c . ( `` triune '' ) , a privately-held supplier of wireless charging , isolated switching and power management platforms targeted at high and low power , high efficiency applications . under the terms of the purchase agreement , we acquired all of the outstanding equity interests of triune for an aggregate purchase price of $ 45.0 million consisting of $ 35.0 million cash paid at closing , with an additional cash consideration of $ 10.0 million which has since been paid . subject to achieving certain future financial goals ( `` triune earn-out '' ) , up to an additional $ 70.0 million of additional contingent consideration could have been paid over three years if certain revenue targets were achieved in each of the fiscal years 2016 through 2018. an additional payment of up to $ 16.0 million could have been paid after fiscal year 2018 if certain cumulative revenue and operating income targets are achieved . none of the triune earn-out targets were met and we do not expect to make any payments with regards to these periods which represented all of the additional $ 70.0 million contingent consideration . our primary reason for the acquisition was to broaden our existing portfolio with platforms that are very complementary to our current market focus , including triune 's isolated switching platform and wireless charging platform . see note 3 and note 13 to our consolidated financial statements included in item 8 of this annual report on form 10-k. we operate and account for results in one reportable segment . see note 15 to our consolidated financial statements included in item 8 of this annual report on form 10-k. in fiscal year 2016 , we identified a total of five operating segments . four of these operating segments aggregate into one reportable segment , the semiconductor products group . story_separator_special_tag fiscal year 2017 compared with fiscal year 2016 all periods presented in the following summary of sales by major end-market reflect our current classification methodology ( see note 1 to our consolidated financial statements in this annual report on form 10-k for a description of each market category ) : replace_table_token_13_th net sales . net sales for fiscal year 2017 were $ 544.3 million , an increase of 11 % compared to $ 490.2 million for fiscal year 2016 which had benefited from an additional week compared to fiscal year 2017 . the net sales from this additional week were not significant . fiscal year 2017 revenues within the enterprise computing end-market benefited from particular strength from our optical products which are well positioned for the current cycle of datacenter upgrades and increased deployments of pons , particularly in china . the continued decline of 40gbps and 100gbps serdes devices going into the long-haul optical market in the communications end-market was offset by strength in the wireless base station market primarily in china . net sales increased in our high-end consumer end-market due to higher demand from our largest korean customers as well as strong growth from our china smartphone customers . gross profit . gross profit was $ 324.9 million and $ 293.1 million in fiscal years 2017 and 2016 , respectively . our gross margin was 59.7 % for fiscal year 2017 , comparable with 59.8 % in fiscal year 2016 . fiscal year 2017 performance benefited from a more favorable mix of higher margin product sales , the benefit of which was offset by the $ 5.4 million charge related to the comcast warrant which was reported as a reduction to revenue . 40 operating costs and expenses . replace_table_token_14_th selling , general & administrative expenses selling , general and administrative ( `` sg & a '' ) expenses for fiscal year 2017 decrease d by $ 2.0 million as the benefit from the restructuring actions taken in fiscal year 2016 , lower legal fees , and the non-reoccurrence of environmental reserves of $ 2.9 million were offset by an $ 8.0 million increase in share-based compensation resulting primarily from our higher stock price and a $ 9.5 million increase in our supplemental compensation costs associated with our improved financial performance . this is offset by the $ 4.5 million we incurred for restructuring charges in fiscal year 2016 , for severance and contract cancellation liabilities related to our decision to reduce our investments in the defense and microwave communications and long-haul optical markets , realign product groupings , and align spending with anticipated demand levels . restructuring charges in fiscal year 2017 , at $ 2.2 million , were more limited and focused on better aligning our global operational footprint with our updated business strategies . product development and engineering expenses product development and engineering expenses for fiscal years 2017 and 2016 were $ 102.5 million and $ 113.7 million , respectively or a decrease of 10 % . the decrease was primarily a result of our decision to reduce our investment in the defense and microwave communications markets and to sell our snowbush ip business to rambus . the savings from these actions were partially offset by lower recoveries from third parties for non-recurring engineering services . the levels of product development and engineering expenses reported in a fiscal period can be significantly impacted , and therefore experience period over period volatility , by the number of new product tape-outs and by the timing of recoveries from non-recurring engineering services which are recorded as a reduction to product development and engineering expense . intangible amortization intangible amortization was $ 25.3 million and $ 25.1 million in fiscal years 2017 and 2016 , respectively . gain on disposition of business operations in the third quarter of fiscal year 2017 , we completed our divestiture of snowbush ip to rambus . as a result , we recognized a gain of $ 25.5 million on the disposition of this business . changes in the fair value of contingent earn-out obligations the contingent earn-out expense decrease d by $ 16.1 million in fiscal year 2017 primarily as a result of a significant reduction in our estimate of projected revenue associated with the triune earn-out . we measure contingent earn-out liabilities at fair value on a recurring basis using significant unobservable inputs classified within level 3 of the fair value hierarchy . we use a monte carlo valuation method as a valuation technique to determine the value of the earn-out liability . the significant unobservable inputs used in the fair value measurements are revenue projections over the earn-out period , and the probability outcome percentages assigned to each scenario . significant increases or decreases to either of these inputs in isolation would result in a significantly higher or lower liability , with a higher liability capped by the contractual maximum of the contingent earn-out obligation . ultimately , the liability will be equivalent to the amount paid , and the difference between the fair value estimate and amount paid will be recorded in earnings . the triune earn-out targets for fiscal years 2017 and 2016 were not met and we do not expect to make any payments with regards to these periods which represented $ 36.0 million of the total $ 70.0 million opportunity . interest expense interest expense was $ 9.3 million and $ 7.8 million for fiscal years 2017 and 2016 , respectively . the $ 1.5 million increase is primarily related to the write-off of $ 0.5 million of debt issuance costs as a result of a debt modification that was completed in the fourth quarter of fiscal year 2017 and higher interest rates .
| results of operations fiscal year 2018 compared with fiscal year 2017 all periods presented in the following summary of sales by major end-market reflect our current classification methodology ( see note 1 to our consolidated financial statements in this annual report on form 10-k for a description of each market category ) : replace_table_token_11_th net sales . net sales for fiscal year 2018 were $ 587.8 million , an increase of 8 % compared to $ 544.3 million for fiscal year 2017 . during fiscal year 2018 , our revenues within the high-end consumer end-market increased as a result of expanded use of our proximity sensing solutions and protection products across a broader range of phones and other devices . our enterprise computing end-market benefited from strong demand for our optical products which are well positioned for the current cycle of datacenter upgrades and increased pon deployments . the escalating adoption of our lora® devices and wireless radio frequency technology ( `` lora technology '' ) continued to drive growth in the industrial market . the decline in our communications end-market was driven by lower demand in surveillance systems and base station markets . in fiscal year 2019 , activity in the communications , enterprise computing and industrial end-markets is expected to benefit from continued demand for datacenter upgrades , and the build-out of metro communications infrastructure , including wireless base stations ( specifically in china ) and iot applications . gross profit . gross profit was $ 352.0 million and $ 324.9 million in fiscal years 2018 and 2017 , respectively . our gross margin was 59.9 % for fiscal year 2018 , comparable with 59.7 % in fiscal year 2017 .
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for the year ended december 31 , 2016 , operating revenues included $ 20.0 million for the lump-sum consideration received in settlement of the ensco 8503 customer 's remaining obligations under the contract . mobilization / demobilization revenue in connection with certain contracts , we receive lump-sum fees or similar compensation for the mobilization of equipment and personnel prior to the commencement of drilling services or the demobilization of equipment and personnel upon contract completion . fees received for the mobilization or demobilization of equipment and personnel are included in operating revenues . the costs incurred in connection with the mobilization and demobilization of equipment and personnel are included in contract drilling expense . mobilization fees received prior to commencement of drilling operations are recorded as a contract liability and amortized on a straight-line basis over the contract term . demobilization fees expected to be received upon contract completion are estimated at contract inception and recognized on a straight-line basis over the contract term . in some cases , demobilization fees may be contingent upon the occurrence or non-occurrence of a future event . in such cases , this may result in cumulative-effect adjustments to demobilization revenues upon changes in our estimates of future events during the contract term . capital upgrade / contract preparation revenue in connection with certain contracts , we receive lump-sum fees or similar compensation for story_separator_special_tag introduction our business we are one of the leading providers of offshore contract drilling services to the international oil and gas industry . we currently own and operate an offshore drilling rig fleet of 56 rigs , with drilling operations in most of the strategic markets around the globe . we also have three rigs under construction . inclusive of our rigs under construction , our fleet includes 12 drillships , nine dynamically positioned semisubmersible rigs , three moored semisubmersible rigs and 35 jackup rigs . we operate the world 's largest fleet amongst competitive rigs , including one of the newest ultra-deepwater fleets in the industry and a leading premium jackup fleet . our customers include many of the leading national and international oil companies , in addition to many independent operators . we are among the most geographically diverse offshore drilling companies , with current operations spanning 14 countries on six continents . the markets in which we operate include the gulf of mexico , brazil , the mediterranean , the north sea , the middle east , west africa , australia and southeast asia . we provide drilling services on a day rate contract basis . under day rate contracts , we provide an integrated service that includes the provision of a drilling rig and rig crews for which we receive a daily rate that may vary between the full rate and zero rate throughout the duration of the contractual term , depending on the operations of the rig . we also may receive lump-sum fees or similar compensation for the mobilization , demobilization and capital upgrades of our rigs . our customers bear substantially all of the costs of constructing the well and supporting drilling operations , as well as the economic risk relative to the success of the well . proposed rowan transaction on october 7 , 2018 , ensco plc and rowan companies plc ( `` rowan '' ) entered into an agreement that provides for the combination of the two companies ( as amended the `` transaction agreement '' ) . ensco has agreed to acquire the entire issued and to be issued share capital of rowan in an all-stock transaction ( the `` rowan transaction '' ) by way of a scheme of arrangement to be undertaken by rowan under part 26 of the uk companies act 2006. on january 29 , 2019 , the transaction agreement was amended to increase the exchange ratio in connection with the rowan transaction from 2.215 to 2.750 . subject to the terms and conditions of the transaction agreement , each class a ordinary share of rowan will be converted into the right to receive 2.750 class a ordinary shares of ensco plc . we estimate the total consideration to be delivered in the rowan transaction to be approximately $ 1.5 billion , consisting of approximately 351.3 million of our shares based on the closing price of $ 4.41 on february 22 , 2019 . the value of the rowan transaction consideration will fluctuate until the closing date based on changes in the price of our shares and the number of rowan ordinary shares outstanding . the completion of the rowan transaction is subject to various closing conditions , including , among others , ( i ) the sanction of the rowan transaction by the high court of justice of england and wales , ( ii ) the receipt of certain required regulatory approvals or lapse of certain review periods with respect thereto , including in the kingdom of saudi arabia , ( iii ) the absence of legal restraints prohibiting or restraining the rowan transaction and ( iv ) the absence of any law or order reasonably expected to result in the dissolution of the saudi aramco offshore drilling company , rowan 's joint venture with saudi aramco ( the “ aro jv ” ) , or the sale , disposition , forfeiture or nationalization of rowan 's interest in the aro jv . shareholders of rowan and ensco approved the rowan transaction and related proposals on february 21 , 2019. the rowan transaction is expected to close during the first half of 2019 , subject to satisfaction of all conditions to closing . upon closing of the rowan transaction , we intend to complete a reverse split of our ordinary shares under which every four existing ensco ordinary shares will be consolidated into one ensco ordinary share . story_separator_special_tag there are 41 newbuild drillships and semisubmersibles reported to be under construction , of which 20 are scheduled to be delivered before the end of 2019 . most newbuild floaters are uncontracted . several newbuild deliveries have been delayed into future years , and we expect that more uncontracted newbuilds will be delayed or cancelled . there are 77 newbuild jackups reported to be under construction , of which 51 are scheduled to be delivered before the end of 2019 . most newbuild jackups are uncontracted . over the past year , some jackup orders have been cancelled , and many newbuild jackups have been delayed . we expect that additional rigs may be delayed or cancelled given limited contracting opportunities . liquidity , backlog and debt maturities we remain focused on our liquidity and over the past several years have executed a number of financing transactions to improve our financial position and manage our debt maturities . based on our balance sheet , our contractual backlog and $ 2.0 billion available under our credit facility , we expect to fund our liquidity needs , including contractual obligations and anticipated capital expenditures , as well as working capital requirements , from cash and short-term investments and , if necessary , funds borrowed under our credit facility or other future financing arrangements , including available shipyard financing options for our two drillships under construction . we may rely on the issuance of debt and or equity securities in the future to supplement our liquidity needs . cash and debt as of december 31 , 2018 , we had $ 5.0 billion in total debt outstanding , representing 38.2 % of our total capitalization . we also had $ 604.1 million in cash and short-term investments and $ 2.0 billion undrawn capacity under our credit facility . in january 2018 , we issued $ 1.0 billion aggregate principal amount of unsecured 7.75 % senior notes due 2026 ( the `` 2026 notes '' ) , net of debt issuance costs of $ 16.5 million . net proceeds of $ 983.5 million from the 2026 notes were partially used to fund the repurchase and redemption of $ 237.6 million principal amount of our 8.50 % senior notes due 2019 , $ 328.0 million principal amount of our 6.875 % senior notes due 2020 and $ 156.2 million principal amount of our 4.70 % senior notes due 2021. we recognized a pre-tax loss on debt extinguishment of $ 19.0 million during the first quarter of 2018. following the january 2018 debt offering , repurchases and redemption , our only debt maturities until 2024 are $ 122.9 million during 2020 and $ 113.5 million during 2021 . 58 backlog as of december 31 , 2018 , our backlog was $ 2.2 billion as compared to $ 2.8 billion as of december 31 , 2017 . our floater backlog declined $ 636.8 million primarily due to revenues realized during 2018 , partially offset by new contract awards and contract extensions . while our floater utilization increased marginally in 2018 to 46 % from 45 % in 2017 , our floater backlog declined as revenues were realized on above-market , longer-term contracts and new contracts were executed a lower rates for shorter terms . our jackup backlog increased $ 58.0 million primarily due to new contract awards as utilization increased to 63 % in 2018 from 60 % in 2017 , partially offset by revenues realized during 2018. our other segment backlog declined $ 59.8 million due to revenues realized during 2018 . as current contracts expire , we may experience further declines in backlog , which could result in a decline in revenues and operating cash flows during 2019 . contract backlog includes the impact of drilling contracts signed or terminated after each respective balance sheet date but prior to filing our annual reports on february 28 , 2019 and february 27 , 2018 , respectively . drilling rig construction and delivery we remain focused on our long-established strategy of high-grading our fleet , as evidenced by the recently completed atwood merger and proposed rowan transaction . during the three-year period ended december 31 , 2018 , we invested approximately $ 1.0 billion in the construction of new drilling rigs . we will continue to invest in the expansion and high-grading of our fleet or execute other strategic transactions to optimize our asset portfolio when we believe attractive opportunities exist . we believe our remaining capital commitments will primarily be funded from cash and short-term investments , and , if necessary , funds borrowed under our credit facility or other future financing arrangements , including available shipyard financing options for our two drillships under construction . we may decide to access debt and or equity markets to raise additional capital or increase liquidity as necessary . floaters we previously entered into an agreement with samsung heavy industries to construct ensco ds-10 , an ultra deepwater drillship . during 2017 , we took delivery of ensco ds-10 and made the final milestone payment of $ 75.0 million . ensco ds-10 commenced drilling operations offshore nigeria in march 2018. in connection with the atwood merger , we acquired two ultra-deepwater drillships , ensco ds-13 and ensco ds-14 , which are currently under construction in the daewoo shipbuilding & marine engineering co. ltd. yard in south korea . ensco ds-13 and ensco ds-14 are scheduled for delivery during the third quarter of 2019 and second quarter of 2020 , respectively . upon delivery , the remaining milestone payments and accrued interest thereon may be financed through a promissory note with the shipyard for each rig . the promissory notes will bear interest at a rate of 5.0 % per annum with a maturity date of december 30 , 2022 and will be secured by a mortgage on each respective rig .
| results of operations the following table summarizes our consolidated results of operations for each of the years in the three-year period ended december 31 , 2018 ( in millions ) : replace_table_token_8_th overview year ended december 31 , 2018 revenues declined by $ 137.6 million , or 7 % , as compared to the prior year . the decline was primarily due to a decline in average day rates in both our floater and jackup fleets and the sale of several rigs during the year that operated in the year-ago period , partially offset by increased utilization and the addition of atwood rigs to the fleet . contract drilling expense increased by $ 129.9 million , or 11 % , as compared to the prior year . the increase was primarily due to addition of atwood rigs to the fleet and the commencement of drilling operations for several of our newbuild rigs . this increase was partially offset by the sale of several rigs during the year that operated in the year-ago period and cost incurred during the prior year to settle a previously disclosed legal contingency . excluding the impact of $ 7.5 million and $ 51.6 million of transaction costs recognized during 2018 and 2017 respectively , general and administrative expenses declined by $ 11.0 million , or 10 % , as compared to the prior year . the decline was primarily due to lower compensation costs and the recovery of certain legal costs awarded to us in connection with the shi litigation . year ended december 31 , 2017 excluding the impact of ensco ds-9 and ensco 8503 lump-sum termination payments totaling $ 205.0 million received during 2016 , revenues declined by $ 728.4 million , or 28 % , as compared to the prior year .
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control over transferred assets is deemed to be surrendered when ( 1 ) the assets have been isolated from the company , ( 2 ) the transferee obtains the right ( free of conditions that constrain it from taking advantage of that right ) to pledge or exchange the transferred assets , and ( 3 ) the company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity . trust assets – assets held by the trust story_separator_special_tag story_separator_special_tag bold '' > introduction of new products and services . the company continuously reviews new products and services to provide its customers more financial options . all new technology and services are generally reviewed for business development and cost saving purposes . the company continues to experience growth in customer use of its online banking services , where the bank provides a full array of traditional cash management products as well as online banking products including mobile banking , mobile deposit , bill pay , e-statements , and text banking . the products are tailored to meet the needs of small to medium size businesses and households in the markets we serve . the bank has implemented remote check capture at all of its branches and for selected customers of the bank . the company intends to selectively add other products to further diversify revenue sources and to capture more of each customer 's banking relationship by cross selling loan and deposit products and additional services , including services provided through the trust company to increase its fee income . assets under management by the trust company totaled $ 646.0 million and $ 484.3 million at march 31 , 2019 and march 31 , 2018 , respectively . the company offers a third-party identity theft product to its customers . the identity theft product assists our customers in monitoring their credit and includes an identity theft restoration service . attracting core deposits and other deposit products . the company offers personal checking , savings and money-market accounts , which generally are lower-cost sources of funds than certificates of deposit and are less likely to be withdrawn when interest rates fluctuate . to build its core deposit base , the company has sought to reduce its dependence on traditional higher cost deposits in favor of stable lower cost core deposits to fund loan growth and decrease its reliance on other wholesale funding sources , including fhlb and frb advances . the company believes that its continued focus on building customer relationships will help to increase the level of core deposits and locally-based retail certificates of deposit . in addition , the company intends to increase demand deposits by growing business banking relationships through expanded product lines tailored to meet its target business customers ' needs . the company maintains technology-based products to encourage the growth of lower cost deposits , such as personal financial management , business cash management , and business remote deposit products , that enable it to meet its customers ' cash management needs and compete effectively with banks of all sizes . core branch deposits decreased $ 71.1 million at march 31 , 2019 compared to march 31 , 2018 reflecting increased competition and pricing pressure for deposits over the last year . recruiting and retaining highly competent personnel with a focus on commercial lending . the company 's ability to continue to attract and retain banking professionals with strong community relationships and significant knowledge of its markets will be a key to its success . the company believes that it enhances its market position and adds profitable growth opportunities by focusing on hiring and retaining experienced bankers focused on owner occupied commercial real estate and commercial lending , and the deposit balances that accompany these relationships . the company emphasizes to its employees the importance of delivering exemplary customer service and seeking opportunities to build further relationships with its customers . the goal is to compete with other financial service providers by relying on the strength of the company 's customer service and relationship banking approach . the company believes that one of its strengths is that its employees are also shareholders through the company 's employee stock ownership ( `` esop '' ) and 401 ( k ) plans . 49 comparison of financial condition at march 31 , 2019 and 2018 cash and cash equivalents , including interest-earning accounts , totaled $ 23.0 million at march 31 , 2019 compared to $ 44.8 million at march 31 , 2018. the decrease in cash balances was primarily the result of funding the increase in loans receivable . the company 's cash balances fluctuate based upon funding needs , and the company will deploy a portion of excess cash balances to purchase investment securities to earn higher yields than the nominal yield earned on cash held in interest-earning accounts , based on the company 's asset/liability management program and liquidity objectives in order to maximize earnings . as a part of this strategy , the company also invests a portion of its excess cash in short-term certificates of deposit held for investment . all of the certificates of deposit held for investment are fully insured by the fdic . at march 31 , 2019 , certificates of deposits held for investment totaled $ 747,000 compared to $ 6.0 million at march 31 , 2018. investment securities totaled $ 178.3 million and $ 213.3 million at march 31 , 2019 and 2018 , respectively . the decrease was due to the utilization of the cash proceeds from pay downs , calls and maturities to supplement the cash needed to fund loan growth . during the fiscal year ended march 31 , 2019 , there were no purchases of investment securities . the company primarily purchases a combination of securities backed by government agencies ( fhlmc , fnma , sba or gnma ) . at march 31 , 2019 , the company determined that none of its investment securities required an otti charge . story_separator_special_tag the company performed its annual goodwill impairment test as of october 31 , 2018. the goodwill impairment test involves a two-step process . step one of the goodwill impairment test estimates the fair value of the reporting unit utilizing the allocation of corporate value approach , the income approach and the market approach in order to derive an enterprise value of the company . the allocation of corporate value approach applies the aggregate market value of the company and divides it among the reporting units . a key assumption in this approach is the control premium applied to the aggregate market value . a control premium is utilized as the value of a company from the perspective of a controlling interest is generally higher than the widely quoted market price per share . the company used an expected control premium of 30 % , which was based on comparable transactional history . the income approach uses a reporting unit 's projection of estimated operating results and cash flows that are discounted using a rate that reflects current market conditions . the projection uses management 's best estimates of economic and market conditions over the projected period including growth rates in loans and deposits , estimates of future expected changes in net interest margins and cash expenditures . assumptions used by the company in its discounted cash flow model ( income approach ) included an annual revenue growth rate that approximated 6.9 % , a net interest margin that approximated 4.3 % and a return on assets that ranged from 1.33 % to 1.53 % ( average of 1.42 % ) . in addition to utilizing the above projections of estimated operating results , key assumptions used to determine the fair value estimate under the income approach were the discount rate of 14.90 % utilized for our cash flow estimates and a terminal value estimated at 1.7 times the ending book value of the reporting unit . the company used a build-up approach in developing the discount rate that included : an assessment of the risk free interest rate , the rate of return expected from publicly traded stocks , the industry the company operates in and the size of the company . the market approach estimates fair value by applying tangible book value multiples to the reporting unit 's operating performance . the multiples are derived from comparable publicly traded companies with similar operating and investment characteristics of the reporting unit . in applying the market approach method , the company selected four publicly traded comparable institutions . after selecting comparable institutions , the company derived the fair value of the reporting unit by completing a comparative analysis of the relationship between their financial metrics listed above and their market values utilizing a market multiple of 1.3 times tangible book value . the company calculated a fair value of its reporting unit of $ 254.0 million using the corporate value approach , $ 194.9 million using the income approach and $ 259.0 million using the market approach , with a final concluded value of $ 238.0 million , with primary weight given to the market approach . the results of the company 's step one test indicated that the reporting unit 's fair value was greater than its carrying value and therefore no impairment of goodwill exists . even though the company determined that there was no goodwill impairment , a decline in the value of its stock price as well as values of other financial institutions , declines in revenue for the company beyond our current forecasts , significant adverse changes in the operating environment for the financial industry or an increase in the value of our assets without an increase in the value of the reporting unit may result in a future impairment charge . it is possible that changes in circumstances existing at the measurement date or at other times in the future , or in the numerous estimates associated with management 's judgments , assumptions and estimates made in assessing the fair value of our goodwill , could result in an impairment charge of a portion or all of our goodwill . if the company recorded an impairment charge , its financial position and results of operations would be adversely affected ; however , such an impairment charge would have no impact on our liquidity , operations or regulatory capital . 51 estimated fair value of level 3 assets the company determines the estimated fair value of certain assets that are classified as level 3 under the fair value hierarchy established under gaap . these level 3 assets are valued using significant unobservable inputs that are supported by little or no market activity and that are significant to the estimated fair value of the assets . these level 3 assets are certain loans measured for impairment for which there is neither an active market for identical assets from which to determine fair value , nor is there sufficient , current market information about similar assets to use as observable , corroborated data for all significant inputs in a valuation model . under these circumstances , the estimated fair values of these assets are determined using pricing models , discounted cash flow methodologies , appraisals , and other valuation methods in accordance with accounting standards , for which the determination of fair value requires significant management judgment or estimation . valuations using models or other techniques are dependent upon assumptions used for the significant inputs . where market data is available , the inputs used for valuation reflect that information as of the valuation date . in periods of extreme volatility , lessened liquidity or in illiquid markets , there may be more variability in market pricing or a lack of market data to use in the valuation process . judgment is then applied in formulating those inputs .
| general management 's discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the company . the information contained in this section should be read in conjunction with the consolidated financial statements and accompanying notes thereto contained in item 8 of this form 10-k and the other sections contained in this form 10-k. this section contains certain financial information determined by methods other than in accordance with gaap . these measures include net interest income on a fully tax equivalent basis and net interest margin on a fully tax equivalent basis . management uses these non-gaap measures in its analysis of the company 's performance . the tax equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets . as a result of the enactment of the tax act , the federal income tax rate for corporations was reduced from a maximum of 35 % to 21 % . management believes that it is a standard practice in the banking industry to present net interest income and net interest margin on a fully tax equivalent basis , and accordingly believes that providing these measures may be useful for peer comparison purposes . these disclosures should not be viewed as substitutes for the results determined to be in accordance with gaap , nor are they necessarily comparable to non-gaap performance measures that may be presented by other companies . critical accounting policies the company has established various accounting policies that govern the application of gaap in the preparation of the company 's consolidated financial statements . the company has identified policies that due to judgments , estimates and assumptions inherent in those policies are critical to an understanding of the company 's consolidated financial statements .
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our md & a is performed on a consolidated basis and is inclusive of the results and operations of sprint prospectively from the close of our merger on april 1 , 2020. the merger enhanced our spectrum portfolio , increased our customer base , altered our product mix by increasing the portion of customers who finance their devices with leasing programs and created opportunity for synergies in our operations . we anticipate an initial increase in our combined operating costs which we expect to decrease as we realize synergies . we expect the trends and results of operations of the combined company to be materially different than those of the standalone entities . our md & a is provided as a supplement to , and should be read together with , our audited consolidated financial statements as of december 31 , 2020 and 2019 , and for each of the three years in the period ended december 31 , 2020 , included in part i i , item 8 of this form 10-k. except as expressly stated , the financial condition and results of operations discussed throughout our md & a are those of t-mobile us , inc. and its consolidated subsidiaries . beginning with the second quarter of 2020 , we have discontinued the use of “ branded ” to describe the results and metrics associated with our flagship brands including t-mobile and metro by t-mobile . sprint merger transaction overview on april 1 , 2020 , we completed our merger with sprint , a communications company offering a comprehensive range of wireless and wireline communications products and services . as a result , sprint and its subsidiaries became wholly owned consolidated subsidiaries of t-mobile . the merger has altered the size and scope of our operations , impacting our assets , liabilities , obligations , capital requirements and performance measures . we expect the trends and results of operations of the combined company to be materially different than those of the standalone entities . as a combined company , we expect to be able to enhance the breadth and depth of our nationwide 5g network , accelerate innovation , increase competition in the u.s. wireless , video and broadband industries and achieve significant synergies and cost reductions by eliminating redundancies within the combined network as well as other business processes and operations . for more information regarding the merger , see note 2 – business combination of the notes to the consolidated financial statements . on june 22 , 2020 , we entered into a master framework agreement and related transactions with softbank to facilitate the softbank monetization as described in note 14 - softbank equity transaction of the notes to the consolidated financial statements . 30 table of contents brand and retail unification on august 2 , 2020 , we combined the sprint and t-mobile operations under the t-mobile brand nationwide . we combined our retail operations and rebranded thousands of sprint stores to t-mobile stores while implementing the tools and systems across our distribution footprint to serve all customers in all stores . sale of boost mobile and sprint prepaid brands in connection with obtaining regulatory approval for the merger , on july 1 , 2020 , dish acquired the prepaid wireless business operated under the boost mobile and sprint prepaid brands ( excluding the assurance brand lifeline customers and the prepaid wireless customers of shentel and swiftel communications , inc. ) , including customer accounts , inventory , contracts , intellectual property and certain other specified assets ( the “ prepaid business ” ) , and assumed certain related liabilities ( the “ prepaid transaction ” ) . for more information , see note 12 - discontinued operations of the notes to the consolidated financial statements . upon the closing of the prepaid transaction , we entered into a master network services agreement ( the “ mvno agreement ” ) providing for the provisioning of network services to customers of the prepaid business for a period of up to seven years following the closing of the prepaid transaction . the revenue generated through this agreement is presented within wholesale revenues in our consolidated statements of comprehensive income following the close of the prepaid transaction on july 1 , 2020. we included the pre-tax results of our discontinued operations in our determination of adjusted ebitda , a non-gaap measure , to reflect contributions of the prepaid business that was replaced by the mvno agreement beginning on july 1 , 2020. see “ adjusted ebitda ” in the “ performance measures ” section of this md & a . merger-related costs merger-related costs generally include : integration costs to achieve efficiencies in network , retail , information technology and back office operations ; restructuring costs , including severance , store rationalization and network decommissioning ; and transaction costs , including legal and professional services related to the completion of the merger . transaction and restructuring costs are disclosed in note 2 – business combination and note 1 9 - restructuring costs , respectively . merger-related costs have been excluded from our calculation of adjusted ebitda , a non-gaap financial measure , as we do not consider these costs to be reflective of our ongoing operating performance . see “ adjusted ebitda ” in the “ performance measures ” section of this md & a . cash payments for merger-related costs , including payments related to our restructuring plan , are included in net cash provided by operating activities in our consolidated statements of cash flows . merger-related costs during the years ended december 31 , 2020 , 2019 and 2018 are presented below : replace_table_token_4_th nm - not meaningful merger-related costs will be impacted by restructuring and integration activities expected to occur over the next three years as we implement initiatives to realize cost efficiencies from the merger . transaction costs , including legal and professional service fees related to the completion of the merger , are expected to decrease in periods subsequent to the close of the merger . story_separator_special_tag successfully deploy additional 600 mhz spectrum on a temporary basis ( through june 30 , 2020 ) , effectively doubling total 600 mhz lte capacity across the nation to help ensure customers can stay connected during this critical time ; and we are working to keep our network fully operational as an essential service to first responders , 911 communications and our customers and continue to expand our 5g network , while adhering to governmental guidelines . we continue to monitor the pandemic and its impacts and may adjust our actions as needed to continue to provide our products and services to our communities and employees . impact on results of operations and performance measures for the year ended december 31 , 2020 for the year ended december 31 , 2020 , we incurred $ 458 million , before taxes , in supplemental employee payroll , third-party commissions and cleaning-related covid-19 costs , which are included in selling , general and administrative expenses in our consolidated statements of comprehensive income . these costs have been excluded from the calculation of adjusted ebitda , a non-gaap financial measure , as they represent direct , incremental costs as a result of our response to the pandemic . see “ adjusted ebitda ” in the “ performance measures ” section of this md & a . expected continued impact on results of operations and performance measures we continue to monitor developments regarding the pandemic and evaluate the appropriate steps needed to align with guidelines from state , local and federal government agencies and do what is best for our employees and customers . the extent to which the pandemic impacts our business , operations and financial results will depend on numerous future developments that we are not able to predict at this time , including the duration and scope of the pandemic , the success of governmental , business 33 table of contents and individual actions that have been and continue to be taken in response to the pandemic , and the impact on economic activity from the pandemic and actions taken in response . such impacts may include : lower net customer additions due to lower switching activity in the industry from reduced store traffic due to temporary retail store closures and reduced consumer spending caused by widespread unemployment and other adverse economic effects , partially offset by lower churn ; lower equipment revenues and lower cost of equipment sales from lower device sales due to lower switching activity in the industry from reduced store traffic due to temporary retail store closures , which may impact our ability to sell devices ; higher bad debt expense on our service and eip receivable portfolios due to adverse macro-economic conditions . should these adverse conditions worsen , our operating and financial results could be negatively impacted ; continued costs to protect and support our employees and customers ; and potential disruptions in our supply chains . in addition , we have reevaluated , and continue to assess , our spending , including for marketing purposes like advertising , capital projects like build-out of our stores , travel , third-party services and certain operating expenses . we have taken actions to adjust our spending given the significant uncertainty around the magnitude and duration of any recessionary impacts arising from the pandemic . for additional risks to our business and industry , see item 1a . risk factors . 34 table of contents story_separator_special_tag style= '' color : # 000000 ; font-family : 'times new roman ' , sans-serif ; font-size:10pt ; font-weight:700 ; line-height:120 % '' > selling , general and administrative expenses increased $ 4.8 billion , or 34 % , primarily from : higher employee-related costs due to an increase in the number of employees primarily from the merger ; higher external labor and professional services , lease and advertising expense from the merger ; $ 1.3 billion of merger-related costs , including transaction costs associated with legal and professional services and restructuring costs including severance and store rationalization , compared to $ 620 million of merger-related costs in the year ended december 31 , 2019 ; higher commission expense , primarily due to : higher gross customer additions primarily due to the increased size of the company as a result of the merger , partially offset by lower switching activity in the industry from reduced store traffic due to retail store closures arising from the pandemic ; partially offset by lower commissions expense due to lower prepaid gross additions and compensation structure changes ; higher bad debt expense , primarily due to customers acquired as a result of the merger and the recording of estimated losses associated with the new credit loss standard , including incremental bad debt for the estimated macro-economic impacts of the pandemic ; and higher legal-related expenses from recording an estimated accrual associated with the fcc notice of apparent liability and commitments associated with the merger . selling , general and administrative expenses for the year ended december 31 , 2020 included $ 458 million of supplemental employee payroll , third-party commissions and cleaning-related covid-19 costs . impairment expense was $ 418 million and consisted of the following : a $ 218 million impairment on the goodwill in the layer3 reporting unit ; and a $ 200 million impairment on the capitalized software development costs related to our postpaid billing system . there was no impairment expense for the year ended december 31 , 2019. for more information regarding the impairments above , see note 5 – property and equipmen t and note 6 – goodwill , spectrum license transactions and oth er intangible assets of the notes to the consolidated financial statements .
| results of operations set forth below is a summary of our consolidated financial results : replace_table_token_5_th nm - not meaningful 35 table of contents the following discussion and analysis is for the year ended december 31 , 2020 , compared to the same period in 2019 unless otherwise stated . for a discussion and analysis of the year ended december 31 , 2019 , compared to the same period in 2018 , please refer to management 's discussion and analysis of financial condition and results of operations included in part ii , item 7 of our annual report on form 10-k for the year ended december 31 , 2019 , filed with the sec on february 6 , 2020. total revenues increased $ 23.4 billion , or 52 % . the components of this change are discussed below . postpaid revenues increased $ 13.6 billion , or 60 % , primarily from : higher average postpaid phone customers , primarily from customers acquired in the merger and the success of new customer segments and rate plans , as well as continued growth in existing and new markets ; higher average postpaid other customers , primarily from customers acquired in the merger and growth in other connected devices ( tablets and wearable products ) and growth in public and educational sector customers ; and higher postpaid phone arpu , primarily as a result of customers acquired in the merger . see “ postpaid phone arpu ” in the “ performance measures ” section of this md & a . prepaid revenues were essentially flat . wholesale revenues increased $ 1.3 billion , or 103 % , primarily from : our master network service agreement with dish , which went into effect on july 1 , 2020 ; and customers acquired in the merger .
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debt and embedded derivatives the story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes that are 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 set forth under the sections contained in this form 10-k entitled item 1a . “ risk factors ” ; item 7 . “ management 's discussion and analysis of financial condition and results of operations ” ; and item 7a . “ quantitative and qualitative disclosure about market risk ” . see “ special note regarding forward-looking statements ” below . forward-looking statements the information in this discussion contains forward-looking statements and information within the meaning of section 27a of the securities act and section 21e of the exchange act , which are subject to the “ safe harbor ” created by those sections . these forward-looking statements include , but are not limited to , statements concerning our strategy , future operations , future financial position , future revenues , projected costs , prospects and plans and objectives of management . the words “ anticipates , ” “ believes , ” “ estimates , ” “ expects , ” “ intends , ” “ may , ” “ plans , ” “ projects , ” “ will , ” “ would ” and similar expressions are intended to identify forward-looking statements , although not all forward-looking statements contain these identifying words . we may not actually achieve the plans , intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements . actual results or events could differ materially from the plans , intentions and expectations disclosed in the forward-looking statements that we make . these forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements , including , without limitation , the risks set forth under the sections contained in this form 10-k entitled item 1a . “ risk factors ” ; item 7 . “ management 's discussion and analysis of financial condition and results of operations ” ; and item 7a . “ quantitative and qualitative disclosure about market risk ” and in our other filings with the sec . the forward-looking statements are applicable only as of the date on which they are made , and we do not assume any obligation to update any forward-looking statements . 58 overview we are a medical technology company focused on improving patient safety and aesthetic outcomes , initially in the breast aesthetics and reconstruction market . our line of silicone gel-filled breast implants , branded as motiva implants , is the centerpiece of our motivaimagine medical technology platform . post-market surveillance data , which was not generated in connection with the u.s. food and drug administration , or fda , pma approval study and was self-collected rather than collected at mandatory follow-ups , and published third-party data indicates that motiva implants show low rates of adverse events ( including rupture , capsular contracture , and safety related reoperations ) that we believe compare favorably with those of our competitors . we believe the proprietary technologies that differentiate our motiva implants enable improved safety and aesthetic outcomes and have helped drive our revenue growth . our motivaimagine platform enables surgical techniques that we promote as motiva designed surgeries . we have developed other complementary products and services on our motivaimagine platform , which are aimed at further enhancing patient outcomes . we have devoted a majority of our resources since inception to developing our motiva implants , which we began selling in october 2010. we have incurred net losses in each year since inception , and we have financed our operations primarily through equity financings and debt financings . our revenue for the year s ended december 31 , 2019 and 2018 was $ 89.6 million and $ 61.2 million , respectively , an increase of $ 28.4 million , or 46.3 % . net losses increased to $ 38.2 million for the year ended december 31 , 2019 from $ 21.1 million for the year ended december 31 , 2018 . as of december 31 , 2019 , we had an accumulated deficit of $ 127.1 million . our cash balance as of december 31 , 2019 was $ 37.7 million . on july 23 , 2018 , the company completed its initial public offering , or ipo . the company received net proceeds from the ipo of approximately $ 70.1 million , after deducting underwriting discounts and expenses . on february 3 , 2020 , the company completed a public follow-on offering and received net proceeds of approximately $ 63.9 million , after deducting underwriting discounts and expenses . we have made and continue to make significant investments in additional manufacturing capacity , marketing , customer service , and a direct sales force in certain territories like brazil and several countries in europe in order to drive and support further adoption of our motiva implants . we expect that we will continue to incur losses at least in the near term as we expand our organization to support planned sales growth , while also continuing to invest in research and development of our products , clinical trials to enable regulatory approval in the united states , and in other commercialization efforts . we also expect to incur significant additional expenditures as a public company . as a result of these and other factors , we expect to continue to incur net losses in the intermediate term and may need to raise additional capital through equity and debt financings in order to fund our operations . story_separator_special_tag other income ( expense ) , net other income ( expense ) , net primarily consists of foreign currency gains/losses , interest income and change in fair value of contingent consideration . 60 income tax expense income tax expense consists primarily of income taxes in foreign jurisdictions in which we conduct business . due to our history of losses , we maintain a full valuation allowance for deferred tax assets including net operating loss carry-forwards , r & d tax credits , capitalized r & d and other book versus tax differences . story_separator_special_tag font-size:10pt ; '' > ▪ the cost and timing of our regulatory activities , especially the pma clinical trial to obtain regulatory approval for our motiva implants in the united states ; ▪ the emergence of new competing technologies and products ; ▪ the costs of r & d activities we undertake to develop and expand our products ; ▪ the costs of commercialization activities , including sales , marketing and manufacturing ; ▪ the level of working capital required to support our growth ; and ▪ our need for additional personnel , information technology or other operating infrastructure to support our growth and operations as a public company . we may need to raise additional capital to execute our business plan . if we are unable to raise additional capital when desired , or on terms acceptable to us , our business , results of operations , and financial condition would be adversely affected . 63 cash flows the following table sets forth the primary sources and uses of cash for each of the years presented below : replace_table_token_4_th net cash used in operating activities net cash used in operating activities of $ 30.0 million for the year ended december 31 , 2019 was comprised of a net loss of $ 38.2 million and $ 3.1 million change in fair value of financial instruments , partially offset by $ 3.3 million of non-cash depreciation expense , $ 6.5 million of share-based compensation expense , $ 3.5 million unrealized foreign currency loss and $ 2.4 million of non-cash interest expense due to accretion of debt discounts , as well as changes in operating assets and liabilities of $ 4.6 million . net cash used in operating activities of $ 33.9 million for the year ended december 31 , 2018 was comprised of a net loss of $ 21.1 million and $ 15.9 million change in fair value of financial instruments , partially offset by $ 2.8 million of non-cash depreciation expense , $ 7.3 million of share-based compensation expense , and $ 3.3 million of non-cash interest expense due to accretion of debt discounts , as well as changes in operating assets and liabilities of $ 14.0 million . net cash used in investing activities net cash used in investing activities of $ 7.8 million for the year ended december 31 , 2019 primarily consisted of $ 6.3 million in purchases of property and equipment and $ 0.8 million in cash used in asset acquisitions . net cash used in investing activities of $ 5.7 million for the year ended december 31 , 2018 primarily consisted of $ 4.0 million in cash used in asset acquisitions and $ 1.7 million in purchases of property and equipment . net cash provided by financing activities net cash provided by financing activities of $ 22.8 million for the year ended december 31 , 2019 primarily reflected $ 24.7 million in borrowing , net of debt issuance costs , under the madryn credit agreement , $ 0.7 million in proceeds received for stock option exercises and $ 0.1 million in proceeds received for warrant exercises , which was partially offset by $ 2.3 million of warrant repurchases , $ 0.2 million of tax payments related to shares withheld upon vesting of restricted stock and $ 0.2 million in repayment on capital leases . net cash provided by financing activities of $ 81.5 million for the year ended december 31 , 2018 primarily reflected $ 71.5 million in proceeds received from the issuance of common shares in the ipo , net of underwriters ' discount , $ 16.1 million in proceeds received from the issuance of ordinary shares prior to the ipo , $ 0.6 million in proceeds received for stock option exercises and $ 0.1 million in proceeds received for warrant exercises , which was partially offset by $ 5.1 million repayment of related party notes payable , $ 1.5 million deferred equity issuance costs and $ 0.3 million in repayment on capital leases . indebtedness madryn debt on august 24 , 2017 the company entered into a credit agreement , or the madryn credit agreement , with madryn health partners , lp , or madryn , as administrative agent , and a syndicate of lenders . on june 17 , 2019 , the madryn credit agreement was amended to lower the interest rate on the outstanding debt facilities , provide for $ 25.0 million of new term loan commitments , decrease the amount of the prepayment penalties , remove all 64 principal payments and extend the maturity date and repayment from september 30 , 2023 to september 30 , 2025. the madryn credit agreement , as amended , provides for a term loan in a maximum principal amount of $ 65.0 million , $ 30.0 million ( term a ) of which became available upon signing and was subsequently borrowed by the company . prior to amending the madryn credit agreement on june 17 , 2019 , the company 's ability to borrow the remaining term loans under the madryn credit agreement was subject to the company achieving certain revenue milestones .
| consolidated results of operations the following table set forth our results of operations for the years presented , in dollars : replace_table_token_1_th 61 comparison of the year december 31 , 2019 and 2018 replace_table_token_2_th revenue revenue increased $ 28.4 million , or 46.3 % , to $ 89.6 million for the year ended december 31 , 2019 , as compared to $ 61.2 million for the year ended december 31 , 2018 . the increase was primarily due to increased sales of motiva implants , with the increase driven by greater market penetration in existing geographies and commencement of sales in new geographies . as of december 31 , 2019 , our sales organization included 94 employees and contractors as compared to 67 individuals at december 31 , 2018. cost of revenue and gross margin cost of revenue increased $ 9.6 million , or 38.3 % , to $ 34.7 million for the year ended december 31 , 2019 , compared to $ 25.1 million for the year ended december 31 , 2018 . the increase was due to higher sales volume of motiva implants . the gross margin increased to 61.3 % for the year ended december 31 , 2019 , compared to 59.0 % for the year ended december 31 , 2018 primarily due to the addition of direct market revenues with generally higher average selling prices and cost savings from increased efficiencies in our manufacturing operations offset by the increase in amortization related to the fair value of inventory recorded from our asset acquisitions from certain distributors in the fourth quarter of 2018. the amortization decreased our gross margins by 4.0 % year-to-date .
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brokerage and logistics services consist of services such as transportation scheduling , routing , mode selection , transloading and other value added services related to the transportation of freight which may or may not involve the usage of company owned or owner-operator owned equipment . both our truckload operations and our brokerage/logistics operations have similar economic characteristics and are impacted by virtually the same economic factors as discussed elsewhere in this report . all of the company 's operations are in the motor carrier segment . for both operations , substantially all of our revenue is generated by transporting freight for customers and is predominantly affected by the rates per mile received from our customers , equipment utilization , and our percentage of non-compensated miles . these aspects of our business are carefully managed and efforts are continuously underway to achieve favorable results . truckload services revenues , excluding fuel surcharges , represented 91.8 % , 93.5 % and 85.9 % of total revenues , excluding fuel surcharges for the twelve months ended december 31 , 2012 , 2011 and 2010 , respectively . 20 the main factors that impact our profitability on the expense side are costs incurred in transporting freight for our customers . currently , our most challenging costs include fuel , driver recruitment , training , wage and benefit costs , independent broker costs ( which we record as purchased transportation ) , insurance , and maintenance and capital equipment costs . in discussing our results of operations we use revenue , before fuel surcharge , ( and fuel expense , net of surcharge ) , because management believes that eliminating the impact of this sometimes volatile source of revenue allows a more consistent basis for comparing our results of operations from period to period . during 2012 , 2011 and 2010 , approximately $ 82.9 million , $ 75.1 million and $ 49.5 million , respectively , of the company 's total revenue was generated from fuel surcharges . we also discuss certain changes in our expenses as a percentage of revenue , before fuel surcharge , rather than absolute dollar changes . we do this because we believe the high variable cost nature of certain expenses makes a comparison of changes in expenses as a percentage of revenue more meaningful than absolute dollar changes . results of operations - truckload services the following table sets forth , for truckload services , the percentage relationship of expense items to operating revenues , before fuel surcharges , for the periods indicated . fuel costs are shown net of fuel surcharges . replace_table_token_5_th 2012 compared to 2011 for the year ended december 31 , 2012 , truckload services revenue , before fuel surcharges , increased 2.9 % to $ 273.4 million as compared to $ 265.8 million for the year ended december 31 , 2011. the increase relates primarily an increase in the average number of miles traveled per unit each work day from 434 miles during 2011 to 449 miles during 2012. salaries , wages and benefits increased from 44.4 % of revenues , before fuel surcharges , during 2011 to 50.7 % of revenues , before fuel surcharges , during 2012. the increase relates primarily to an increase in driver lease expense , which is a component of salaries , wages and benefits . the increase in driver lease expense is the result of an increase in the average number of owner operators under contract from 48 during 2011 to 149 during 2012. the increase in costs in this category , as they relate to the increase in owner operators , are partially offset by a decrease in other expense categories , such as repairs and fuel , which are generally borne by the owner operator . partially offsetting the increase related to owner operator expenses was a decrease in expenses associated with employee workers ' compensation benefits . 21 fuel expense , net of fuel surcharge , decreased from 18.8 % of revenues , before fuel surcharges , during 2011 to 10.4 % of revenues , before fuel surcharges , during 2012. the decrease relates primarily to a decrease in the average surcharge-adjusted fuel price paid per gallon of diesel fuel and to an increase in the average miles-per-gallon ( “ mpg ” ) experienced . the average surcharge-adjusted fuel price paid per gallon of diesel fuel decreased from $ 1.43 during 2011 to $ 0.91 during 2012 as a result of more favorable fuel surcharge arrangements made with customers and to an increase in the number of owner operators in our fleet . fuel surcharge collections can fluctuate significantly from period to period as they are generally based on changes in fuel prices from period to period so that during periods of rising fuel prices fuel surcharge collections increase while fuel surcharge collections decrease during periods of falling fuel prices . fuel surcharge revenue generated from transportation services performed by owner operators is reflected as a reduction in net fuel expense , while fuel surcharges paid to owner operators for their services is reported along with their base rate of pay in the salaries , wages and benefits category . these categorizations have the effect of reducing our net fuel expense while increasing salaries , wages and benefits category , as discussed above . the average mpg experienced increased during 2012 as compared to the mpg experienced during 2011 as a result of replacing older trucks with newer trucks , which are more fuel efficient and to the implementation of driver bonus programs which are tied directly to fuel efficiency . rent and purchased transportation decreased from 1.6 % of revenues , before fuel surcharges , during 2011 to 0.3 % of revenues , before fuel surcharges , during 2012. the decrease relates primarily to a decrease in amounts paid for third-party equipment rentals and to third-party transportation service providers as well as a decrease in amounts reserved for excess mileage fees paid to certain equipment manufacturers upon the trade of older trucks for new trucks . story_separator_special_tag using a dollar-based comparison , fuel expense increased from $ 48.1 million during 2010 to $ 49.9 million during 2011. the dollar-based increase related primarily to an increase in the average surcharge-adjusted price paid per gallon of fuel from $ 1.35 during 2010 to $ 1.43 paid per gallon during 2011. the fuel surcharge collections vary from period to period as they are generally based on changes in fuel prices from period to period so that during periods of rising fuel prices fuel surcharge collections increase while fuel surcharge collections decrease during periods of declining fuel prices . rent and purchased transportation decreased from 2.3 % of revenues , before fuel surcharges , in 2010 to 1.6 % of revenues , before fuel surcharges , in 2011. the decrease related primarily to a decrease in amounts paid to third party transportation service providers . 23 depreciation and amortization increased from 11.1 % of revenues , before fuel surcharges , in 2010 to 12.8 % of revenues , before fuel surcharges , in 2011. the increase related primarily to 2011 revenue equipment acquisitions placed in service during 2011 and to revisions made during 2011 to the estimated useful lives and residual values of our trucks to facilitate the acceleration of our planned truck replacement cycle from five years to three years . using a dollar-based comparison , depreciation and amortization increased from $ 26.9 million during 2010 to $ 34.1 million during 2011 as the revisions generally resulted in higher monthly depreciation expense over a shorter period of time . operating supplies and expenses increased from 12.4 % of revenues , before fuel surcharges , during 2010 to 14.5 % of revenues , before fuel surcharges , during 2011. the increase related primarily to an increase in equipment maintenance and repair costs as the company extended the life of its existing fleet of trucks and trailers during 2010. also contributing to the increase was an increase in amounts paid to driver training schools for the periods compared as competition for qualified drivers increased during a period when increased regulations forced some drivers to exit the profession . on a dollar basis , operating supplies and expenses increased from $ 30.1 million during 2010 to $ 38.7 million during 2011. the primary components of the increase were an increase in maintenance and repair costs of $ 6.6 million and an increase in driver recruiting costs of $ 1.5 million . operating taxes and licenses decreased from 2.0 % of revenues , before fuel surcharges , during 2010 to 1.9 % of revenues , before fuel surcharges , during 2011. the decrease , as a percentage of revenue , resulted from the interaction of expenses with fixed-cost characteristics , such as registration fees , with an increase in revenues for the periods compared . on a dollar basis , operating taxes and licenses , which consists primarily of equipment registration fees , remained constant at $ 4.9 million during each of the periods compared . insurance and claims expense decreased from 5.3 % of revenues , before fuel surcharges , during 2010 to 4.9 % of revenues , before fuel surcharges , during 2011. the decrease , as a percentage of revenue , related to the interaction of insurance premiums , based on a factor other than revenue , with increased revenues . insurance premiums based on a mileage basis , such as auto liability premiums , and on a value basis , such as physical damage premiums , decreased as a percentage of revenues as a result of higher revenues for the periods compared . on a dollar basis , insurance and claims expense increased from $ 12.8 million during 2010 to $ 13.1 million during 2011. this dollar-based increase related primarily to an increase in amounts reserved for auto liability claims during 2011 as compared to 2010. other expenses increased from 2.0 % of revenues , before fuel surcharges , during 2010 to 2.3 % of revenues , before fuel surcharges , during 2011. the increase related primarily to an increase in building rents , advertising expenses and professional services fees . the truckload services division operating ratio , which measures the ratio of operating expenses , net of fuel surcharges , to operating revenues , before fuel surcharges , increased to 102.1 % for 2011 from 100.5 % for 2010. non-operating income increased from 0.3 % of revenues , before fuel surcharges , during 2010 to 0.6 % of revenues , before fuel surcharges , during 2011. the components of this category consist primarily of dividends earned and gains or losses on the company 's investments in marketable equity securities . the increase related primarily to an increase in the amount of dividends and capital gains recognized between the periods on the company 's investments in marketable equity securities . 24 results of operations - logistics and brokerage services the following table sets forth , for logistics and brokerage services , the percentage relationship of expense items to operating revenues , before fuel surcharges , for the periods indicated . brokerage service operations occur specifically in certain divisions ; however , brokerage operations occur throughout the company in similar operations having substantially similar economic characteristics . rent and purchased transportation , which includes costs paid to third party carriers , are shown net of fuel surcharges . replace_table_token_6_th 2012 compared to 2011 for the year ended december 31 , 2012 , logistics and brokerage services revenues , before fuel surcharges , increased 32.1 % to $ 24.3 million as compared to $ 18.4 million for the year ended december 31 , 2011. the increase was primarily the result of an increase in the number of loads brokered during 2012 as compared to 2011. salaries , wages and benefits decreased from 1.9 % of revenues , before fuel surcharges , in 2011 to 1.8 % of revenues , before fuel surcharges , in 2012. the decrease , as a percentage of revenues , resulted primarily from the fixed cost characteristics of wages which do not fluctuate with changes in revenue , such as general
| quarterly results of operations the following table presents selected consolidated financial information for each of our last eight fiscal quarters through december 31 , 2012. the information has been derived from unaudited consolidated financial statements that , in the opinion of management , reflect all adjustments , consisting of normal recurring adjustments , necessary for a fair presentation of the quarterly information . replace_table_token_7_th 27 liquidity and capital resources our business has required , and will continue to require , a significant investment in new revenue equipment . our primary sources of liquidity have been funds provided by operations , proceeds from the sales of revenue equipment , issuances of equity securities , and borrowings under our lines of credit , installment notes , and investment margin account . during 2012 , we generated $ 33.6 million in cash from operating activities compared to $ 34.9 million and $ 15.0 million in 2011 and 2010 , respectively . investing activities used $ 72.6 million in cash during 2012 compared to $ 61.4 million and $ 14.2 million in 2011 and 2010 , respectively . the cash used for investing activities in all three years related primarily to the purchase of revenue equipment such as trucks and trailers or related equipment such as auxiliary power units . financing activities provided $ 39.3 million in cash during 2012 compared to $ 12.9 million and $ 3.1 million in cash provided during 2011 and 2010 , respectively . see the consolidated statements of cash flows in item 8 of this report . our primary use of funds is for the purchase of revenue equipment . we typically use installment notes , our existing lines of credit on an interim basis , proceeds from the sale or trade of equipment , and cash flows from operations , to finance capital expenditures and repay long-term debt .
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the total fair value of options that vested in the year ended december 31 , 2016 , 2015 and the period january 27 , 2014 ( inception ) through december 31 , 2014 , was $ 3,195,000 , story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k. this annual report on form 10-k , including the following sections , contains forward-looking statements within the meaning of the federal securities laws . these statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those expressed or implied by such forward-looking statements . for a detailed discussion of these risks and uncertainties , see the `` risk factors '' section in item 1a of this annual report on form 10-k. we caution the reader not to place undue reliance on these forward-looking statements , which reflect management 's analysis only as of the date of this form 10-k. we undertake no obligation to update forward-looking statements , which reflect events or circumstances occurring after the date of this form 10-k. overview we are a clinical stage biopharmaceutical company focused on the development and commercialization of novel immuno-oncology therapies that are designed to harness the immune system to attack cancer cells . since we began operations in november 2014 , we have built a pipeline of four immuno-oncology programs , three of which focus on the adenosine-cancer axis to modulate an immune response . our lead product candidate , cpi-444 , is an oral , small molecule antagonist of the a2a receptor for adenosine , an immune checkpoint . in january 2016 , we began enrolling patients in a large expansion cohort trial for cpi-444 . this phase 1/1b clinical trial is designed to examine safety , tolerability , biomarkers and preliminary efficacy of cpi-444 in several solid tumor types , both as a single agent and in combination with genentech , inc. 's investigational cancer immunotherapy , tecentriq® ( atezolizumab ) , a fully humanized investigational monoclonal antibody targeting pd-l1 . in november 2016 , we completed enrollment of 48 patients in the first step of the phase 1/1b clinical trial , which was designed to determine the optimal dose of cpi-444 as both a single agent therapy and in combination with tecentriq ( atezolizumab ) for use in the cohort expansion component of the trial . the expansion cohort portion of the trial is now enrolling patients with different types of solid tumors at 36 leading medical centers in the u.s. , australia and canada . the other product and development candidates in our pipeline also continue to advance . we have chosen a lead development candidate for our second program , an anti-cd73 monoclonal antibody ( `` cpx-006 '' ) that inhibits the production of adenosine . cpx-006 is currently in ind enabling studies and we plan to initiate a phase 1 clinical trial in early 2018. in addition , in 2016 we selected a development candidate for our itk program and are currently conducting ind-enabling studies . we also plan to initiate a phase 1 clinical trial for this candidate in 2018. we expect to select a development candidate for our other program , a small molecule antagonist of the a2b receptor for adenosine in 2017. we believe the breadth and status of our pipeline demonstrates our management team 's expertise in understanding and developing immuno-oncology assets as well as in identifying product candidates that can be in-licensed and further developed internally to treat many types of cancer . we hold worldwide rights to all of our product candidates . to date , substantially all of our efforts have been focused on the research , development and advancement of cpi-444 , and we have not generated any revenue from product sales and , as a result , we have incurred significant losses . we expect to continue to incur significant research and development and general and administrative expenses related to our operations . our net loss for the years ended december 31 , 2016 and 2015 was $ 36.4 million and $ 31.3 million , respectively . as of december 31 , 2016 , we had an accumulated deficit of $ 67.9 million . we expect to continue to incur losses for the foreseeable future , and we anticipate these losses will increase as we continue our development of , seek regulatory approval for and begin to commercialize cpi-444 , and as we develop other product candidates . even if we achieve profitability in the future , we may not be able to sustain profitability in subsequent periods . 82 since our inception and through december 31 , 2016 , we have funded our operations primarily through the sale and issuance of stock . in november 2014 , january 2015 and june 2015 , we received aggregate net proceeds of $ 33.3 million from the sale of our series a convertible preferred stock . in september 2015 , we received net proceeds of $ 74.8 million from the sale of our series b convertible preferred stock . on march 22 , 2016 , our registration statement on form s-1 ( file no . 333-208850 ) relating to our initial public offering ( `` ipo '' ) of our common stock was declared effective by the sec . shares of our common stock began trading on the nasdaq global market on march 23 , 2016. the ipo closed on march 29 , 2016 , pursuant to which we sold 4,700,000 shares of our common stock at a public offering price of $ 15.00 per share . in april 2016 , we sold an additional 502,618 shares of our common stock to the underwriters upon partial exercise of their over-allotment option , at the initial offering price of $ 15.00 per share . we received aggregate net proceeds of approximately $ 70.6 million , after underwriting discounts , commissions and offering expenses . story_separator_special_tag the amounts and timing of our actual expenditures depend on numerous factors , including : the initiation , progress , timing , costs and results of clinical trials for cpi-444 ; the timing , progress , costs and results of preclinical and clinical development activities for our other product candidates ; the number and scope of preclinical and clinical programs we decide to pursue ; the costs involved in prosecuting , maintaining and enforcing patent and other intellectual property rights ; the cost and timing of regulatory approvals ; our efforts to enhance operational systems and hire additional personnel , including personnel to support development of our product candidates and satisfy our obligations as a public company ; and other factors described in the section of this report entitled `` risk factors . '' we expect to increase our spending in connection with the development and commercialization of our product candidates . until such time , if ever , as we can generate substantial revenue from product sales , we expect to fund our operations and capital funding needs through equity and or debt financings . we may also enter into additional collaboration arrangements or selectively partner for clinical development and commercialization . the sale of additional equity would result in dilution to our stockholders . the incurrence of debt financing would result in debt service obligations and the governing documents would likely include operating and financing covenants that would restrict our operations . in addition , sufficient additional funding may not be available on acceptable terms , or at all . if we are not able to secure adequate additional funding , we may be forced to make reductions in spending , extend payment terms with suppliers , liquidate assets where possible and or suspend or curtail planned programs . any of these actions could have a material effect on our business financial condition and results of operations . 87 summary of statement of cash flows the following table summarizes our cash flows for the periods indicated ( in thousands ) : replace_table_token_8_th cash flows from operating activities cash used in operating activities during the year ended december 31 , 2016 was $ 27.9 million , which primarily consisted of a net loss of $ 36.4 million , adjusted by non-cash charges of $ 5.1 million and a net change of $ 3.4 million in our net operating assets . the non-cash charges were primarily associated with stock-based compensation expense of $ 3.8 million . the change in our net operating assets and liabilities was primarily attributable to an increase in accounts payable and accrued and other liabilities of $ 3.4 million , which was primarily due to the timing of payments to vendors . cash used in operating activities during the year ended december 31 , 2015 was $ 11.3 million , which consisted of a net loss of $ 31.3 million , adjusted by non-cash charges of $ 18.2 million and a net change of $ 1.8 million in our net operating assets . the non-cash charges are primarily associated with remeasurement of our convertible preferred stock liability to fair value of $ 17.6 million . the change in our net operating assets and liabilities was primarily due to an increase of $ 1.3 million of prepaid and other current assets , including prepaid drug purchases of $ 0.7 million and receivables from our landlord of $ 0.3 million in connection with improvements to our facility , offset by increases in short-term liabilities of $ 2.5 million and increased long-term liabilities of $ 0.6 million , primarily in connection with deferred rent . during the period from january 27 , 2014 ( inception ) to december 31 , 2014 , cash used in operating activities was $ 0.1 million , which consisted of a net loss of $ 0.2 million , offset by an increase in accounts payable and accrued liabilities of $ 0.1 million . cash flows used in investing activities cash used in investing activities during the year ended december 31 , 2016 was $ 42.6 million , which consisted of purchases of marketable securities of $ 258.3 million and purchases of property and equipment of $ 2.2 million , which were partially offset by proceeds from maturities and sales of marketable securities of $ 217.9 million . cash used in investing activities during the year ended december 31 , 2015 was $ 92.0 million , which consisted of $ 1.7 million of capital expenditures to purchase property and equipment and $ 104.4 million of purchases of short-term marketable securities , offset by $ 14.1 million in proceeds from the maturity of marketable securities . 88 cash flows from financing activities cash provided by financing activities during the year ended december 31 , 2016 was $ 71.4 million , consisting of the net proceeds from our ipo . cash provided by financing activities during the year ended december 31 , 2015 was $ 94.9 million , primarily consisting of net proceeds from the issuances of convertible preferred stock . during the period from january 27 , 2014 ( inception ) to december 31 , 2014 , cash provided by financing activities was $ 12.6 million , primarily consisting of net proceeds from the issuance of convertible preferred stock . off-balance sheet arrangements we have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities . contractual obligations we lease our facilities under a non-cancelable operating lease that expires in 2021. as of december 31 , 2016 , contractual obligations were as follows ( in thousands ) : replace_table_token_9_th in august 2015 we entered into an agreement for a line of credit of $ 0.1 million for the purpose of issuing our landlord a letter of credit of $ 0.1 million as a security deposit under our facility lease . we pledged money market funds and marketable securities as collateral for the line of credit .
| results of operations comparison of the periods below as indicated ( in thousands ) : replace_table_token_6_th research and development expenses research and development for the years ended december 31 , 2016 , 2015 and 2014 , consisted of the following costs by program ( specific program costs consist solely of external costs ) : replace_table_token_7_th for the year ended december 31 , 2016 , the increase in cpi-444 costs of $ 8.1 million as compared to the year ended december 31 , 2015 , primarily consisted of an increase of $ 6.5 million in clinical trial costs related to our phase 1/1b clinical trial that started in 2016 , an increase of $ 1.1 million in drug manufacturing costs to support our clinical trial , and an increase of $ 1.1 million of biology research activities which increases were partially offset by a $ 1.0 million license payment to vernalis in 2015. for the year ended december 31 , 2016 , the increase in cpx-006 costs of $ 2.5 million as compared to the year ended december 31 , 2015 , primarily consisted of an increase of $ 2.2 million in drug manufacturing costs . for the year ended december 31 , 2016 , the increase in itk costs of $ 1.1 million as compared to the year ended december 31 , 2015 , primarily consisted of an increase of $ 0.5 million in manufacturing costs and $ 0.6 million in outside biology and pre-clinical costs . for the year ended december 31 , 2016 , the increase in other program costs of $ 0.4 million as compared to the year ended december 31 , 2015 , primarily consisted of an increase in outside chemical synthesis and testing of research compounds .
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although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions , there are a number of risks and uncertainties that could cause actual results to differ materially from these forward-looking statements . these include , among others , our ability to maximize value from our land and water resources and our ability to obtain new financings as needed to meet our ongoing working capital needs . see additional discussion under the heading `` risk factors ” above . overview we are a land and water resource development company with 45,000 acres of land in three areas of eastern san bernardino county , california . virtually all of this land is underlain by high-quality , naturally recharging groundwater resources , and is situated in proximity to the colorado river and the colorado river aqueduct ( “ cra ” ) , a major source of imported water for southern california . our main objective is to realize the highest and best use of these land and water resources in an environmentally responsible way . for more than 20 years , we have maintained an agricultural development at our 34,000-acre property in the cadiz valley , relying upon groundwater from the underlying aquifer system for irrigation . in 1993 , we secured permits to develop agriculture on up to 9,600 acres of the cadiz valley property and withdraw more than one million acre-feet of groundwater from the underlying aquifer system . since that time , we have maintained various levels of agriculture at the property and this operation has provided our principal source of revenue . in addition to our sustainable agricultural operations , we believe that the long-term value of our land assets can best be derived through the development of a combination of water supply and storage projects at our properties . the primary factor driving the value of such projects is continuing pressure on water supplies throughout california , including environmental and regulatory restrictions on each of the state 's three main water sources : the state water project , the cra and the los angeles aqueduct . southern california 's water providers rely on imports from these systems for a majority of their water supplies , but deliveries from all three in the region have been below capacity over the last several years . availability of supplies in california also differs greatly from year to year due to natural hydrological variability . in january 2014 , california 's governor declared a drought emergency for the entire state as a result of record low winter precipitation and depleted reservoir storage levels . water deliveries from the state water project , which provides water supplies from northern california to the central and southern parts of the state , have been limited to just 5 % of capacity for 2014 in response to below average precipitation as well as ongoing regulatory restrictions . with the region 's population expected to continue to grow , southern california water providers are actively seeking new , reliable supply solutions to plan for long-term water needs and anticipated limitations of traditional water supplies . 22 back to top at present , our water development efforts are primarily focused on the cadiz valley water conservation , recovery and storage project ( “ water project ” or “ project ” ) , which will capture and conserve millions of acre-feet of native groundwater currently being lost to evaporation from the aquifer system beneath our cadiz valley property and deliver it to water providers throughout southern california ( see “ water resource development ” ) . we believe that the ultimate implementation of this water project will create the primary source of our future cash flow and , accordingly , our working capital requirements relate largely to the development activities associated with this water project . we also continue to explore additional uses of our land and water resource assets , including additional agricultural opportunities , the development of a land conservation bank on our properties outside the water project area and other long-term legacy uses of our properties , such as habitat conservation and cultural uses . in addition to these development efforts , we will also pursue strategic investments in complementary business or infrastructure to meet our objectives . we can not predict with certainty when or if these objectives will be realized . w ater resource development the water project is designed to supply , capture and conserve billions of gallons of renewable native groundwater currently being lost annually to evaporation from the aquifer system underlying our cadiz/fenner property , and provide a reliable water supply to water users in southern california . by implementing established groundwater management practices , the water project will create a new , sustainable water supply for project participants without adversely impacting the aquifer system or the desert environment . the total quantity of groundwater to be recovered and conveyed to water project participants will not exceed a long-term annual average of 50,000 acre-feet per year for 50 years . the project also offers participants the ability to carry-over their annual supply and store it in the groundwater basin from year to year . a second phase of the water project , phase ii , will offer approximately one million acre-feet of storage capacity that can be used to store imported water supplies at the water project area . water project facilities required for phase i primarily include , among other things : · high yield wells designed to efficiently recover available native groundwater from beneath the water project area ; · a water conveyance pipeline to deliver water from the well field to the cra ; and · an energy source to provide power to the well-field , pipeline and pumping plant . story_separator_special_tag ( 3 ) environmental / regulatory permits in order to properly develop and quantify the sustainability of the water project , and prior to initiating the formal permitting process for the water project , we commissioned environmental consulting firm ch2m hill to complete a comprehensive study of the water resources at the project area . following a year of analysis , ch2m hill released its study of the aquifer system in february 2010. utilizing new models produced by the u.s. geological survey in 2006 and 2008 , the study estimated the total groundwater in storage in the aquifer system to be between 17 and 34 million acre-feet , a quantity on par with lake mead , the nation 's largest surface reservoir . the study also identified a renewable annual supply of native groundwater in the aquifer system currently being lost to evaporation . ch2m hill 's findings , which were peer reviewed by leading groundwater experts , confirmed that the aquifer system could sustainably support the water project . further , and also prior to beginning the formal environmental permitting process , we entered into a memorandum of understanding with the natural heritage institute ( “ nhi ” ) , a leading global environmental organization committed to protecting aquatic ecosystems , to assist with our efforts to sustainably manage the development of our cadiz/fenner property . as part of this “ green compact ” , we will follow stringent plans for groundwater management and habitat conservation , and create a groundwater management plan for the water project . 25 back to top as discussed in ( 2 ) , above , we have entered into environmental cost sharing agreements with all participating water providers . the environmental cost sharing agreements created a framework for funds to be committed by each participant to share in the costs associated with the ceqa review work . smwd served as the lead agency for the review process . esa associates , a leading environmental consulting firm , prepared the water project 's environmental review documentation . the ceqa process began in february 2011 with the issuance of a notice of preparation ( “ nop ” ) of a draft environmental impact report ( “ draft eir ” ) by smwd . smwd held two public scoping meetings in march 2011 and released the draft eir in december 2011. the draft eir analyzed potential impacts to environmental resources at the project area , including critical resources of the desert environment such as vegetation , mountain springs , and water and air quality . the analysis of the project considered peer-reviewed technical reports , independently collected data , existing reports and the project 's state of the art groundwater management , monitoring and mitigation plan ( “ gmmmp ” ) . smwd conducted a 100-day public comment period for the draft eir , hosting two public comment meetings and an informational workshop in january and february 2012. the public comment period concluded in march 2012. in may 2012 , we entered into a memorandum of understanding with san bernardino county and smwd , creating the framework for finalizing the gmmmp in accordance with county 's desert groundwater ordinance . at the beginning of july 2012 , smwd released the final eir and responses to public comments . the final eir summarized that , with the exception of unavoidable short-term construction emissions , by implementing the measures developed in the gmmmp , the project will avoid significant impacts to desert resources . a public hearing was held on july 25 , 2012 by the smwd board of directors to take public testimony and consider certification of the final eir . on july 31 , 2012 , the smwd board of directors certified the final eir . following smwd 's certification of the final eir , the san bernardino county board of supervisors voted on october 1 , 2012 to approve the gmmmp for the project and adopted certain findings under ceqa , becoming the first responsible agency to take an approving action pursuant to the certified eir . san bernardino county served as a responsible agency in the ceqa review process as the local government entity responsible for oversight over groundwater resources in the cadiz valley . metropolitan water district of southern california ( “ metropolitan ” ) , a responsible agency , will take action under ceqa prior to construction regarding the terms and conditions of the project 's use of the cra . project water supplies will enter metropolitan 's cra in accordance with its published engineering and design standards and subject to all applicable fees and charges routinely established by metropolitan for the conveyance of water within its service territory . third parties in california have the ability to challenge ceqa approvals in state court . in 2012 , the company was named as a real-party-in-interest in nine lawsuits challenging the various water project approvals granted by smwd and san bernardino county . in 2013 , three cases were dismissed or otherwise settled . trial in the six remaining cases , which were brought by two petitioners , began in december 2013 and concluded in february 2014. rulings in these cases are expected in the second quarter of 2014. see item 3 , “ legal proceedings ” for more information . 26 back to top ( 4 ) construction and working capital as part of the water purchase and sale agreement with smwd referred to in ( 2 ) , above , smwd further authorized to continue next steps with the company , which includes final permitting , design and construction . as described above , construction of phase i of the project would primarily consist of well-field facilities at the water project site , a conveyance pipeline extending approximately 43 miles along the right-of-way described in ( 1 ) , above , from the well-field to the cra , and an energy source to pump water through the conveyance pipeline between the project well-field and the cra .
| results of operations ( a ) year ended december 31 , 2013 compared to year ended december 31 , 2012 we have not received significant revenues from our water resource and real estate development activity to date . our revenues have been limited to our agricultural operations . as a result , we continue to incur a net loss from operations . we had revenues of $ 301 thousand for the year ended december 31 , 2013 , and $ 362 thousand for the year ended december 31 , 2012. the net loss totaled $ 22.7 million for the year ended december 31 , 2013 , compared with a net loss of $ 19.6 million for the year ended december 31 , 2012. our primary expenses are our ongoing overhead costs associated with the development of the water project ( i.e . general and administrative expense ) and our interest expense . we will continue to incur non-cash expense in connection with our management and director equity incentive plans . revenues . revenue totaled $ 301 thousand during the year ended december 31 , 2013 , compared to $ 362 thousand during the year ended december 31 , 2012. cost of sales . cost of sales totaled $ 555 thousand during the year ended december 31 , 2013 , compared with $ 521 thousand during the year ended december 31 , 2012. general and administrative expenses . general and administrative expenses during the year ended december 31 , 2013 , totaled $ 13.5 million compared with $ 12.6 million for the year ended december 31 , 2012. non-cash compensation costs related to stock and option awards are included in general and administrative expenses .
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the net book value of intangible assets as of december 31 , 2014 and 2013 was approximately $ 5.4 million and $ 1.2 million , respectively . there were no indicators of impairment identified at december 31 , 2014 or december 31 , 2013 . 7. accrued liabilities accrued liabilities are comprised of the following , in thousands : replace_table_token_23_th other accrued liabilities consist primarily of professional fees and miscellaneous accrued expenses . 8. convertible senior secured notes on may 3 , 2013 , the company issued $ 90.0 million aggregate principal amount of 7.50 % convertible senior secured notes due 2019 ( the `` notes `` ) . the company completed this 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 thereto appearing elsewhere in this annual report on form 10-k. in addition to historical information , some of the information in this discussion and analysis contains forward-looking statements reflecting our current expectations and involves risk and uncertainties . for example , statements regarding our expectations as to our plans and strategy for our business , future financial performance , expense levels and liquidity sources are forward-looking statements . our actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors , including those set forth under the `` risk factors '' section and elsewhere in this report . overview we are a specialty pharmaceutical company focused on developing and commercializing products for the treatment of central nervous system ( `` cns '' ) diseases . in 2013 , we launched oxtellar xr ( extended-release oxcarbazepine ) and trokendi xr ( extended-release topiramate ) , our two novel treatments for epilepsy . in addition , we are developing multiple product candidates in psychiatry to address the large market opportunity in the treatment of attention deficit hyperactivity disorder ( `` adhd '' ) including the unmet clinical need in impulsive aggression in patients who have adhd in conjunction with standard adhd treatment . oxtellar xr and trokendi xr are the first once-daily extended release oxcarbazepine and topiramate products , respectively , indicated for epilepsy in the u.s. market . total revenues from these products reached $ 89.6 million in 2014 representing significant growth compared to the $ 11.6 million in product revenue in 2013. we expect the number of prescriptions filled for oxtellar xr and trokendi xr to increase throughout 2015 and in later years . data from wolters-kluwer/symphony show 70,739 prescriptions filled for both drugs during the three months ended december 31 , 2014 , representing a growth of 22.4 % as compared to the three months ended september 30 , 2014 , which totaled 57,776 prescriptions filled . we achieved positive cash flows from operations during the fourth quarter of 2014. we expect the business to be cash flow positive and profitable in 2015 and beyond . we believe our working capital and long term marketable securities balance of $ 101.2 million as of december 31 , 2014 , along with increased revenues from increasing product sales , will be sufficient to finance the company . we are progressing with our phase iv post-marketing commitments for oxtellar xr and trokendi xr . the work we are completing to meet the food and drug administration ( `` fda '' ) , commitments may also have applicability in life-cycle management . we entered into a royalty interest acquisition agreement in july 2014 with healthcare royalty partners iii , l.p. ( `` hc royalty '' ) . pursuant to the royalty interest acquisition agreement , hc royalty made a $ 30.0 million cash payment to the company in consideration for acquiring from the company certain royalty and milestone rights related to the commercialization of orenitram ( treprostinil ) extended-release tablets by the company 's partner united therapeutics corporation . we will retain full ownership of the royalty rights after a certain threshold has been reached per the terms of the agreement . we have received several paragraph iv notice letters concerning oxtellar xr and trokendi xr from various third-parties . in response to these paragraph iv notice letters , we have filed several complaints against these third parties alleging infringement of our intellectual property rights . we intend to 64 vigorously defend our intellectual property rights in each of these cases and we anticipate continuing to incur increasing amounts of legal fees and related expenses for these cases as they progress through discovery . ( see part i , item 3legal proceedings for additional information . ) we are developing spn-810 ( molindone hydrochloride ) as a treatment for impulsive aggression in patients who have adhd in conjunction with standard adhd treatment and spn-812 for the treatment of adhd . we expect to progress spn-810 into phase iii testing in the fourth quarter of 2015 and spn-812 into phase iib trials in the fourth quarter of 2015. we expect to incur significant research and development expenses related to the continued development of each of our product candidates . these expenses are expected to be funded by cash flows from operations . critical accounting policies and the use of estimates the significant accounting policies and basis of presentation for our consolidated financial statements are described in note 2 `` summary of significant accounting policies . '' the preparation of our financial statements in accordance with u.s. generally accepted accounting principles ( `` gaap '' ) requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , expenses and the disclosure of contingent assets and liabilities in our financial statements . actual results could differ from those estimates . we believe the following accounting policies and estimates to be critical : inventories and cost of product sales we carry inventories at the lower of cost or market using the first-in , first-out method . inventory values include materials , labor , and direct and indirect overhead . story_separator_special_tag interest expense was $ 7.8 million in 2013 as compared to $ 3.5 million in 2012. the increase of $ 4.3 million was primarily due to the interest relating to the $ 90.0 million of convertible debt which was issued in may 2013. changes in fair value of derivative liability . we recognized a non-cash charge of $ 13.4 million associated with the interest make-whole derivative liability related to our convertible debt during 2013 , primarily due to the passage of time as our stock price remained above the $ 5.30 conversion price . loss on extinguishment of debt . in 2013 , we recognized a non-cash loss on extinguishment of debt of $ 8.4 million related to the conversion of $ 40.5 million of our convertible debt . in addition , we recognized $ 1.2 million of loss related to the prepayment and settlement fees of our secured credit facility in may 2013. net loss . we incurred a net loss of $ 92.2 million in 2013 as compared to net loss of $ 46.2 million in 2012 , a decrease of $ 46.0 million or 99.3 % . this increase was primarily due to the hiring of our sales force as well as an increase in marketing costs associated with the launch and commercialization activities for oxtellar xr and trokendi xr . in addition , increased interest expense and the change in fair value of our derivative liabilities and loss on extinguishment of debt contributed to a year to year increase in net loss . liquidity and capital resources our working capital at december 31 , 2014 was $ 81.4 million , an increase of $ 10.6 million compared to our working capital of $ 70.8 million at december 31 , 2013. this increase was primarily attributable to the increase in accounts receivable related to increased sales of both oxtellar xr and trokendi xr . we expect to continue to incur significant sales and marketing expenses related to the commercial support of oxtellar xr and trokendi xr . in addition , we expect to incur substantial expenses related to our research and development efforts , primarily related to development of spn-810 and spn-812 as we continue to advance these clinical programs . in july 2014 , we entered into a royalty interest acquisition agreement with hc royalty . pursuant to this interest acquisition agreement , hc royalty paid us $ 30.0 million in consideration for acquiring certain royalty and milestone rights related to the commercialization of orenitram ( treprostinil ) extended-release tablets by our partner united therapeutics corporation . we will retain full ownership of the royalty rights after a certain threshold has been reached per the terms of the agreement . in addition to revenues , we have historically financed our business through the sale of our debt and equity securities . on may 3 , 2013 , we issued $ 90.0 million aggregate principal amount of notes to qualified institutional buyers , the initial purchasers of the notes or the initial purchasers . we issued the notes under an indenture , dated may 3 , 2013. the notes provide for 7.50 % interest per annum on the principal amount of the notes , payable semi-annually in arrears on may 1 and november 1 of each year . interest will accrue on the notes from and including may 3 , 2013 and the notes will mature on may 1 , 2019 , unless earlier converted , redeemed or repurchased by the company . the notes are secured by a first-priority lien , other than customary permitted liens , on substantially all of our and our domestic subsidiaries ' assets , whether now owned or hereafter acquired . for a full description of the notes and the indenture , see note 8 to the consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. as of december 31 , 2014 , holders of the notes have converted a total of approximately $ 53.9 million of the notes . cumulatively , through december 31 , 2014 , we issued a total of approximately 10.2 million shares of common stock in conversion of the principal amount of the notes and issued an additional 70 1.7 million shares of common stock and paid approximately $ 1.7 million cash in settlement of the interest make-whole provision related to the converted notes . we believe our current working capital and long term marketable securities , along with increased revenues from increasing product sales , will be sufficient to finance the company . we achieved positive cash flow and profitability from operations during the fourth quarter of 2014 and expect continued profitability in 2015 as we continue to increase sales while also increasing activities and spending to advance our clinical product candidates . on december 17 , 2014 , the sec declared effective our registration statement on form s-3 . we may offer and sell securities at a maximum aggregate offering price of up to $ 112.8 million . in addition , in this shelf registration statement we registered the resale of 12,749,328 shares of our common stock that may be sold by two selling security holders that held contractual rights to have the resale of their common stock registered . while we have no current plans to do so , in the event that we need additional working capital , this registration statement provides an efficient manner for us to complete securities offering to raise such funds . during the period from january 1 , 2015 to march 11 , 2015 holders of the notes converted approximately $ 12.6 million of the notes and we issued a total of approximately 2.4 million shares of common stock in conversion of the principal amount of the notes and accrued interest thereon , and issued an additional 0.3 million shares of common stock in settlement of the interest make-whole provision related to the converted notes .
| results of operations comparison of the year ended december 31 , 2014 and december 31 , 2013 replace_table_token_4_th net product sales . our net product sales of $ 89.6 million for the year ended december 31 , 2014 are based on $ 24.7 million of revenue from shipments of oxtellar xr to distributors , less estimates for discounts , rebates , other sales deductions and returns , and $ 64.9 million of revenue for trokendi xr , primarily from shipment to distributors , less estimates for discounts , rebates , other sales deductions and returns . our net product sales of $ 11.6 million for the year ended december 31 , 2013 are based on $ 11.0 million of revenue from shipments of oxtellar xr to distributors in 2013 , less estimates for discounts , rebates , other sales deductions and returns , and $ 0.6 million of revenue on trokendi xr prescriptions filled at the pharmacy level during the third quarter of 2013 , net of sales deductions . revenue from royalty agreement . the revenue for the year ended december 31 , 2014 resulted from the royalty interest acquisition agreement that we entered into with hc royalty for orenitram , which is marketed by united therapeutics corporation . we received a one-time payment of $ 30.0 million upon execution of that agreement . licensing revenue . the licensing revenue for the year ended december 31 , 2014 consisted primarily of the united therapeutics corporation milestone payment of $ 2.0 million under their license agreement with the company . there was no revenue generated from the achievement of milestones in the year ended december 31 , 2013. research and development expense . research and development expenses during the year ended december 31 , 2014 were $ 19.6 million as compared to $ 17.2 million for the year ended december 31 , 67 2013 , an increase of $ 2.4 million or 13.5 % .
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this discussion and other parts of this report contain forward-looking statements that involve risk and uncertainties , such as statements of our plans , objectives , expectations and intentions . our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed in the section of this report entitled “ risk factors . ” these forward-looking statements speak only as of the date hereof . except as required by law , we assume no obligation to update or revise these forward-looking statements for any reason . unless the context requires otherwise , the terms “ ardelyx ” , “ company ” , “ we ” , “ us ” , and “ our ” refer to ardelyx , inc. overview we are a specialized biopharmaceutical company focused on developing first-in-class medicines to improve treatment for people with kidney and cardiorenal diseases . this includes patients with chronic kidney disease ( “ ckd ” ) on dialysis suffering from elevated serum phosphorus , or hyperphosphatemia ; and ckd patients and or heart failure patients with elevated serum potassium , or hyperkalemia . our lead product candidate , tenapanor , is a first-in-class medicine for which we submitted a new drug application ( “ nda ” ) to the u.s. food and drug administration ( “ fda ” ) in june 2020 for the control of serum phosphorus in adult patients with ckd on dialysis . in september 2020 the fda accepted the filing of our nda and set a prescription drug user fee act ( “ pdufa ” ) date of april 29 , 2021. tenapanor has a unique mechanism of action and acts locally in the gut to inhibit the sodium hydrogen exchanger 3 , or nhe3 . this results in the tightening of the epithelial cell junctions , thereby significantly reducing paracellular uptake of phosphate , the primary pathway of phosphate absorption . our product pipeline tenapanor : a new approach for the control of serum phosphorus in ckd patients on dialysis our portfolio is led by the development of tenapanor , a first-in-class medicine for the control of serum phosphorus in adult patients with ckd on dialysis . tenapanor for the control of serum phosphorus has a unique mechanism of action and acts locally in the gut to inhibit the sodium hydrogen exchanger 3 ( “ nhe3 ” ) . this results in the tightening of the epithelial cell junctions , thereby significantly reducing paracellular uptake of phosphate , the primary pathway of phosphate absorption . in september 2020 we announced that the fda accepted the filing of our nda for tenapanor for the control of serum phosphorus in adult patients with ckd on dialysis . the acceptance of our nda represents the next critical step toward bringing to market a completely new approach to the management of hyperphosphatemia . the fda has set a pdufa date of april 29 , 2021. we continue to advance our commercial preparations for the launch of tenapanor . the nda is supported by three successful phase 3 trials involving over 1,000 patients that evaluated the use of tenapanor for the control of serum phosphorus in ckd patients on dialysis , with two trials evaluating tenapanor as monotherapy and one trial evaluating tenapanor as part of a dual mechanism approach with binders . we have established agreements with kyowa kirin co. , ltd. ( “ kkc ” ) in japan , shanghai fosun pharmaceutical industrial development co. ltd. ( “ fosun pharma ” ) in china and knight therapeutics , inc. ( “ knight “ ) in canada for the development and commercialization of tenapanor for certain indications in their respective territories . in december 2019 , we reported statistically significant topline efficacy results from our second monotherapy phase 3 clinical trial , the phreedom trial , which evaluated tenapanor for the control of serum phosphorus in ckd patients on dialysis . the phreedom trial followed a successful monotherapy phase 3 clinical trial completed in 2017 , the block trial , which achieved statistical significance for the primary endpoint . the only adverse event reported in these phase 3 trials in less than 5 % of patients was diarrhea , with an incidence rate of 52 % in the phreedom trial and 39 % in the block trial , with most incidences in each trial being mild to moderate in nature . phreedom is a one-year study with a 26-week open-label treatment period and a 12-week double-blind , placebo-controlled randomized withdrawal period 62 followed by a 14-week open-label safety extension period . an active safety control group , for safety analysis only , received sevelamer , open-label , for the entire 52-week study period . patients completing the phreedom trial from both the tenapanor arm and the sevelamer active safety control arm had the option to participate in normalize , an ongoing open-label 18-month extension study . in june 2020 , we announced positive results from a planned interim data analysis from our ongoing normalize extension study evaluating tenapanor , as monotherapy or in combination with sevelamer , to achieve serum phosphorus levels in the normal range ( 2.5 – 4.5 mg/dl ) in patients with ckd on dialysis . the normalize extension study allowed patients from our phreedom study to continue therapy with tenapanor and enabled those patients in the phreedom safety control arm receiving sevelamer carbonate to transition to tenapanor . the data from the planned interim analysis demonstrated that the foundational use of tenapanor as monotherapy or in combination with sevelamer carbonate produces a significant phosphorus-lowering effect with a mean serum phosphorous reduction of 2 . 33 mg/dl , from a mean baseline phosphorus of 7 . 27 mg/dl at the beginning of the phreedom trial to a mean of 4 . 94 mg/dl at the time of this analysis . of the 171 patients in this interim analysis who completed up to 9 months of treatment in this extension study , up to 47 . story_separator_special_tag we have not generated any revenue from commercial product sales . in the future , we may generate revenue from a combination of our own product sales , if regulatory approval is received , and payments in connection with our current or future collaborative partnerships , including license fees , other upfront payments , milestone payments , royalties and payments for drug product and or drug substance . we expect that any revenue we generate will fluctuate in future periods as a result of , among other factors : whether we receive regulatory approval for tenapanor for the control of serum phosphorus in cdk patients on dialysis , and if such approval is received , the timing of such approval and the extent to which we are successful in our efforts to commercialize tenapanor for such indication ; the timing and progress of goods and services provided pursuant to our current or future collaborative partnerships ; our or our collaborators ' achievement of preclinical , clinical , regulatory or commercialization milestones , to the extent achieved ; the timing and amount of any payments to us relating to the aforementioned milestones ; and the extent to which any of our product candidates are approved and successfully commercialized by a collaboration partner . if we , our current collaboration partners or any future collaboration partners fail to obtain regulatory approval for tenapanor , our ability to generate future revenue from our product sales or from our collaborative arrangements , and our results of operations and financial position , would be materially and adversely affected . our past revenue performance is not necessarily indicative of results to be expected in future periods . see note 2 , summary of significant accounting policies , in the notes to our financial statements , included in part ii , item 8 , of this annual report on form 10-k , for further details . cost of revenue cost of revenue currently represents payments due to astrazeneca , which under the terms of a termination agreement entered into in 2015 is entitled to ( i ) future royalties at a rate of 10 % of net sales of tenapanor or other nhe3 products by us or our licensees , and ( ii ) 20 % of non-royalty revenue received from our collaboration partners to which we provide 64 rights to develop and commercialize tenapanor or certain other nhe3 inhibitors . we have agreed to pay astrazeneca up to a maximum of $ 75.0 million in the aggregate for ( i ) and ( ii ) . we recognize these expenses as cost of revenue when we recognize the corresponding revenue that gives rise to payments due to astrazeneca . to date , we recognized an aggregate of $ 10.6 million as cost of revenue under the az termination agreement since 2017. see details in note 12 , collaboration and licensing agreements , under astrazeneca , in the notes to our financial statements , included in part ii , item 8 , of this annual report on form 10-k. research and development we recognize all research and development expenses as they are incurred to support the discovery , research , development and manufacturing of our product candidates . research and development expenses include , but are not limited to , the following : ● external research and development expenses incurred under agreements with consultants , third-party contract research organizations ( “ cros ” ) and investigative sites where a substantial portion of our clinical studies are conducted , and with contract manufacturing organizations where our clinical supplies are produced ; ● expenses associated with supplies and materials consumed in connection with our research operations ; ● expenses associated with producing tenapanor for the control of serum phosphorus in adult patients with ckd on dialysis prior to fda approval ; ● other costs associated with research , clinical development and regulatory activities ; and ● employee-related expenses , which include salaries , bonuses , benefits , travel and stock-based compensation ; ● facilities and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities , depreciation and amortization expense , information technology expense and other supplies . we expect to continue to make substantial investments in research and development activities as we further progress the development of tenapanor , rdx013 and our other product candidates as we advance our research programs into the preclinical stage and as we continue our early stage research . the process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time-consuming . we may not succeed in achieving marketing approval for our product candidates , including tenapanor for the control of serum phosphorus in adult patients with ckd on dialysis . the probability of success of each of the product candidates may be affected by numerous factors , including preclinical data , clinical data , the regulatory process , market acceptance , sufficient third-party coverage or reimbursement , our ability to access capital on acceptable terms , competition , manufacturing capability and commercial viability . we anticipate that we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success of each product candidate , ongoing assessment as to each product candidate 's commercial potential , and our ability to access capital on acceptable terms . we will need to raise additional capital to complete the development and commercialization of tenapanor . if we are unable to access capital on a timely basis and on terms that are acceptable to us , we may be forced to restructure certain aspects of our business or identify and complete one or more strategic collaborations or other transactions in order to fund the development or commercialization of tenapanor , the development of rdx013 or certain of our product candidates through the use of alternative structures .
| results of operations comparison of the years ended december 31 , 2020 and 2019 revenue below is a summary of our total revenue ( dollars in thousands ) : replace_table_token_3_th the increase in our revenue was primarily attributable to $ 4.9 million higher collaborative development revenue recognized in connection with the 2019 kkc agreement , which was entered into in november 2019 , a $ 0.7 million licensing revenue recognized upon knight 's achievement of a development milestone pursuant to the knight agreement and a $ 1.4 million increase in manufacturing supply of tenapanor and other materials sold to kkc in accordance with the 2017 kkc agreement , partially offset by $ 3.0 million revenue related to achievement of a milestone pursuant to the fosun agreement during the year ended december 31 , 2019. operating expenses below is a summary of our operating expenses ( dollars in thousands ) : replace_table_token_4_th 70 cost of revenue cost of revenue was $ 0.1 million for the year ended december 31 , 2020 , a decrease of $ 0.5 million , or 75.8 % , compared to $ 0.6 million for the year ended december 31 , 2019. cost of revenue in both periods is the portion of tenapanor-related upfront and milestone payment from our collaboration partners that we are required to make to astrazeneca under the astrazeneca termination agreement . research and development below is a summary of our research and development expenses ( dollars in thousands ) : replace_table_token_5_th the decrease in our external r & d expenses for the year ended december 31 , 2020 primarily includes a $ 9.7 million decrease in our tenapanor-related expenses , partially offset by $ 3.0 million of higher expenses attributable to kkc research agreement-related research and general r & d expenses .
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during fiscal 2018 , the company shut down one facility in each of the engineered materials , health , hygiene story_separator_special_tag overview berry global group , inc. ( “ berry , ” “ we , ” or the “ company ” ) is a leading global supplier of a broad range of innovative rigid , flexible and non-woven products used every day within consumer and industrial end markets . we sell our products predominantly into stable , consumer-oriented end markets , such as healthcare , personal care , and food and beverage . our customers consist of a diverse mix of leading global , national , mid-sized regional and local specialty businesses . the size and scope of our customer network allows us to introduce new products we develop or acquire to a vast audience that is familiar with our business . for fiscal year 2020 , no single customer represented more than 5 % of net sales and our top ten customers represented approximately 15 % of net sales . we believe our manufacturing processes , manufacturing footprint and our ability to leverage our scale to reduce costs , positions us as a low-cost manufacturer relative to our competitors . 10 story_separator_special_tag higher accrued performance-based compensation , and prior ytd divestiture operating income of $ 28 million . replace_table_token_3_th the net sales growth in the consumer packaging international segment is primarily attributed to net sales of $ 2,971 from the rpc acquisition , a $ 39 million favorable impact from foreign currency changes , and an organic volume increase of 1 % , partially offset by lower selling prices of $ 56 million due to the pass through of lower resin costs . the operating income increase is primarily attributed to acquisition operating income of $ 196 million , a $ 39 million inventory fair value step-up related to the rpc acquisition in the prior ytd , a $ 21 million decrease in business integration costs , and a $ 21 million favorable impact from cost productivity and product mix . replace_table_token_4_th the net sales growth in the consumer packaging north america segment is primarily attributed to acquisition net sales of $ 356 million related to the u.s. portion of the acquired rpc business and a 2 % base volume improvement , partially offset by lower selling prices of $ 205 million due to the pass through of lower resin costs . 12 the operating income increase is primarily attributed to acquisition operating income of $ 47 million , a $ 27 million favorable impact from cost productivity and product mix , and a $ 16 million favorable impact from the base volume increase . these increases were partially offset by a $ 12 million increase in selling , general and administrative expenses . replace_table_token_5_th the net sales decrease in the engineered materials segment is primarily attributed to lower selling prices of $ 159 million due to the pass through of lower resin costs and a 2 % organic volume decline primarily within our industrials business as a result of the impact of the covid-19 pandemic . the operating income decrease was modestly impacted by the organic volume decline and an increase in selling , general and administrative expenses . these increases were partially offset by a $ 12 million decrease in depreciation and amortization expense . replace_table_token_6_th the net sales decrease in the health , hygiene & specialties segment is primarily attributed to lower selling prices of $ 164 million due to the pass through of lower resin costs , prior ytd sales of $ 96 million related to the divested sfl business , and a $ 37 million unfavorable impact from foreign currency changes , partially offset by a 7 % organic volume improvement . the operating income decrease is primarily attributed to a $ 214 million unfavorable change from the prior ytd gain on the sale of our sfl business , prior ytd divestiture operating income of $ 28 million , and an $ 11 million increase in selling , general and administrative expenses . these decreases were partially offset by a $ 43 million favorable impact from cost productivity and product mix , a $ 36 million favorable impact from the organic volume improvement , and a $ 13 million decrease in depreciation and amortization expense . replace_table_token_7_th the other expense decrease is primarily attributed to prior ytd charges for foreign exchange forward contracts of $ 99 million and cross currency swaps of $ 41 million related to the closing of the rpc acquisition . replace_table_token_8_th the interest expense increase is primarily attributed to the incremental debt facilities entered into as part of the rpc acquisition . replace_table_token_9_th the income tax expense increase is primarily attributed to higher pre-tax book income . our effective tax rate for fiscal 2020 was 22 % and was positively impacted by 2 % from generation of federal and state credits and 1 % from change in foreign valuation allowance . these favorable items were partially offset by 2 % from withholding taxes , 1 % from foreign income taxed in the u.s. and from other discrete items . refer to note 7. income taxes for further information . 13 replace_table_token_10_th the increase in comprehensive income is primarily attributed to a $ 155 million increase in net income and a $ 105 million favorable change in currency translation , partially offset by a $ 23 million unfavorable change in the fair value of interest rate hedges and a $ 17 million decrease in unrealized gains on the company 's pension plans . currency translation gains are primarily related to non-u.s. subsidiaries with a functional currency other than the u.s. dollar whereby assets and liabilities are translated from the respective functional currency into u.s. dollars using period-end exchange rates . the change in currency translation was primarily attributed to locations utilizing the euro , british pound sterling , brazilian real and chinese renminbi as their functional currency . story_separator_special_tag currency translation gains are primarily related to non-u.s. subsidiaries with a functional currency other than the u.s. dollar whereby assets and liabilities are translated from the respective functional currency into u.s. dollars using period-end exchange rates . the change in currency translation was primarily attributed to locations utilizing the euro , british pound sterling , brazilian real and chinese renminbi as their functional currency . as part of the overall risk management , the company uses derivative instruments to reduce exposure to changes in interest rates attributed to the company 's floating-rate borrowings and records changes to the fair value of these instruments in accumulated other comprehensive income ( loss ) . the change in fair value of these instruments in fiscal 2019 versus fiscal 2018 is primarily attributed to a change in the forward interest curve between measurement dates . liquidity and capital resources senior secured credit facility we manage our global cash requirements considering ( i ) available funds among the many subsidiaries through which we conduct business , ( ii ) the geographic location of our liquidity needs , and ( iii ) the cost to access international cash balances . we have an $ 850 million asset-based revolving line of credit that matures in may 2024. at the end of fiscal 2020 , the company had no outstanding balance on the revolving credit facility . the company was in compliance with all covenants at the end of fiscal 2020. refer to note 3. long-term debt for further information . contractual obligations and off balance sheet transactions our contractual cash obligations at the end of fiscal 2020 are summarized in the following table which does not give any effect to retirement plans , refer to note 8. retirement plans , or taxes as we can not reasonably estimate the timing of future cash outflows . replace_table_token_20_th ( a ) based on applicable interest rates in effect end of fiscal 2020. cash flows from operating activities net cash provided by operating activities increased $ 329 million from fiscal 2019 primarily attributed to improved net income prior to non-cash activities , partially offset by a reduction in the working capital benefit compared to fiscal 2019. net cash provided by operating activities increased $ 197 million from fiscal 2018 primarily attributed to decreases in working capital due to lower raw material costs partially offset by professional fees related to the rpc acquisition . cash flows from investing activities net cash used in investing activities decreased $ 5,935 million from fiscal 2019 primarily attributed to lower acquisition and divestiture related activities , partially offset by increased capital expenditures . net cash used in investing activities increased $ 5,216 million from fiscal 2018 primarily attributed to increased capital expenditures , settlement of acquisition related derivatives , and higher acquisition spending partially offset by the sale of our sfl business . 16 cash flows from financing activities net cash used in financing activities changed $ 6,646 million from fiscal 2019 primarily attributed to $ 1.2 billion net repayments on long-term borrowings during fiscal 2020 compared to $ 5.6 billion net proceeds from long-term borrowings used to finance the rpc acquisition in fiscal 2019. net cash from financing activities increased $ 5,313 million from fiscal 2018 primarily attributed to proceeds from long-term borrowings to finance the rpc acquisition , partially offset by higher repayments on long-term borrowings . share repurchases the company did not have any share repurchases in fiscal 2020. the company 's share repurchases totaled $ 74 million in fiscal 2019. free cash flow we define “ free cash flow ” as cash flow from operating activities less net additions to property , plant and equipment and payments of the tax receivable agreement which was terminated in fiscal 2019. based on our definition , our consolidated free cash flow is summarized as follows : replace_table_token_21_th free cash flow , as presented in this document , is a supplemental financial measure that is not required by , or presented in accordance with , generally accepted accounting principles in the u.s. ( “ gaap ” ) . free cash flow is not a gaap financial measure and should not be considered as an alternative to cash flow from operating activities or any other measure determined in accordance with gaap . we use free cash flow as a measure of liquidity because it assists us in assessing our company 's ability to fund its growth through its generation of cash , and believe it is useful to investors for such purpose . in addition , free cash flow and similar measures are widely used by investors , securities analysts and other interested parties in our industry to measure a company 's liquidity . free cash flow may be calculated differently by other companies , including other companies in our industry or peer group , limiting its usefulness as a comparative measure . liquidity outlook at the end of fiscal 2020 , our cash balance was $ 750 million , which was primarily located outside the u.s. we believe our existing u.s. based cash and cash flow from u.s. operations , together with available borrowings under our senior secured credit facilities , will be adequate to meet our liquidity needs over the next twelve months . the company has the ability to repatriate the cash located outside the u.s. to the extent not needed to meet operational and capital needs without significant restrictions . we do not expect our free cash flow to be sufficient to cover all long-term debt obligations and intend to refinance these obligations prior to maturity . summarized guarantor financial information berry global , inc. ( “ issuer ” ) has notes outstanding which are fully , jointly , severally , and unconditionally guaranteed by its parent , berry global group , inc. ( for purposes of this section , “ parent ” ) and substantially all of issuer 's domestic subsidiaries .
| executive summary covid-19 . the ongoing pandemic has impacted various businesses and supply chains , including travel restrictions and the extended shutdown of certain industries in various countries . due to the nature of the majority of our products , geographic footprint and end market diversity , on a consolidated net sales basis we have been modestly impacted with lower customer demand in food service and industrials being offset by higher consumer demand in our healthcare , hygiene and food product categories . the company will continue to evaluate the potential impacts and closely monitor developments as they arise . business . the company 's operations are organized into four reporting segments : consumer packaging international , consumer packaging north america , engineered materials and health , hygiene & specialties . the structure is designed to align us with our customers , provide improved service , drive future growth , and to facilitate synergies realization . the consumer packaging international segment primarily consists of containers , closures , dispensing systems , pharmaceutical devices , polythene films , and technical components and includes the international portion of the acquired business of rpc group plc ( “ rpc ” ) . the consumer packaging north america segment primarily consists of containers , foodservice items , closures , overcaps , bottles , prescription vials , and tubes . the engineered materials segment primarily consists of tapes and adhesives , polyethylene-based film products , can liners , and specialty coated and laminated products . the health , hygiene & specialties segment primarily consists of nonwoven specialty materials and films used in hygiene , infection prevention , personal care , industrial , construction , and filtration applications . outlook . the company is affected by general economic and industrial growth , plastic resin availability and affordability , and general industrial production . our business has both geographic and end market diversity , which reduces the effect of any one of these factors on our overall performance .
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since the tax act was passed late in the fourth quarter of 2017 , and ongoing guidance and accounting interpretation are expected over the next 12 months , we consider the accounting of any transition tax , deferred tax re-measurements , and other items to be incomplete due to the forthcoming guidance and our ongoing analysis of final year-end data and tax positions . we expect to complete our analysis within the measurement period in accordance with sab 118 , and no later than fiscal year end december 31 , 2018. fasb asc 740 requires the reduction of deferred tax assets by a valuation allowance , if , based on the weight of available evidence , it is more likely than not that some or all of the deferred tax assets will not be realized . in the company 's opinion , it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset . accordingly , a valuation allowance equal to the deferred tax asset has been recorded . the total deferred tax asset for the years 2017 and 2016 is $ 12,110 and $ 3,166 , respectively , which is calculated by multiplying the estimated tax rate by the cumulative net operating loss ( nol ) adjusted for the following items : replace_table_token_9_th details for the last two years are as follows : for the years ended december 31 , 2017 2016 deferred tax asset $ 12,110 $ 3,166 valuation allowance ( 12,110 ) ( 3,166 ) current taxes payable — — income tax expense $ — $ — f- 12 note 7 – related party transactions on january 1 , 2016 , pursuant to the terms of an executive management agreement , the company granted 100,000 shares of common stock to mr. sandor miklos , president and member of the board of directors , for services to be rendered . shares are deemed to be earned proportionally over twelve months . the shares were issued at par of $ 0.001 for a total non-cash expense of $ 100 . on january 1 , 2016 , pursuant to the terms of an executive and consulting agreement , the company granted 100,000 shares of common stock to mr. simon smith , chief technology officer , for services to be rendered . shares are deemed to be earned proportionally over twelve months . the shares were issued at par of $ 0.001 for a total non-cash expense of $ 100 . on january 1 , 2017 , pursuant to the terms of an executive management agreement , the company granted 200,000 shares of common stock to mr. sandor miklos , president and member of the board of directors , for services to be rendered . shares are deemed to be earned proportionally over twelve months . the shares were issued at $ 1,00 per share for a total non-cash expense of $ 200,000 . on january 1 , 2017 , pursuant to the terms of an executive and consulting agreement , the company granted 200,000 shares of common stock to mr. simon smith , chief technology officer , for services to be rendered . shares are deemed to be earned proportionally over twelve months . the shares were issued at $ 1.00 per share for a total non-cash expense of $ 200,000 . during the twelve months ended december 31 , 2017 , mr. sandor miklos , president and member of the board of directors , had accrued compensation of $ 25,000 . mr. miklos forgave the $ 25,000 in accrued compensation and it has been recorded in additional paid-in capital . note 8 – subsequent events the company 's management has evaluated subsequent events through the date the financial statements were issued and there were no significant events to report . f- 13 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 . team 360 sport inc. ( registrant ) date : april 2 , 2018 by : sandor miklos sandor miklos president , chief executive officer chairman of the board of directors ( principal executive officer ) date : april 2 , 2018 by : sandor miklos sandor miklos chief financial officer ( principal financial officer and principal accounting officer ) pursuant to the requirements 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 . team 360 sports inc. dated : april 2 , 2018 by : sandor miklos sandor miklos president , chief executive officer , chairman of the board of directors ( principal executive officer ) dated : april 2 , 2018 by : sandor miklos sandor miklos chief financial officer ( principal financial officer and principal accounting officer ) 24 story_separator_special_tag of operations . this discussion summarizes the significant factors affecting the operating results , financial condition , liquidity and cash flows of the company for the fiscal years ended december 31 , 2017 and 2016. the discussion and analysis that follows should be read together with our financial statements and the notes to the financial statements included elsewhere in this annual report on form 10-k. except for historical information , the matters discussed in this section are forward looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond the company 's control . consequently , and because forward-looking statements are inherently subject to risks and uncertainties , the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements . you are urged to carefully review and consider the various disclosures made by us in this report . overview we were incorporated in nevada on february 26 , 2013 , and story_separator_special_tag since the tax act was passed late in the fourth quarter of 2017 , and ongoing guidance and accounting interpretation are expected over the next 12 months , we consider the accounting of any transition tax , deferred tax re-measurements , and other items to be incomplete due to the forthcoming guidance and our ongoing analysis of final year-end data and tax positions . we expect to complete our analysis within the measurement period in accordance with sab 118 , and no later than fiscal year end december 31 , 2018. fasb asc 740 requires the reduction of deferred tax assets by a valuation allowance , if , based on the weight of available evidence , it is more likely than not that some or all of the deferred tax assets will not be realized . in the company 's opinion , it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset . accordingly , a valuation allowance equal to the deferred tax asset has been recorded . the total deferred tax asset for the years 2017 and 2016 is $ 12,110 and $ 3,166 , respectively , which is calculated by multiplying the estimated tax rate by the cumulative net operating loss ( nol ) adjusted for the following items : replace_table_token_9_th details for the last two years are as follows : for the years ended december 31 , 2017 2016 deferred tax asset $ 12,110 $ 3,166 valuation allowance ( 12,110 ) ( 3,166 ) current taxes payable — — income tax expense $ — $ — f- 12 note 7 – related party transactions on january 1 , 2016 , pursuant to the terms of an executive management agreement , the company granted 100,000 shares of common stock to mr. sandor miklos , president and member of the board of directors , for services to be rendered . shares are deemed to be earned proportionally over twelve months . the shares were issued at par of $ 0.001 for a total non-cash expense of $ 100 . on january 1 , 2016 , pursuant to the terms of an executive and consulting agreement , the company granted 100,000 shares of common stock to mr. simon smith , chief technology officer , for services to be rendered . shares are deemed to be earned proportionally over twelve months . the shares were issued at par of $ 0.001 for a total non-cash expense of $ 100 . on january 1 , 2017 , pursuant to the terms of an executive management agreement , the company granted 200,000 shares of common stock to mr. sandor miklos , president and member of the board of directors , for services to be rendered . shares are deemed to be earned proportionally over twelve months . the shares were issued at $ 1,00 per share for a total non-cash expense of $ 200,000 . on january 1 , 2017 , pursuant to the terms of an executive and consulting agreement , the company granted 200,000 shares of common stock to mr. simon smith , chief technology officer , for services to be rendered . shares are deemed to be earned proportionally over twelve months . the shares were issued at $ 1.00 per share for a total non-cash expense of $ 200,000 . during the twelve months ended december 31 , 2017 , mr. sandor miklos , president and member of the board of directors , had accrued compensation of $ 25,000 . mr. miklos forgave the $ 25,000 in accrued compensation and it has been recorded in additional paid-in capital . note 8 – subsequent events the company 's management has evaluated subsequent events through the date the financial statements were issued and there were no significant events to report . f- 13 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 . team 360 sport inc. ( registrant ) date : april 2 , 2018 by : sandor miklos sandor miklos president , chief executive officer chairman of the board of directors ( principal executive officer ) date : april 2 , 2018 by : sandor miklos sandor miklos chief financial officer ( principal financial officer and principal accounting officer ) pursuant to the requirements 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 . team 360 sports inc. dated : april 2 , 2018 by : sandor miklos sandor miklos president , chief executive officer , chairman of the board of directors ( principal executive officer ) dated : april 2 , 2018 by : sandor miklos sandor miklos chief financial officer ( principal financial officer and principal accounting officer ) 24 story_separator_special_tag of operations . this discussion summarizes the significant factors affecting the operating results , financial condition , liquidity and cash flows of the company for the fiscal years ended december 31 , 2017 and 2016. the discussion and analysis that follows should be read together with our financial statements and the notes to the financial statements included elsewhere in this annual report on form 10-k. except for historical information , the matters discussed in this section are forward looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond the company 's control . consequently , and because forward-looking statements are inherently subject to risks and uncertainties , the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements . you are urged to carefully review and consider the various disclosures made by us in this report . overview we were incorporated in nevada on february 26 , 2013 , and
| results of operations comparison of twelve-month periods ended december 31 , 2017 and 2016 revenue we have generated $ 2,557 and $ 1,676 in revenues for the year ended december 31 , 2017 and 2016 , respectively . expenses general and administration expenses for the year ended december 31 , 2017 , amounted to $ 759 ,313 , compared to $ 10,947 during the year ended december 31 , 2016. the increase is primarily attributable to issuing stock for services valued at $ 700,000 and also incurring significant accounting and legal expense associated with registering the company with the securities and exchange commission . compensation expenses for the year ended december 31 , 2017 , amounted to $ 25,000 compared to $ 0 during the year ended december 31 , 2016 . 14 other expense for the year ended december 31 , 2017 amounted to $ 910 , compared to $ 0 during the year ended december 31 , 2016. the increase is primarily due to an increase in interest expense associated with the company 's increase in its loan payable . net loss for the year ended december 31 , 2017 , we incurred a net loss of $ 757,666 , compared to a net loss of $ 9,271 for the year ended december 31 , 2016. the increase is due to increased costs associated with registering the company with the securities and exchange commission . liquidity and capital resources as of december 31 , 2017 , we have $ 18,163 in current assets and $ 49,664 in current liabilities . our total assets were $ 18,163 and our total liabilities were $ 49,664. we had $ 18,163 in cash and our working capital deficit was $ 31,501. cash flows : replace_table_token_1_th 15 off-balance sheet arrangements we have no off-balance sheet arrangements .
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on december 31 , 2020 , we received 1,298,701 shares of front yard 's common stock in connection with the transactions contemplated in the termination agreement with front yard . for further information , please refer to note 1 . the following table presents the cost and fair value of our holdings in front yard 's common stock as of december 31 , 2020 and 2019 ( $ in thousands ) : replace_table_token_13_th 5. leases we currently occupy office space under operating leases in christiansted , u.s. virgin islands , and bengaluru , india . as of december 31 , 2020 and december 31 , 2019 , our weighted average remaining lease term , including applicable extensions , was 7.5 years and 9.1 years , respectively , and we applied a discount rate of 7.0 % and 8.4 % , respectively , to our office leases . we determine the discount story_separator_special_tag the following should be read in conjunction with the other sections of this annual report on form 10-k , including our audited consolidated financial statements and the related notes . the following discussion contains certain forward-looking statements that involve risks , uncertainties and assumptions . our actual results could differ materially from the results contemplated from these forward-looking statements due to a number of factors including , but not limited to , those discussed in part 1 , item 1a `` risk factors `` in this annual report on form 10-k. our consolidated financial statements , which we discuss below , reflect our historical financial condition , results of operations , and cash flows . the financial information discussed below and included in this annual report on form 10-k , however , may not necessarily reflect what our financial condition , results of operations , or cash flows may be in the future . prior to 2020 , we reported all activity of the company in a single segment and activity from continuing operations . in connection with the termination of the amended ama and subsequent sale of the disposal group to front yard , we have reclassified the disposal group activity as a discontinued operation effective as of the end of the third quarter of 2020. the results of operations , cash flows , and assets and liabilities of our discontinued operations and continued operations , for all periods presented in the accompanying financial statements , have been reclassified to conform to the current year presentation . see note 3 to our accompanying consolidated financial statements for further information regarding discontinued operations . unless otherwise indicated , amounts reported in this `` management 's discussion and analysis of financial condition and results of operations '' pertain to continuing operations only . management overview we made substantial progress during the 2020 fiscal year towards our strategic objectives for front yard , including the termination of the amended ama , successful resolution to the strategic review of front yard , and monetization of front yard for the benefit of shareholders . further , we are in the advanced stages of launching multiple new lines of business , including an investment fund , a short-term investor loan aggregation business and the establishment of strategic relationships with real estate loan originators . these business lines leverage our history and experience in asset management , real estate investing , and real estate operations . we have taken steps to reduce our annual operating expenses , including reductions in our physical office footprint and the optimization of our workforce and technology platforms . we expect that aamc will be able to generate management and performance fees , as well as returns on its own investments through the new business lines . new business 26 ( ) we have substantially completed the formation of investment funds with onshore and offshore components , which we believe will allow us to attract both domestic and international institutional and high net worth investors . initial investments into the fund will be used to invest in real estate debt products , specifically short-term investor loans . as capital commitments increase , we intend to expand the investments into other real estate related assets where we have identified esoteric opportunities to generate attractive returns for our investors and our stockholders . we also intend to invest a portion of our own capital directly into the investment funds and may make investments alongside the fund . in addition to any returns on our own investments , we expect to receive customary asset management fees and carried interest as the investment manager for , and general partner of the fund . our strategy also includes the aggregation of short-term investor loans from one or more originators using our own capital and or investments from the assets under management from the investment funds . we believe these investor loans will provide a competitive risk-adjusted return as a buy-and-hold asset . through the aggregation model , we believe we will be able to access the secondary market for repeated offerings , providing additional returns on the initial invested capital . we expect to integrate our experienced underwriting team in any flow purchase agreements that we may execute with potential originators to provide us with greater operational control over the quality of the loans that we may purchase . utilizing our history , expertise , and experience investing in non-performing loans and real estate operations , we believe we will be able to effectively underwrite loan acquisitions , target new markets , and mitigate defaults which will result in attractive risk-adjusted returns for our investors and stockholders . through our expertise in loan valuation , underwriting , and portfolio management , we expect to create strategic partnerships with loan originators to source leads , increase operational capacity , and expand product offerings in the future . we believe these relationships will increase our competitive advantage over other loan aggregators . story_separator_special_tag we believe that our initial focus on short-term investor loans provides the opportunity to generate attractive risk-adjusted returns on our investments while minimizing exposure to unforeseen structural shifts in monetary and fiscal policy and other market changes . metrics affecting our consolidated results our operating results are affected by various factors and market conditions , including the following : revenues our revenues consisted of fees due to us under the asset management agreements with front yard . under the amended ama , our revenues included a quarterly base management fee and a potential annual incentive fee , each of which were dependent upon front yard 's performance and were subject to potential downward adjustments and an aggregate fee cap . beginning in the third quarter of 2019 ( the first full quarter under the amended ama ) , the base management fee we recognized under the amended ama was subject to a quarterly minimum of $ 3,584,000. under the former ama , our revenues included a base management fee and a conversion fee . the base management fee was calculated as a percentage of front yard 's average invested capital , and the conversion fee was based on the number and value of mortgage loans and or reo properties that front yard converted to rental properties for the first time in each period . under both the amended ama and the former ama , our revenues also included reimbursements of certain expenses in our management of front yard 's business , which related primarily to travel and certain operating expenses solely related to our management of front yard 's business and the base salary , bonus , benefits and stock compensation , if any , solely of the general counsel dedicated to front yard . all other salary , bonus , benefits and stock compensation of aamc 's employees ( other than front yard share-based compensation issued to them by front yard ) are the responsibility of aamc and are not reimbursed by front yard pursuant to the amended ama . 28 ( ) in addition , we received dividends on the shares of front yard common stock that we owned when front yard declared and paid dividends to its holders of common stock . upon the declaration of such dividends , we recorded them as other income . the amount of dividends we received varied with front yard 's financial performance , taxable income , liquidity needs and other factors deemed relevant by front yard 's board of directors . lastly , we recognized changes in the fair value of our holdings of front yard common stock as other income or loss that was directly dependent upon fluctuations in the market price of front yard 's common stock . expenses our expenses consist primarily of salaries and employee benefits , legal and professional fees and general and administrative expenses . salaries and employee benefits include the base salaries , incentive bonuses , medical coverage , retirement benefits , non-cash share-based compensation and other benefits provided to our employees for their services . legal and professional fees include services provided by third-party attorneys , accountants and other service providers of a professional nature . general and administrative expenses include costs related to the general operation and overall administration of our business as well as non-cash share-based compensation expense related to restricted stock awards to our directors . primary driver of our operating results our performance in each particular period was affected by our ability to manage front yard 's business and rental portfolio effectively . if there were declines in front yard 's performance , our fees in each such period could be adversely affected . conversely , if there were improvements in front yard 's performance , our fees in such period could be positively affected . front yard 's operating results were effected by various factors , including , but not limited to , the number and performance of front yard 's sfr properties , its ability to use financing to grow its sfr portfolio and its ability to control operating expenses . the extent to which we were successful in managing these factors for front yard effected our ability to generate management fees under the amended ama , which , apart from the termination fee , were our primary source of income . results of continuing operations the following discussion compares our results of continuing operations for the years ended december 31 , 2020 and 2019. our results of operations for the periods presented are not indicative of our expected results in future periods . for discussion that compares our results of operations for the years ended december 31 , 2019 and 2018 , see “ item 7. management 's discussion and analysis of financial condition and results of operations - results of operations ” included within our annual report on form 10-k for the year ended december 31 , 2019 filed with the sec on february 28 , 2020. fiscal year ended december 31 , 2020 compared to fiscal year ended december 31 , 2019 salaries and employee benefits salaries and employee benefits increased to $ 12.0 million from $ 11.4 million for the years ended december 31 , 2020 and 2019 , respectively . this increase is primarily due to increased compensation expense attributable to increases in our employee headcount . legal and professional fees legal and professional fees increased to $ 6.2 million from $ 3.4 million for the years ended december 31 , 2020 and 2019 , respectively . this increase is primarily due to an increase in legal and consulting fees related to the negotiation and termination of the amended ama with front yard . general and administrative expenses general and administrative expenses remained stable at $ 2.3 million from $ 2.3 million for the years ended december 31 , 2020 and 2019 , respectively , attributable to an increase in technology costs and insurance costs associated with the termination agreement and transition plan , offset by decreased travel expenses and office utilities that were partially driven by the covid-19 pandemic .
| results of discontinued operations on august 13 , 2020 , we and front yard entered into the termination agreement , pursuant to which they have agreed to effectively internalize the asset management function of front yard . the termination of the amended ama and the sale of the certain assets and operations to front yard represents a significant strategic shift that will have a major effect on our operations and financial results . therefore , we have classified the results of our operations related to front yard as discontinued operations in our condensed consolidated statements of operations . discontinued operations includes ( i ) the management fee revenues generated under our asset management agreements with front yard , ( ii ) expense reimbursements from front yard and the underlying expenses , ( iii ) the results of operations of our india and cayman islands subsidiaries , ( iv ) the employment costs associated with certain individuals wholly dedicated to front yard and ( v ) the costs associated with our lease in charlotte , north carolina , that was assumed by front yard . see note 3 to our accompanying consolidated financial statements for further information regarding discontinued operations . the following discussion compares our results of discontinued operations for the years ended december 31 , 2020 and 2019. our results of discontinued operations for the periods presented are not indicative of our expected results in future periods .
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under the 2010 and 2008 plans , the company recorded $ 58,000 and $ 115,000 of compensation expense and $ 14,000 and $ 27,000 of deferred income tax benefit in fiscal years 2020 and 2019 , respectively . the remaining compensation expense of $ 12,000 and deferred income tax benefit of $ 3,000 will be recorded over the remaining vesting periods . the company issued new shares of common stock to satisfy options exercised during fiscal years 2020 and 2019 . stock option activity and weighted average exercise price are summarized as follows : replace_table_token_21_th the number of options outstanding , exercisable , and their weighted average exercise prices were within the following ranges at april 30 , 2020 : replace_table_token_22_th note 7—accumulated other comprehensive income ( loss ) the company 's other comprehensive income ( loss ) consists of unrealized gains and losses on the translation of the assets , liabilities , and equity of its foreign subsidiaries , changes in the fair value of its cash flow hedges , and additional minimum pension liability adjustments , net of income taxes . the before tax income ( loss ) , related income tax effect , and accumulated balances are as follows : 35 replace_table_token_23_th note 8—leases , commitments and contingencies on may 1 , 2019 , the company adopted accounting standards update ( `` asu `` ) no . 2016-02 , leases , and all subsequently issued clarifying guidance . under the new guidance , lessees are required to recognize lease assets and lease liabilities with respect to the rights and obligations created by leased assets previously classified as operating leases . in july 2018 , the financial accounting standards board ( `` fasb `` ) issued asu no . 2018-11 , which permitted entities to record the impact of adoption using a modified retrospective method with any cumulative effect as an adjustment to retained earnings ( accumulated deficit ) as opposed to restating comparative periods to reflect the effects of applying the new standard . the company elected this transition approach ; therefore , the company 's prior period reported results are not restated to include the impact of this adoption . in addition , the company elected the package of three transition practical expedients which alleviate the requirements to reassess embedded leases , lease classification and initial direct costs for leases that commenced prior to the adoption date . the company has elected to use the short-term lease recognition exemption for all asset classes . this means , for those leases that qualify , the company will not recognize right-of-use ( `` rou `` ) assets or lease liabilities , and this includes not recognizing rou assets or lease liabilities for existing short-term leases of those assets . the adoption of this standard did not affect the condensed consolidated statements of operations and therefore , no cumulative effect adjustment was recorded . the adoption of this standard also did not materially affect the condensed consolidated statements of cash flows . the company has operating type leases for real estate and equipment in both the u.s. and internationally and a financing lease for a truck in the u.s. at april 30 , 2020 , rou assets totaled $ 9,312,000 . included in the rou assets was a finance lease with a net value of $ 123,000 with accumulated amortization totaling $ 36,000 . operating cash paid to settle lease liabilities was $ 1,526,000 for the twelve months ended april 30 , 2020 . the company 's leases have remaining lease terms of up to 10 years . in addition , some of the leases may include options to extend the leases for up to 5 years or options to terminate the leases within 1 year . operating lease expense was $ 2,441,000 for the twelve months ended april 30 , 2020 , inclusive of period cost for short-term leases , not included in lease liabilities , of $ 915,000 . rent expense for these operating leases was $ 2,225,000 in fiscal year 2019 . at april 30 , 2020 , the weighted average remaining lease term for the capitalized operating leases was 7.6 years and the weighted average discount rate was 4.1 % . for the finance lease , the remaining lease term was 5.4 years and the discount rate was 10.0 % . as most of the company 's leases do not provide an implicit rate , the company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments . the company uses the implicit rate when readily determinable . future minimum payments under the non-cancelable lease arrangements for the years ending april 30 are as follows : 36 replace_table_token_24_th the company is involved in certain claims and legal proceedings in the normal course of business which management believes will not have a material adverse effect on the company 's consolidated financial condition or results of operations . note 9—retirement benefits defined benefit plans the company has non-contributory defined benefit pension plans covering some of its domestic employees . these plans were amended as of april 30 , 2005 , no further benefits have been , or will be , earned under the plans subsequent to the amendment date , and no additional participants will be added to the plans . the defined benefit plan for salaried employees provides pension benefits that are based on each employee 's years of service and average annual compensation during the last ten consecutive calendar years of employment as of april 30 , 2005. the benefit plan for hourly employees provides benefits at stated amounts based on years of service as of april 30 , 2005. the company uses an april30 measurement date for its defined benefit plans . story_separator_special_tag the majority of the company 's revenues are recognized over time as the customer receives control as the company performs work under a contract . however , a portion of the company 's revenues are recognized at a point-in-time as control is transferred at a distinct point in time per the terms of a contract . allowance for doubtful accounts evaluation of the allowance for doubtful accounts involves management judgments and estimates . we evaluate the collectability of our trade accounts receivable based on a number of factors . in circumstances where management is aware of a customer 's inability to meet its financial obligations to us , or a project dispute makes it unlikely that all of the receivable owed by a customer will be collected , a specific reserve for bad debts is estimated and recorded to reduce the recognized receivable to the estimated amount we believe will ultimately be collected . in addition to specific customer identification of potential bad debts , a general reserve for bad debts is estimated and recorded based on our recent past loss history and an overall assessment of past due trade accounts receivable amounts outstanding . inventories the company 's inventories are valued at the lower of cost or net realizable value using the first-in , first-out ( “ fifo ” ) method . pension benefits we sponsor pension plans covering all employees who met eligibility requirements as of april 30 , 2005. these pension plans were amended as of april 30 , 2005 , no further benefits have been , or will be , earned under the plans subsequent to the amendment date , and no additional participants have been , or will be , added to the plans . several statistical and other factors , which attempt to anticipate future events , are used in calculating the expense and liability related to the pension plans . these factors include assumptions about the discount rate used to calculate and determine benefit obligations and the expected return on plan assets within certain guidelines . the actuarial assumptions used by us 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 significantly affect the amount of pension income or expense recorded by us in future periods . self-insurance reserves the company 's domestic operations are self-insured for employee health care . the company has purchased specific stop-loss insurance to limit claims above a certain amount . estimated medical costs were accrued for claims incurred but not reported using assumptions based upon historical loss experiences . the company 's exposure reflected in the self-insurance reserves varies depending upon market conditions in the insurance industry , availability of cost-effective insurance coverage , and actual claims versus estimated future claims . 11 story_separator_special_tag notes to consolidated financial statements included in item 8 of this annual report for additional information concerning our credit facility . the majority of the april 30 , 2020 accounts receivable balances are expected to be collected during the first quarter of fiscal year 2021 , with the exception of retention amounts on fixed-price contracts which are collected when the entire construction project is completed and all retention funds are paid by the owner . as discussed above , no further benefits have been , or will be , earned under our pension plans after april 30 , 2005 , and no additional participants have been , or will be , added to the plans . there were no contributions to the plans in fiscal year 2020 and we expect to make contributions of $ 30,000 to the plans in fiscal year 2021. we made contributions of $ 1,000,000 to the plans in fiscal year 2019. capital expenditures were $ 2.5 million and $ 4.2 million in fiscal years 2020 and 2019 , respectively . capital expenditures in fiscal year 2020 were funded primarily from operations . during fiscal 2020 , the company established a strategy for a multi-year transformation of the business , which is designed to lead to sustained profitability and growth . fiscal year 2021 capital expenditures are anticipated to be approximately $ 2.0 million , with the majority of these expenditures related to investing in modernizing our manufacturing capabilities and information technology platform . the fiscal year 2021 expenditures are expected to be funded primarily by operating activities , supplemented as needed by borrowings under our revolving credit facility . working capital was $ 27.2 million at april 30 , 2020 , down from $ 32.6 million at april 30 , 2019 , and the ratio of current assets to current liabilities was 2.0-to-1.0 at april 30 , 2020 and april 30 , 2019. the decrease in working capital for fiscal year 2020 was primarily due to the decrease in cash and accounts receivable partially offset by a decrease in outstanding debt . we paid cash dividends of $ 0.38 per share in fiscal year 2020. we paid cash dividends of $ 0.74 per share in fiscal year 2019. on december 16 , 2019 , the company announced that the board of directors had elected to suspend the company 's dividend . the declaration and payment of any future dividends will be at the discretion of the board of directors and will depend upon many factors , including the company 's earnings , capital requirements , investment and growth strategies , financial conditions , the terms of the company 's indebtedness , which currently contains provisions that could limit the payment of dividends in certain circumstances , and other factors that the board of directors may deem to be relevant .
| results of operations sales for fiscal year 2020 were $ 147.5 million , an increase of 0.7 % from fiscal year 2019 sales of $ 146.6 million . domestic sales for fiscal year 2020 were $ 115.1 million , a decrease of 1.3 % compared to fiscal year 2019 sales of $ 116.6 million . international sales for fiscal year 2020 were $ 32.4 million , an increase of 8.3 % from fiscal year 2019 sales of $ 30.0 million . the increase in international sales for fiscal year 2020 is the result of continued deliveries of a large order in the middle east market . our order backlog was $ 100.9 million at april 30 , 2020 , as compared to $ 100.8 million at april 30 , 2019. gross profit represented 15.9 % and 17.3 % of sales in fiscal years 2020 and 2019 , respectively . the decrease in gross profit margin percentage was a result of a number of low margin orders that the company aggressively pursued and secured over the past year , which included a strategic middle east order aggressively secured over two years ago at lower than normal margins which was delivered in the current fiscal year . additionally , profitability was impacted during the year as a result of the coronavirus pandemic . operating expenses were $ 25.8 million and $ 23.2 million in fiscal years 2020 and 2019 , respectively , and 17.5 % and 15.8 % of sales , respectively . the increase in operating expense dollars in fiscal year 2020 as compared to fiscal year 2019 is related primarily to an increase in personnel expenses of $ 798,000 , incentive and stock compensation of $ 385,000 , restructuring expenses of $ 312,000 , and depreciation expense of $ 136,000. the increased personnel expenses were driven by investments in talent to accelerate our strategy to modernize our manufacturing capabilities and information technology platform .
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in accordance with asc 815 , the company determined that this embedded conversion feature should be separately accounted for as a freestanding financial instrument as the conversion feature was a substantial contingent call option . in the event of a change in control of the company prior to the maturity date , the company had the option to prepay the convertible notes at 1.5 times principal , plus accrued interest . in accordance with asc 815 , the company determined that this embedded redemption feature should be separately accounted for as a freestanding financial instrument as the conversion feature was a substantial contingent call option . the convertible notes included a call feature , story_separator_special_tag management 's discussion and analysis of 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 financial data ” and our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in the `` risk factors '' section of this annual report on form 10-k , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a late-stage biopharmaceutical company focused on the development of novel , first-in-class pharmaceuticals to address the needs of patients with renal and vascular disease . our product candidate , prt-201 , is a recombinant human elastase that we are developing to reduce vascular access failure in patients with chronic kidney disease undergoing or preparing for hemodialysis , a lifesaving treatment that can not be conducted without a functioning vascular access . we believe the data from our completed phase 2 trial of prt-201 in patients undergoing creation of an arteriovenous fistula , or avf , support that a one-time , local application of prt-201 during avf surgical placement reduces avf failure , thereby improving patient outcomes and reducing the burden on patients and the healthcare system . we are not aware of any approved preventative treatments to reduce the failure rate of avfs . we initiated the first of two phase 3 trials for prt-201 in radiocephalic avfs , our initial indication , in the third quarter of 2014 and expect to initiate the second phase 3 trial in the second quarter of 2015. we commenced business operations in june 2001 and incorporated in march 2006. our operations to date have been limited to organizing and staffing our company , business planning , raising capital , undertaking preclinical studies and clinical trials of prt-201 , protecting our intellectual property and providing general and administrative support for these operations . to date , we have not generated any product revenue and have primarily financed our operations through the private placement of our equity securities , business development activities , convertible note financings , and our initial public offering , or ipo , completed in october 2014. on october 1 , 2014 , the board of directors and , on october 3 , 2014 , the stockholders approved a 1-for-15.87 reverse stock split of our common stock and a proportional adjustment to the existing conversion ratios for each series of preferred stock . the effective date of the reverse stock split was october 6 , 2014. all share , share equivalent and per share amounts have been adjusted to reflect the reverse stock split . the ratios by which shares of preferred stock were convertible into shares of common stock have been adjusted to reflect the effects of the reverse stock split . as of december 31 , 2014 , we had received an aggregate of $ 174.4 million of net proceeds comprised of $ 94.0 million from the issuance of equity securities , $ 7.7 million from the issuance of convertible notes , $ 10.0 million from business development activities , $ 0.2 million from government grants and $ 62.5 million from our ipo . we have never been profitable and have incurred net losses in each year since inception . as of december 31 , 2014 , we had an accumulated deficit of $ 109.9 million and our net loss for the year ended december 31 , 2014 was $ 3.3 million . we expect to incur significant expenses and increasing operating losses for the foreseeable future . we expect our research and development expenses to increase as we continue the clinical trials of , and seek regulatory approval for , prt-201 . if we obtain regulatory approval for prt-201 , we expect to incur significant commercialization expenses related to product sales , marketing , manufacturing and distribution . furthermore , we expect that our general and administrative costs will increase as we grow and operate as a public company . as a result , we will need to generate significant revenue if we are to achieve profitability , and we may never be able to do so . 80 we believe that our cash and cash equivalents and available-for-sale investments at december 31 , 2014 , will be sufficient to fund our operating expenses and capital expenditure requirements into 2018 , thus allowing us to obtain results from our first phase 3 clinical trial of prt-201 in radiocephalic avfs , to commence our second phase 3 trial of prt-201 in radiocephalic avfs in the second quarter of 2015 and to fund our chemistry , manufacturing and controls , or cmc , activities . we do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for prt-201 , which we expect will take a number of years and is subject to significant uncertainty . story_separator_special_tag interest expense , net interest expense , net consists of interest incurred on debt instruments , amortized deferred financing costs and amortized debt discount , as offset by any interest income earned on our cash , cash equivalents and marketable securities . the debt discount primarily consists of the fair value of the bifurcated features embedded in the convertible notes issued in september 2013 and converted in may 2014. as of december 31 , 2014 , the debt discount had been fully amortized to interest expense . other income ( expense ) , net other income ( expense ) , net consists of the gain realized by the sale of fixed assets , changes in the fair value of the derivative liability associated with the convertible notes and changes in the fair value of the investor rights and obligations issued in connection with the series d preferred stock . the derivative liability was extinguished upon the conversion of the notes into series d preferred stock in may 2014. the investors ' rights and obligations were either exercised or extinguished upon the completion of our ipo in october 2014 . 82 critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial position and results of operations is based on our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles , or gaap . the preparation of financial statements in conformity with gaap requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . on an ongoing basis , we evaluate estimates , which include estimates related to clinical trial accruals , stock-based compensation expense , embedded derivatives , and reported amounts of revenues and expenses during the reported period . we base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances . actual results may differ materially from those estimates or assumptions . while our significant accounting policies are described in more detail in the notes to our consolidated financial statements and related notes appearing elsewhere in this annual report , we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements . accrued research and development expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued expenses . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed for us and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost . the majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met . we make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time . we routinely confirm the accuracy of our estimates with the service providers and make adjustments if necessary . examples of estimated accrued research and development expenses include fees paid to cros in connection with clinical trials and vendors related to manufacturing , development and distribution of clinical supplies . we base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple cros that conduct and manage clinical trials on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows . there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense ( prepaid expense ) . payments under some of these contracts depend on factors such as the successful enrollment of subjects and the completion of clinical trial milestones . in accruing service fees , we estimate the time period over which services will be performed , enrollment of subjects , number of sites activated and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrual or prepaid accordingly . although we do not expect our estimates to be materially different from amounts actually incurred , if our estimates of the status and timing of services performed differs from the actual status and timing of services performed we may report amounts that are too high or too low in any particular period . to date , there have been no material differences from our estimates to the amount actually incurred . derivative instruments we occasionally issue financial instruments in which a derivative instrument is `` embedded . '' upon issuing the financial instrument , we assess whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the financial instrument ( i.e . , the host contract ) and whether a separate , non-embedded instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument as defined in fasb asc topics 815 derivatives and hedging . when it is determined that ( 1 ) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and ( 2 ) a separate , stand-alone instrument with the same terms would qualify as a derivative instrument , the embedded derivative is separated from the host contract and carried at fair value with changes in fair value recorded in current period earnings . 83 convertible notes on september 4 , 2013 , we issued , at par value , convertible promissory notes .
| results of operations comparison of the years ended december 31 , 2014 and 2013 replace_table_token_14_th revenue . revenue increased by $ 2.9 million for the year ended december 31 , 2014 from the year ended december 31 , 2013. this increase was due to the recognition of $ 2.9 million of deferred revenue related to the expiration in august 2014 of any rights and obligations under the aforementioned 2009 agreement with a major pharmaceutical entity . research and development expenses . the following table identifies research and development expenses on both an external and internal basis for the years ended december 31 , 2014 and 2013 : replace_table_token_15_th during the year ended december 31 , 2014 , our total research and development expenses increased by $ 2.4 million compared to the year ended december 31 , 2013 primarily due to $ 2.1 million in increased external expenses . the increase of $ 2.1 million in external expenses was driven by $ 2.2 million in increased expenses for our ongoing radiocephalic avf phase 3 clinical trial , $ 0.1 million in increased external clinical expenses related to preparation for our second radiocephalic avf phase 3 clinical trial and $ 0.2 million in increased expenses for our manufacturing support of the radiocephalic avf phase 3 clinical trials offset by $ 0.4 million in lower external clinical expenses related to our avf phase 2 and avg clinical trials which were completed in 2013. our internal research and development expenses increased by $ 0.3 million in the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 due primarily to personnel costs . general and administrative expenses .
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note 8 to the financial statements includes a discussion of story_separator_special_tag the following discussion should be read in conjunction with the accompanying audited consolidated financial statements and related notes thereto and item 1a , “ risk factors , ” appearing elsewhere in this annual report on form 10-k. in this discussion , unless the context suggests otherwise , references to “ our company , ” “ we , ” “ us , ” and “ our ” mean kite realty group trust and its direct and indirect subsidiaries , including kite realty group , l.p. overview in the following overview , we discuss , among other things , the status of our business and properties , the effect that current united states economic conditions is having on our retail tenants and us , and the current state of the financial markets and how it impacts our financing strategy . our business and properties kite realty group trust is a publicly-held real estate investment trust which , through its majority-owned subsidiary , kite realty group , l.p. , owns interests in various operating subsidiaries and joint ventures engaged in the ownership , operation , 52 acquisition , development , and redevelopment of high-quality neighborhood and community shopping centers in selected markets in the united states . we derive revenues primarily from activities associated with the collection of contractual rents and reimbursement payments from tenants at our properties . our operating results therefore depend materially on , among other things , the ability of our tenants to make required lease payments , the health and resilience of the united states retail sector , interest rate volatility , job growth and overall economic and real estate market conditions . as of december 31 , 2016 , we owned interests in 119 operating and redevelopment properties consisting of 108 retail properties , nine retail redevelopment properties , one office operating property and an associated parking garage . we also owned two development projects under construction as of this date . portfolio update in evaluating acquisition , development , and redevelopment opportunities , we look for strong sub-markets where average household income is above the broader market average . we also focus on locations with population density , high traffic counts , and strong daytime workforce populations . household incomes in our largest sub-markets are significantly higher than the medians for those broader markets . in 2016 , we transitioned the holly springs towne center – phase ii and tamiami crossing development projects to the operating portfolio . we also began construction on our expansion of holly springs – phase ii in the fourth quarter . our 3-r initiative , which includes a total of 20 existing and potential projects , continued to progress in 2016. ten of these projects are under construction with total estimated costs of $ 58.0 million to $ 66.5 million and estimated combined returns of 9.0 % to 10.0 % . there are 10 additional projects under active evaluation with potential estimated costs of $ 80 to $ 100 million and potential returns of 9.0 % to 11.0 % . we completed construction on four 3-r projects during the fourth quarter : hitchcock plaza , shops at moore , tarpon bay plaza , and traders point . in addition to targeting sub-markets with strong consumer demographics , we focus on having the appropriate tenant mix at each center . many of our tenants are service-oriented or have a prominent online platform that has reduced the impact of the expansion of e-commerce on their operations . we have aggressively targeted and executed leases with notable grocers including publix , trader joes , and aldi along with soft goods retailers such as ross dress for less , ulta and nordstrom rack . additionally , we have identified cost-efficient ways to optimize space for junior anchors such as right-sizing office supply stores and backfilling the existing space with a tenant more suitable to the larger space . in addition , many of our redevelopment projects include consolidating small shop space to accommodate construction of new junior anchor space . capital and financing activities our ability to obtain capital on satisfactory terms and to refinance borrowings as they mature is affected by the condition of the economy in general and by the financial strength of properties securing borrowings . throughout 2016 , we strengthened our balance sheet by retiring multiple property-level secured loans and unencumbering the related assets securing the loans . we increased our liquidity through amending our existing unsecured revolving credit facility and unsecured term loan , which allows us the option to increase the borrowing capacity of the unsecured revolving credit facility to $ 1 billion and the option to increase our unsecured term loan to provide for an additional $ 200 million . we also issued $ 300 million of notes in a public offering . as of december 31 , 2016 , we have reduced our term maturities through 2020 to approximately $ 90 million and extended our weighted-average debt maturities to 6.4 years . the amount that we may borrow under our unsecured revolving credit facility is limited by the value of the assets in our unencumbered asset pool . as of december 31 , 2016 , the value of the assets in our unencumbered asset pool was $ 420.4 million . taking into account outstanding borrowings and letters of credit , we had $ 409.9 million available under our unsecured revolving credit facility for future borrowings as of december 31 , 2016 . in addition , we had $ 19.9 million in cash and cash equivalents as of december 31 , 2016 . 53 the unencumbering of a number of properties , drawing the remaining amount on our 7-year term loan , amending our existing unsecured revolving credit facility and unsecured term loan and issuing the notes provides us with more flexibility for future capital activity . story_separator_special_tag our estimates of value are made using methods similar to those used by independent appraisers . factors we consider in our analysis include an estimate of costs to execute similar leases including tenant improvements , leasing commissions and foregone costs and rent received during the estimated lease-up period as if the space was vacant . the value of in-place leases is amortized to expense over the remaining initial terms of the respective leases ; and the fair value of any assumed financing that is determined to be above or below market terms . we utilize third party and independent sources for our estimates to determine the respective fair value of each mortgage payable . the fair market value of each mortgage payable is amortized to interest expense over the remaining initial terms of the respective loan . we also consider whether there is any value to in-place leases that have a related customer relationship intangible value . characteristics we consider in determining these values include the nature and extent of 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 . to date , a tenant relationship has not been developed that is considered to have a current intangible value . we finalize the measurement period of our business combinations when all facts and circumstances are understood , but in no circumstances will the measurement period exceed one year . revenue recognition as a lessor of real estate assets , the company retains substantially all of the risks and benefits of ownership and account for its leases as operating leases . contractual rent , percentage rent , and expense reimbursements from tenants for common area maintenance costs , insurance and real estate taxes are our principal sources of revenue . base minimum rents are recognized on a straight-line basis over the terms of the respective leases . certain lease agreements contain provisions that grant additional rents based on a tenant 's sales volume ( contingent overage rent ) . overage rent is recognized when tenants achieve the specified sales targets as defined in their lease agreements . overage rent is included in other property related revenue in the accompanying consolidated statements of operations . as a result of generating this revenue , we will routinely have accounts receivable due from tenants . we are subject to 55 tenant defaults and bankruptcies that may affect the collection of outstanding receivables . to address the collectability of these receivables , we analyze historical write-off experience , tenant credit-worthiness and current economic trends when evaluating the adequacy of our allowance for doubtful accounts and straight line rent reserve . although we estimate uncollectible receivables and provide for them through charges against income , actual experience may differ from those estimates . gains or losses from sales of real estate are recognized when a sale has been consummated , the buyer 's initial and continuing investment is adequate to demonstrate a commitment to pay for the asset , we have transferred to the buyer the usual risks and rewards of ownership , and we do not have a substantial continuing financial involvement in the property . as part of our ongoing business strategy , we will , from time to time , sell land parcels and outlots , some of which are ground leased to tenants . fair value measurements we follow the framework established under accounting standard fasb asc 820 for measuring fair value of non-financial assets and liabilities that are not required or permitted to be measured at fair value on a recurring basis but only in certain circumstances , such as a business combination or upon determination of impairment . assets and liabilities recorded at fair value on the consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows : level 1 fair value inputs are quoted prices in active markets for identical instruments to which we have access . level 2 fair value inputs are inputs other than quoted prices included in level 1 that are observable for similar instruments , either directly or indirectly , and appropriately consider counterparty creditworthiness in the valuations . level 3 fair value inputs reflect our best estimate of inputs and assumptions market participants would use in pricing an instrument at the measurement date . the inputs are unobservable in the market and significant to the valuation estimate . in instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy , the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety . our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability . as discussed in note 10 to the financial statements , we have determined that its derivative valuations are classified in level 2 of the fair value hierarchy . cash and cash equivalents , accounts receivable , escrows and deposits , and other working capital balances approximate fair value . note 7 to the financial statements includes a discussion of the fair values recorded for assets acquired and liabilities assumed . note 8 to the financial statements includes a discussion of the fair values recorded when we recognized an impairment charge on our shops at otty operating property . level 3 inputs to these transactions include our estimations of market leasing rates , tenant-related costs , discount rates , and disposal values . income taxes and reit compliance parent company 56 the parent company , which is considered a corporation for federal income tax purposes , has been organized and intends to continue to operate in a manner that will enable it to maintain its qualification as a reit for federal income tax purposes .
| results of operations as of december 31 , 2016 , we owned interests in 119 properties and two development projects currently under construction . the following table sets forth the total operating and redevelopment properties and development projects that we owned as of december 31 , 2016 , 2015 and 2014 : 57 replace_table_token_19_th the comparability of results of operations is affected by our merger with inland diversified on july 1 , 2014 and by our development , redevelopment , and operating property acquisition and disposition activities in 2014 through 2016 . therefore , we believe it is most useful to review the comparisons of our results of operations for these years ( as set forth below under “ comparison of operating results for the years ended december 31 , 2016 and 2015 ” and “ comparison of operating results for the years ended december 31 , 2015 and 2014 ” ) in conjunction with the discussion of these activities during those periods , which is set forth below . property acquisition activities during the three years ended december 31 , 2016 , we acquired the properties listed in the table below . replace_table_token_20_th operating property disposition activities during the three years ended december 31 , 2016 , we sold the operating properties listed in the table below . 58 replace_table_token_21_th 1 operating property was classified in discontinued operations in the consolidated statements of operations for the year ended december 31 , 2014 . 2 shortly after the merger with inland diversified we identified and sold certain properties located in multiple msas that were not consistent with the company 's strategic plan .
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formed as a maryland corporation on october 15 , 2015 , we are externally managed by owl rock capital advisors llc ( the “ adviser ” ) which is responsible for sourcing potential investments , conducting due diligence on prospective investments , analyzing investment opportunities , structuring investments and monitoring our portfolio on an ongoing basis . the adviser is registered as an investment adviser with the securities and exchange commission ( “ sec ” ) . we have elected to be treated as a ric under subchapter m of the code , and we intend to operate in a manner so as to continue to qualify for the tax treatment applicable to rics . on march 15 , 2017 , we formed a wholly-owned subsidiary , or lending ii llc , a delaware limited liability company , which holds a california finance lenders license . or lending ii llc originates loans to borrowers headquartered in california . we are managed by our adviser . our adviser is registered with the sec as an investment adviser under the advisers act , as amended ( the `` advisers act '' ) . subject to the overall supervision of our board , our adviser manages the day-to-day operations of , and provides investment advisory and management services , to us . the adviser or its affiliates may engage in certain organizational activities and receive attendant arrangement , structuring or similar fees . our adviser is responsible for managing our business and activities , including sourcing investment opportunities , conducting research , performing diligence on potential investments , structuring our investments , and monitoring our portfolio companies on an ongoing basis through a team of management professionals . our board consists of eight directors , five of whom are independent . we commenced a continuous public offering for up to 264,000,000 shares of our common stock on april 4 , 2017. on january 29 , 2020 , we commenced the follow-on offering for up to 160,000,000 shares of our common stock . on september 30 , 2016 , the adviser purchased 100 shares of our common stock at $ 9.00 per share , which represented the initial public offering price of $ 9.47 per share , net of combined upfront selling commissions and dealer manager fees . the adviser will not tender these shares for repurchase as long as the adviser remains our investment adviser . there is no current intention for the adviser to discontinue in its role . on april 4 , 2017 , we received subscription agreements totaling $ 10.0 million for the purchase of shares of our common stock from a private placement from certain individuals and entities affiliated with the adviser . pursuant to the terms of those subscription agreements , the individuals and entities affiliated with the adviser agreed to pay for such shares of common stock upon demand by one of our executive officers . on april 4 , 2017 , we sold 277,778 shares pursuant to such subscription agreements and met the minimum offering requirement for our continuous public offering of $ 2.5 million . the purchase price of these shares sold in the private placement was $ 9.00 per share , which represented the initial public offering price of $ 9.47 per share , net of selling commissions and dealer manager fees . in april 2017 , we commenced operations and made our first portfolio company investment . since meeting the minimum offering requirement and commencing our continuous public offering and through december 31 , 2020 , we have issued 143,313,940 shares of our common stock for gross proceeds of approximately $ 1.3 billion , including seed capital contributed by our adviser in september 2016 and approximately $ 10.0 million in gross proceeds raised in the private placement from certain individuals and entities affiliated with owl rock capital advisors . as of march 4 , 2021 , we have issued 147,640,991 shares of our common stock and have raised total gross proceeds of approximately $ 1.4 billion , including seed capital contributed by our adviser in september 2016 and approximately $ 10 million in gross proceeds raised from certain individuals and entities affiliated with owl rock capital advisors llc . our adviser also serves as investment adviser to owl rock capital corporation and owl rock core income corp. the adviser is under common control with owl rock technology advisors llc ( “ orta ” ) , owl rock capital private fund advisors llc ( “ orpfa ” ) , and owl rock diversified advisors llc ( “ orda ” ) , which also are investment advisers and subsidiaries of owl rock capital partners . orta serves as investment to owl rock technology finance corp. and orda serves as investment adviser to owl rock capital corporation iii . the adviser , orta , orpfa and orda are referred to as the “ owl rock advisers ” and together with owl rock capital partners are referred to , collectively , as “ owl rock . in addition , we and the adviser have entered into a dealer manager agreement with owl rock securities and certain participating broker dealers to solicit capital . fees paid pursuant to these agreements will be paid by our adviser . 82 on december 23 , 2020 , owl rock capital group , the parent of the adviser ( and a subsidiary of owl rock capital partners ) , and dyal capital partners ( “ dyal ” ) announced they are merging to form blue owl capital ( “ blue owl ” ) . blue owl will enter the public market via its acquisition by altimar acquisition corporation ( nyse : atac ) ( “ altimar ” ) , a special purpose acquisition company ( the “ transaction ” ) . story_separator_special_tag we have and continue to assess the impact of covid-19 on our portfolio companies . we can not predict the full impact of the covid-19 pandemic , including its duration in the united states and worldwide , the effectiveness of governmental responses designed to mitigate strain to businesses and the economy and the magnitude of the economic impact of the outbreak . the covid-19 pandemic and preventative measures taken to contain or mitigate its spread have caused , and are continuing to cause , business shutdowns , cancellations of events and travel , significant reductions in demand for certain goods and services , reductions in business activity and financial transactions , supply chain interruptions and overall economic and financial market instability both globally and in the united states . such effects will likely continue for the duration of the pandemic , which is uncertain , and for some period thereafter . while several countries , as well as certain states , counties and cities in the united states , have relaxed initial public health restrictions with a view to partially or fully reopening their economies , many cities world-wide have since experienced a surge in the reported number of cases , hospitalizations and deaths related to the covid-19 pandemic . these increases have led to the re-introduction of restrictions and business shutdowns in certain states , counties and cities in the united states and globally and could continue to lead to the re-introduction of such restrictions and business shutdowns elsewhere . additionally , as of late december 2020 , travelers from the united states are not allowed to visit canada , australia or the majority of countries in europe , asia , africa and south america . these continued travel restrictions may prolong the global economic downturn . in addition , although the federal food and drug administration authorized vaccines for emergency use starting in december 2020 , it remains unclear how quickly the vaccines will be distributed nationwide and globally or when “ herd immunity ” will be achieved and the restrictions that were imposed to slow the spread of the virus will be lifted entirely . the delay in distributing the vaccines could lead people to continue to self-isolate and not participate in the economy at pre-pandemic levels for a prolonged period of time . even after the covid-19 pandemic subsides , the u.s. economy and most other major global economies may continue to experience a recession , and we anticipate our business and operations could be materially adversely affected by a prolonged recession in the united states and other major markets . some economists and major investment banks have expressed concern that the continued spread of the virus globally could lead to a world-wide economic downturn . we are unable to predict the duration of any business and supply-chain disruptions , the extent to which covid-19 will negatively affect our portfolio companies ' operating results or the impact that such disruptions may have on our results of operations and financial condition . though the magnitude of the impact remains to be seen , we expect our portfolio companies and , by extension , our operating results to be adversely impacted by covid-19 and depending on the duration and extent of the disruption to the operations of our portfolio companies , we expect that certain portfolio companies will experience financial distress and possibly default on their financial obligations to us and their other capital providers . some of our portfolio companies have significantly curtailed business operations , furloughed or laid off employees and terminated service providers and deferred capital expenditures , which could impair their business on a permanent basis and we expect that additional portfolio companies may take similar actions . we have built out our portfolio management team to include workout experts and continue to closely monitor our portfolio companies , which includes assessing each portfolio company 's operational and liquidity exposure and outlook . we have executed amendments to our loan documents which provide covenant modifications or additional liquidity , sometimes by allowing a portion of our loan to be paid in pik rather than cash and in connection with these amendments we may receive increased economics . any of these developments would likely result in a decrease in the value of our investment in any such portfolio company . in addition , to the extent that the impact to our portfolio companies results in reduced interest payments or permanent impairments on our investments , we could see a decrease in our net investment income which could result in an increase in the percentage of our cash flows dedicated to our debt obligations and could require us to reduce the future amount of distributions to our shareholders . during the year ended december 31 , 2020 , we experienced a decrease in originations , which reflects the lower levels of private equity deal activity in that time period ; however , for the three months ended december 31 , 2020 , we experienced an increase in originations compared to prior quarter . for the three months ended march 31 , 2021 , we expect the performance of our portfolio companies to continue to be impacted by covid-19 and the related economic slowdown , and therefore , while we have highlighted our liquidity and available capital , we are focused on preserving that capital for our existing portfolio companies in order to protect the value of our investments . 84 our investment framework we are a maryland corporation organized primarily to originate and make loans to , and make debt and equity investments in , u.s. middle market companies . our investment objective is to generate current income , and to a lesser extent , capital appreciation by targeting investment opportunities with favorable risk-adjusted returns .
| results of operations the following table represents the operating results for the years ended december 31 , 2020 , 2019 and 2018 : replace_table_token_30_th net increase ( decrease ) in net assets resulting from operations can vary from period to period as a result of various factors , including the level of new investment commitments , expenses , the recognition of realized gains and losses and changes in unrealized appreciation and depreciation on the investment portfolio . investment income investment income for the years ended december 31 , 2020 , 2019 and 2018 were as follows : replace_table_token_31_th for the years ended december 31 , 2020 and 2019 investment income increased to $ 142.4 million for the year ended december 31 , 2020 from $ 101.5 million for the same period in prior year primarily due to an increase in interest income as a result of an increase in our investment portfolio which , at par , increased from $ 1.5 billion as of december 31 , 2019 , to $ 2.1 billion as of december 31 , 2020 , partially offset by a decrease in our portfolio 's weighted average yield from 8.4 % as of december 31 , 2019 to 7.9 % as of december 31 , 2020. included in interest income are other fees such as prepayment fees and accelerated amortization of upfront fees from unscheduled paydowns . period over period , income generated from these fees represented $ 3.9 million and $ 2.6 million , for the years ended december 31 , 2020 and 2019 , respectively .
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on december 30 , 2018 , the discount rate used on existing leases at adoption was determined based on the remaining lease term using available data as of that date . for new or renewed leases starting in 2019 , story_separator_special_tag overview the following discussion should be read in conjunction with our consolidated financial statements and notes to those statements and other financial information appearing elsewhere in this form 10-k. the following discussion contains forward-looking statements . our actual results could differ materially from those anticipated in the forward-looking statements as a result of a number of factors , including the risks discussed in item 1a “ risk factors , ” and elsewhere in this form 10-k. please refer to our cautionary note on forward looking statements on page 3 of this form 10-k. we are a leading developer , manufacturer and seller of miniature displays and optical lenses ( our “ components ” ) for sale as individual displays , components , modules or higher-level subassemblies . we also license our intellectual property through technology license agreements . our component products are used in highly demanding high-resolution portable military , enterprise and consumer electronic applications , training and simulation equipment and 3d metrology equipment . our products enable our customers to develop and market an improved generation of products for these target applications . our component products are used in highly demanding high-resolution portable military , enterprise and consumer electronic applications , training and simulation equipment and 3d metrology equipment . our products enable our customers to develop and market an improved generation of products for these target applications . critical accounting estimates management 's discussion and analysis of our financial condition and results of operations are based upon our audited consolidated financial statements . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , including those related to revenue recognition under the percentage-of-completion method , bad debts , inventories , warranty reserves , investment valuations , valuation of stock compensation awards , recoverability of deferred tax assets , liabilities for uncertain tax positions and contingencies . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for judgments about carrying values of assets and liabilities that are not apparent from other sources . actual results may differ from these estimates under different assumptions . we adopted the financial accounting standards board 's ( `` fasb '' ) accounting standards update ( `` asu '' ) no . 2014-09 , revenue from contracts with customers ( topic 606 ) effective december 31 , 2017 ( the first day of our fiscal year 2018 ) and applied the modified retrospective method . our results for reporting periods beginning after december 31 , 2017 are presented under asc 606 , while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies asc 605. we believe the following critical accounting policies are most affected by our more significant judgments and estimates used in the preparation of our consolidated financial statements : revenue recognition substantially all of our product revenues are primarily derived from the sales of microdisplays , which are sold as individual displays , modules which include electronics and optics , or higher-level subassemblies for use in military , industrial and consumer near-eye applications such as avionic helmets , thermal weapon sights or virtual reality headsets . we also have development contracts for the design , manufacture and modification of products for the u.s. government or a prime contractor for the u.s. government or for a customer that sells into the industrial or consumer markets . the company 's contracts with the u.s. government are typically subject to the federal acquisition regulations ( `` far '' ) and are priced based on estimated or actual costs of producing goods . the far provides guidance on the types of costs that are allowable in establishing prices for goods provided under u.s. government contracts . the pricing for non-u.s. government contracts is based on the specific negotiations with each customer . our fixed-price contracts with the u.s. government or other customers may result in revenue recognized in excess of amounts currently billed . we disclose the excess of revenues over amounts actually billed as contract assets and unbilled receivables on the balance sheet . amounts billed and due from our customers are classified as accounts receivable on the balance sheets . in some instances , the u.s. government retains a small portion of the contract price until completion of the contract . the portion of the payments retained until final contract settlement is not considered a significant financing component because the intent is to protect the customer . for contracts with the u.s. government , we typically receive interim payments either as work progresses or by achieving certain milestones or based on a schedule in the contract . we recognize a liability for these advance payments in excess of revenue recognized and present it as contract liabilities and billings in excess 27 of revenue earned on the balance sheets . the advanced payment typically is not considered a significant financing component because it is used to meet working capital demands that can be higher in the early stages of a contract and to protect us from the other party failing to adequately complete some or all of its obligations under the contract . for industrial and consumer purchase orders , we typically receive payments within 30 to 60 days of shipments of the product , although for some purchase orders , we may require an advanced payment prior to shipment of the product . story_separator_special_tag we recognize royalty revenue upon the later of when the related sales occur , or when the performance obligation to which some or all of the royalty has been allocated has been satisfied ( or partially satisfied ) . under our current license agreements for which a royalty exists , we have recorded revenue when the related sales by our customer occurs because the performance obligation related to the delivery of the license to the customer has been satisfied . inventory we provide a reserve for estimated obsolete or unmarketable inventory based on assumptions about future demand and market conditions and our production plans . inventories that are obsolete or slow moving are generally fully reserved ( representing the estimated net realizable value ) as such information becomes available . our display products are manufactured based upon production plans whose critical assumptions include non-binding demand forecasts provided by our customers , lead times for raw materials , lead times for wafer foundries to perform circuit processing and yields . if a customer were to cancel an order or actual demand was lower than forecasted demand , we may not be able to sell the excess display inventory and additional reserves would be required . if we were unable to sell the excess inventory , we would establish reserves to reduce the inventory to its estimated realizable value ( generally zero ) . investment valuation we periodically make equity investments in private companies , accounted for as an equity investment , whose values are difficult to determine . the company adopted asu no . 2016-01 , financial instruments - overall ( subtopic 825-10 ) : recognition and measurement of financial assets and liabilities and the related amendments on december 31 , 2017. the company adopted the measurement alternative for equity investments without readily determinable fair values ( often referred to as cost method investments ) on a prospective basis . when assessing investments in private companies for impairment , we consider such factors as , among others , the share price from the investee 's latest financing round , the performance of the investee in relation to its own operating targets and its business plan , the investee 's revenue and cost trends , the liquidity and cash position , including its cash burn rate and market acceptance of the investee 's products and services . because these are private companies which we do not control we may not be able to obtain all of the information we would want in order to make a complete assessment of the investment on a timely basis . accordingly , our estimates may be revised if other information becomes available at a later date . in addition to the above , we make investments in government and agency-backed securities and corporate debt securities . for all of our investments we provide for an impairment valuation if we believe a decline in the value of an investment is other-than-temporary , which may have an adverse impact on our results of operations . the determination of whether a decline in value is other-than-temporary requires that we estimate the cash flows we expect to receive from the security . we use publicly available information such as credit ratings and financial information of the entity that issued the security in the development of our expectation of the cash flows to be received . historically , we have periodically recorded other than temporary impairment losses , however we have not done so recently . income taxes we have historically incurred domestic operating losses from both a financial reporting and tax return standpoint . we establish valuation allowances if it appears more likely than not that our deferred tax assets will not be realized . these judgments are based on our projections of taxable income and the amount and timing of our tax operating loss carryforwards and other deferred tax assets . given our federal operating tax loss carryforwards , we do not expect to pay domestic federal taxes in the near term . it is possible that we could pay foreign and state income taxes . we are also subject to foreign taxes from our korean and u.k. subsidiary operations . our income tax provision is based on calculations and assumptions that will be subject to examination by tax authorities . despite our history of operating losses there can be exposures for state taxes , federal alternative minimum taxes or foreign tax that may be due . we regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of our provision for income taxes . should the actual results differ from our estimates , we would have to adjust the income tax provision in the period in which the facts that give rise to the revision become known . such adjustment could have a material impact on our results of operations . we have historically established valuation allowances against all of our net deferred tax assets because of our history of generating operating losses and restrictions on the use of certain items . our evaluation of the recoverability of deferred tax assets has also included analysis of the expiration dates of net operating loss carryforwards . in forming our conclusions as to whether the deferred tax assets are 29 more likely than not to be realized we consider the sources of our income and the projected stability of those sources and product life cycles . goodwill we account for goodwill in accordance with asc topic 350. under asc topic 350 , goodwill is considered to have an indefinite life , and is carried at cost . goodwill is not amortized , but is subject to an annual impairment test , as well as between annual tests when events or circumstances indicate that the carrying value may not be recoverable . the company performs impairment tests of goodwill at its reporting unit level .
| results of operations we have two principal sources of revenues : product revenues and research and development revenues . research and development revenues consist primarily of development contracts with agencies or prime contractors of the u.s. government and commercial enterprises . we manufacture transmissive microdisplays and reflective microdisplays . our commercial and military transmissive display production is being performed entirely in our westborough , massachusetts facility . fdd , our wholly-owned subsidiary , manufactures our reflective microdisplays in its facility located in scotland . in 2017 , we commenced development of oled displays which are designed by us and manufactured by third parties for us . we are a display supplier for the u.s. army 's family of weapon sights individual program and are undergoing qualification for the fws - crew served variant . we are also in development for a new series of displays for armored vehicles under the m1a2 program . the fws , m1a2 and our existing production avionic programs are expected to increase production for the next several years . there are other firms offering products which compete against us in the military programs and all of the programs we supply product to are subject to the u.s. government military budget and procurement process . accordingly , there can be no assurances we will continue to ship under our military contracts . we offer microdisplays and optical lenses for use in consumer , enterprise and public safety products and systems which are targeted at augmented and virtual reality markets , among other areas . we refer to the sale of microdisplays and optical lenses as our component sales . we also offer head mounted , voice and gesture controlled , hands-free headset system designs that include our components and software for consumer and enterprise applications because our fiscal year ends on the last saturday of december every seven years we have a fiscal year with 53 weeks .
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rent escalations and concession provisions were considered in determining the total estimated lease expense to story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. as discussed in the section titled “ forward-looking statements , ” , the following discussion and analysis contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those discussed below . factors that could cause or contribute to such differences include , but are not limited to , those identified below and those discussed in the section titled “ risk factors ” under part ii , item 1a in this annual report on form 10-k. overview we were founded in 1999 and are a leading global provider of survey software products that enable organizations to engage with their key stakeholders , including their customers , employees and the markets they research and serve . our mission is to power curious individuals and organizations to measure , benchmark and act on the opinions that drive success . our people powered data platform enables conversations at scale to deliver impactful customer , employee and market insights to our over 17 million active users globally . our widely adopted cloud-based saas platform helps individuals and organizations design and distribute surveys across more than 190 countries and territories . our products drive actionable insights that allow organizations to solve mission-critical business problems , including enhancing customer experience and loyalty , increasing employee productivity and retention and optimizing product and marketing investments . our products we generate substantially all of our revenue from the sale of subscriptions to our products . in addition to our free basic survey product , we offer multiple tiers of subscriptions to individual users—standard , advantage and premier—that provide a compelling range of functionality and features to power the collection and analysis of feedback . we also offer team versions of our individual advantage and premier subscription plans . our surveymonkey teams ' versions of such subscription plans are oriented for smaller groups of users who want to collaborate with others . in addition to the features available in individual advantage and premier subscription plans , the surveymonkey teams ' versions provide collaboration capabilities around sharing , commenting and analyzing surveys and a shared asset library for team users . in addition , we offer an enterprise-grade version of our survey platform , surveymonkey enterprise , which provides managed user accounts , customized company branding , enterprise-grade security , sophisticated collaboration capabilities and deep integrations with a broad set of leading software applications . we also generate revenue from a wide range of purpose-built solutions , including usabilla , getfeedback and surveymonkey cx for customer experience and feedback , techvalidate for content marketing , surveymonkey engage for employee engagement and surveymonkey audience for market research and analysis . we generate revenue from these purpose-built solutions by subscription or on a transactional basis , depending on the product . our business model our self-serve offering underpins a powerful , capital efficient business model that is fueled by the virality of our products . we believe our brand is synonymous with high-quality , easy to use products . the strength of our brand enables us to rapidly and cost-effectively acquire new users through free organic searches , paid online marketing and word of mouth referrals . our survey platform and purpose-built solutions can be used without costly implementation , professional services or training , and anyone can create a survey in minutes . our free basic survey product allows users to design and send simple surveys to collect and analyze feedback . users and respondents can access our survey platform on a broad range of desktop and mobile devices , and surveys can be distributed through multiple channels , such as email , web , mobile , messaging apps and social media . users often share results and collaborate with others , who are then attracted to our survey platform and frequently sign up as new users . every person who takes a survey is a potential future customer , and we seek to capitalize on that opportunity through end of survey marketing designed to engage further with respondents and encourage them to create accounts and become new users . we invest in new features and improvements to our product functionality as well as targeted marketing campaigns to drive conversion of unpaid users to paid users . as a result , we have a predictable , high-visibility revenue model where we generated more than 90 % of our revenue from sales of 41 subscriptions to our products in 201 9 . we have a broad and diverse customer base and no customer represented more than 1 0 % of our revenue in any of the periods presented . we supplement our self-serve channel with a targeted sales effort to upsell organizations to surveymonkey enterprise , to expand deployments of surveymonkey enterprise within organizations and to cross-sell purpose-built solutions within organizations . we believe our existing user base represents a significant opportunity to expand our business and increase our revenue . as of december 31 , 2019 , we had 720,921 paying users within more than 335,000 organizational domains . within that population of organizational domains , we had over 6,500 customers with organization-level agreements with us and who purchased through our enterprise sales force as of december 31 , 2019. we believe that paying users within organizational domains represent an opportunity to significantly increase conversion from individual subscriptions to our enterprise offerings . as of december 31 , 2019 , over 90 % of our trailing 12-month bookings were from organizational domain-based customers , which are customers who register with us using an email account with an organizational domain name , such as @ surveymonkey.com , but excludes customers with email addresses hosted on widely used domains such as @ gmail , @ outlook or @ yahoo . story_separator_special_tag the following is a reconciliation of free cash flow to the most comparable gaap measure , net cash provided by operating activities : replace_table_token_6_th ( 1 ) includes reimbursement of tenant improvement allowances under our lease financing obligation of $ 8.4 million for the year ended december 31 , 2017. adjusted ebitda we define adjusted ebitda as net loss excluding provision for ( benefit from ) income taxes , other non-operating ( income ) expenses , net , interest expense , depreciation and amortization , stock-based compensation , restructuring costs , employer payroll taxes on performance rsus , third-party fees related to credit facility refinancing and acquisition-related costs . we consider adjusted ebitda to be an important measure because it helps illustrate underlying trends in our business that could otherwise be masked by the effect of the income or expenses that are not indicative of the core operating performance of our business that are excluded from adjusted ebitda . adjusted ebitda has limitations as an analytical tool , and it should not be considered in isolation or as a substitute for analysis of other gaap financial measures . some of the limitations of adjusted ebitda are that it excludes recurring expenses for interest payments , does not reflect the dilution that results from stock-based compensation , and does not reflect the cost to replace depreciated property and equipment . it may be calculated differently by other companies in our industry , limiting its usefulness as a comparative measure . 43 the following is a reconciliation of adjusted ebitda to the most comparable gaap measure , net loss : replace_table_token_7_th ( 1 ) includes interest expense on our credit facilities and financing lease obligations related to our corporate headquarters for the years ended december 31 , 2018 and 2017. as further discussed in notes 1 , 2 and 8 of the notes to consolidated financial statements included elsewhere in this annual report on form 10-k , we adopted the requirements of asc 842 as of january 1 , 2019 using the transition method that allowed for recognition of the cumulative-effect adjustments at the beginning of the adoption period . as such , comparability of adjusted ebitda is limited due to the different bases of accounting being applied in the periods presented . prior to the adoption of asc 842 , we accounted for our san mateo building lease pursuant to asc 840 and , as of december 31 , 2018 , had capitalized $ 71.8 million of building cost and recognized $ 92.0 million of financing obligation on leased facility pursuant to the requirements of asc 840. the periodic lease payments were primarily classified as interest expense and periodic depreciation expense was recognized for the capitalized building asset in the consolidated statements of operations . upon adoption of asc 842 , the amounts previously recorded in our consolidated balance sheet related to our san mateo building were derecognized on the adoption date . additionally , beginning in 2019 , lease payments for our san mateo building lease is accounted for as lease expense in our consolidated statements of operations and building depreciation is no longer recognized . free cash flow and adjusted ebitda are presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with gaap . components of results of operations revenue we derive revenue primarily from sales of subscriptions to our products . we recognize revenue ratably over the subscription term , generally ranging from one month to one year , as long as all other revenue recognition criteria have been met . we have an increasing proportion of multi-year contracts with organizations . our contracts are generally non-cancellable and do not contain refund provisions . subscription fees are collected primarily from credit cards through our website at the beginning of the subscription period . we also generate a small portion of revenue from one of our purpose-built solutions that we sell on a transactional basis . no customer represented more than 10 % of our revenue in any of the periods presented . cost of revenue and operating expenses we allocate shared costs , such as depreciation on equipment shared by all departments , facilities ( including rent and utilities ) , employee benefit costs and information technology costs to all departments based on headcount . as such , allocated shared costs are reflected in each cost of revenue and operating expense category , other than restructuring . cost of revenue . our cost of revenue consists primarily of expenses associated with the delivery and distribution of our products to our users . these expenses generally consist of infrastructure costs , personnel costs and other related costs . infrastructure costs generally include expenses related to the operation of our data centers , such as data center equipment depreciation , facility costs ( such as co-location rentals ) , amortization of capitalized software , payment processing fees , website hosting costs , external sample costs and charitable donations associated with our surveymonkey audience solution . personnel costs include salaries , bonuses , stock-based 44 compensation , other employee benefits and travel-related expenses for employees whose primary responsibilities relate to supporting our infrastructure and delivering user support . other related costs include amortization of acquired developed technology intangible assets and allocated overhead . we plan to continue investing in additional resources to enhance the capability and reliability of our infrastructure to support user growth and increased use of our products . we expect that cost of revenue , excluding the impact from certain stock-based compensation charges described in “ —significant impacts of stock-based compensation ” , will increase in absolute dollars in future periods and vary from period to period as a percentage of revenue in the near term . we expect that cost of revenue will decrease as a percentage of revenue in the long term .
| results of operations the following tables set forth our results of operations for the periods presented and as a percentage of our revenue for those periods . percentages presented in the following tables may not sum due to rounding . replace_table_token_8_th 46 ( 1 ) includes stock-based compensation , net of amounts capitalized as follows : replace_table_token_9_th ( 2 ) includes amortization of acquisition intangible assets as follows : replace_table_token_10_th replace_table_token_11_th comparison of the year ended december 31 , 2019 and 2018 revenue and cost of revenue replace_table_token_12_th revenue increased for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , primarily due to an 11 % increase in the number of paying users from 646,727 as of december 31 , 2018 to 720,921 as of december 31 , 2019. the increase in revenue was also due in part to an 11 % increase in arpu from $ 406 for the year ended december 31 , 2018 to $ 450 for the year ended december 31 , 2019. the increase in arpu is due to the increase in prices for individual plans on monthly subscriptions . cost of revenue decreased for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , primarily due to $ 1.5 million decrease in personnel costs and lower capitalized software amortization of $ 6.1 million , partially offset by a $ 3.4 million increase in amortization of intangible assets due to our recent acquisitions as well as a $ 3.1 million increase in payment processing fees and web hosting costs due toincreased sales .
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these product categories are prioritized based on their capacity to maximize the use of the organization 's core competencies and strong global equities and to deliver sustainable long-term growth . operationally , the company is organized along geographic lines with management teams having responsibility for the business and financial results in each region . the company competes in more than 200 countries and territories worldwide with established businesses in all regions contributing to the company 's sales and profitability . approximately 75 % of the company 's net sales are generated from markets outside the u.s. , with approximately 50 % of the company 's net sales coming from emerging markets ( which consist of latin america , asia ( excluding japan ) , africa/eurasia and central europe ) . this geographic diversity and balance help to reduce the company 's exposure to business and other risks in any one country or part of the world . the oral , personal and home care product segment is managed geographically in five reportable operating segments : north america , latin america , europe , asia pacific and africa/eurasia , all of which sell to a variety of retail and wholesale customers and distributors . the company , through hill 's pet nutrition , also competes on a worldwide basis in the pet nutrition market , selling its products principally through authorized pet supply retailers and veterinarians . the company 's products are also sold online through various e-commerce platforms and retailers . through march 31 , 2016 , the oral , personal and home care product segment included the north america , latin america , europe/south pacific , asia and africa/eurasia geographic operating segments . as a result of management changes effective april 1 , 2016 , the company realigned the geographic structure of its europe/south pacific and asia reportable operating segments within the oral , personal and home care product segment . management responsibility for the south pacific operations was transferred from europe/south pacific management to asia management . accordingly , commencing with the company 's financial reporting for the quarter ended june 30 , 2016 , the results of the south pacific operations are reported in the asia pacific reportable operating segment , which results in a slight modification to the geographic components of the oral , personal and home care product segment , with no impact on historical company results overall . the company has recast its historical geographic segment information to conform to the new reporting structure . these changes have no impact on the company 's historical consolidated financial position , results of operations or cash flows . on an ongoing basis , management focuses on a variety of key indicators to monitor business health and performance . these indicators include market share , net sales ( including volume , pricing and foreign exchange components ) , organic sales growth ( net sales growth excluding the impact of foreign exchange , acquisitions , divestments and the deconsolidation of the company 's venezuelan operations ) and gross profit margin , operating profit , net income and earnings per share both on a gaap and non-gaap basis , as well as measures used to optimize the management of working capital , capital expenditures , cash flow and return on capital . the monitoring of these indicators and the company 's code of conduct and corporate governance practices help to maintain business health and strong internal controls . 18 ( dollars in millions except per share amounts ) to achieve its business and financial objectives , the company focuses the organization on initiatives to drive and fund growth . the company seeks to capture significant opportunities for growth by identifying and meeting consumer needs within its core categories , through its focus on innovation and the deployment of valuable consumer and shopper insights in the development of successful new products regionally , which are then rolled out on a global basis . to enhance these efforts , the company has developed key initiatives to build strong relationships with consumers , dental and veterinary professionals and retail customers . in addition , the company has strengthened its capabilities in e-commerce , developing its relationships with online only retailers and its digital marketing capabilities . growth opportunities are greater in those areas of the world in which economic development and rising consumer incomes expand the size and number of markets for the company 's products . the investments needed to support growth are developed through continuous , company-wide initiatives to lower costs and increase effective asset utilization . through these initiatives , which are referred to as the company 's funding-the-growth initiatives , the company seeks to become even more effective and efficient throughout its businesses . these initiatives are designed to reduce costs associated with direct materials , indirect expenses , distribution and logistics , and advertising and promotional materials , among other things , and encompass a wide range of projects , examples of which include raw material substitution , reduction of packaging materials , consolidating suppliers to leverage volumes and increasing manufacturing efficiency through sku reductions and formulation simplification . the company also continues to prioritize its investments toward its higher margin businesses , specifically oral care , personal care and pet nutrition . in september 2016 , the company 's mexican subsidiary completed the sale to the united states of america of the mexico city site on which its commercial operations , technology center and soap production facility were previously located and received $ 60 as the third and final installment of the sale price . the total sale price ( including the third installment and the previously received first and second installments ) was $ 120 . the company recognized a pretax gain of $ 97 ( $ 63 aftertax gain ) in the third quarter of 2016 , net of costs primarily related to site preparation . story_separator_special_tag for more information regarding the 2012 restructuring program , see “ restructuring and related implementation charges ” below . in august 2015 , the company completed the sale of its laundry detergent business in the south pacific to henkel ag & co. kgaa for an aggregate purchase price of approximately 310 australian dollars ( $ 221 ) and recorded a pretax gain of $ 187 ( $ 120 aftertax or $ 0.13 per diluted share ) in other ( income ) expense , net . the gain is net of charges related to the right-sizing of the company 's south pacific business , asset write-offs related to the divested laundry detergent business and other costs related to the sale . as discussed above , the funds from the sale were reinvested to expand the 2012 restructuring program . 20 ( dollars in millions except per share amounts ) looking forward , the company expects global macroeconomic and market conditions to remain highly challenging and category growth rates continuing to be slow . while the global marketplace in which the company operates has always been highly competitive , the company continues to experience heightened competitive activity in certain markets from strong local competitors and from other large multinational companies , some of which have greater resources than the company does . such activities have included more aggressive product claims and marketing challenges , as well as increased promotional spending and geographic expansion . in addition , the emergence of new sales channels for the company 's products , such as e-commerce , may affect consumer preferences and market dynamics . given that approximately 75 % of the company 's net sales originate in markets outside the u.s. , the company continues to experience volatile foreign currency fluctuations and high raw and packaging material costs , driven by foreign exchange transaction costs . while the company has taken , and will continue to take , measures to mitigate the effect of these conditions , should they persist , they could adversely affect the company 's future results . the company believes it is well prepared to meet the challenges ahead due to its strong financial condition , experience operating in challenging environments and continued focus on the company 's strategic initiatives : engaging to build our brands ; innovation for growth ; effectiveness and efficiency ; and leading to win . this focus , together with the strength of the company 's global brands , its broad international presence in both developed and emerging markets and initiatives , such as the 2012 restructuring program , should position the company well to increase shareholder value over the long term . 21 ( dollars in millions except per share amounts ) results of operations net sales worldwide net sales were $ 15,195 in 2016 , down 5.0 % from 2015 , as net selling price increases of 2.5 % were more than offset by volume declines of 3.0 % and negative foreign exchange of 4.5 % . excluding divested businesses and the impact of the deconsolidation of the company 's venezuelan operations , volume increased 1.5 % . organic sales ( net sales excluding the impact of foreign exchange , acquisitions , divestments and the deconsolidation of the company 's venezuelan operations ) , a non-gaap financial measure as discussed below , increased 4.0 % in 2016 . net sales in the oral , personal and home care product segment were $ 12,931 in 2016 , down 6.5 % from 2015 , as net selling price increases of 2.5 % were more than offset by volume declines of 4.0 % and negative foreign exchange of 5.0 % . excluding divested businesses and the impact of the deconsolidation of the company 's venezuelan operations , volume increased 1.5 % . organic sales in the oral , personal and home care product segment increased 4.0 % in 2016 . the increase in organic sales in 2016 versus 2015 was driven by an increase in oral care organic sales , with the toothpaste and manual toothbrush categories contributing to growth . personal care and home care also contributed to organic sales growth due to strong organic sales in the shower gel and the fabric softener categories , respectively . the company ' s share of the global toothpaste market was 44.0 % for full year 2016 , down 0.3 share points from full year 2015 and its share of the global manual toothbrush market was 33.1 % for full year 2016 , down 0.3 share points from full year 2015. full year 2016 market shares in toothpaste were up in north america and down in europe and asia pacific versus full year 2015. in the manual toothbrush category , full year 2016 market shares were up in north america and europe and down in latin america , asia pacific and africa/eurasia versus full year 2015. for additional information regarding the company 's use of market share data and limitations on such data , see “ market share information ” below . net sales for hill 's pet nutrition were $ 2,264 in 2016 , an increase of 2.5 % from 2015 , driven by net selling price increases of 2.5 % , while volume and foreign exchange were flat . organic sales for hill 's pet nutrition increased 2.5 % in 2016 . the increase in organic sales in 2016 versus 2015 was due to an increase in organic sales in the prescription diet category , partially offset by a decline in organic sales in the advanced nutrition and natural categories . worldwide net sales were $ 16,034 in 2015 , down 7.0 % from 2014 , as volume growth of 1.5 % and net selling price increases of 3.0 % were more than offset by negative foreign exchange of 11.5 % . organic sales increased 5.0 % in 2015 . 22 ( dollars in millions except per share amounts ) gross profit/margin worldwide gross profit decreased 3 % to $ 9,123 in 2016 from $ 9,399 in 2015 .
| segment results the company markets its products in over 200 countries and territories throughout the world in two product segments : oral , personal and home care ; and pet nutrition . the company evaluates segment performance based on several factors , including operating profit . the company uses operating profit as a measure of the operating segment performance because it excludes the impact of corporate-driven decisions related to interest expense and income taxes . oral , personal and home care north america replace_table_token_16_th net sales in north america increased 1.0 % in 2016 to $ 3,183 , driven by volume growth of 2.5 % , which was partially offset by net selling price decreases of 1.0 % and negative foreign exchange of 0.5 % . organic sales in north america increased 1.5 % in 2016 . the increase in organic sales in north america in 2016 versus 2015 was driven by oral care with strong organic sales in the toothpaste category . personal care also contributed to organic sales growth due to strong sales in the shower gel category . net sales in north america increased 1.0 % in 2015 to $ 3,149 , driven by volume growth of 2.0 % , which was partially offset by negative foreign exchange of 1.0 % , while net selling prices were flat . organic sales in north america increased 2.0 % in 2015. operating profit in north america increased 6 % in 2016 to $ 1,030 , or 150 bps to 32.4 % of net sales . this increase in operating profit as a percentage of net sales was primarily due to an increase in gross profit ( 100 bps ) and a decrease in selling , general and administrative expenses ( 70 bps ) , both as a percentage of net sales .
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we have prioritized lung cancer as our first indication . lung cancer remains the leading cause of cancer death in the united states , despite the availability of molecular testing and novel therapies to treat patients . our first commercial diagnostic test is a proprietary treatment stratification test called determarx that identifies which patients with early stage non-small cell lung cancer may benefit from chemotherapy , resulting in a significantly higher , five-year survival rate . we are also developing multi-gene molecular , laboratory-developed diagnostic tests that we have branded as determaio . determaio is a proprietary gene expression assay with promising data supporting its potential to help identify patients likely to respond to checkpoint inhibitor drugs . this new class of drugs modulate the immune response and show activity in multiple solid tumor types including non-small cell lung cancer ( nsclc ) , and triple negative breast cancer ( tnbc ) . determaio is presently available for research use through our pharma services operations but one of our goals is to complete development of that assay and to make it available for clinical use later this year . we also perform other assay development and clinical testing services for pharmaceutical and biotechnology companies through our pharma services operations . other tests in our development pipeline include determatx , a test that we are targeting for commercial launch later this year and that is intended to compliment determaio by assessing the mutational status of a tumor to help identify the appropriate targeted therapy . we also plan to initiate the development of determamx as a blood based test to monitor cancer patients for recurrence of their disease . we plan to add to our diagnostic test pipeline the determacni , a patented , blood-based test from chronix for immunotherapy monitoring , if we complete the merger with chronix . the inherent uncertainties of developing and commercializing new diagnostic tests for medical use make it impossible to predict the amount of time and expense that will be required to complete the development and commercialization of those tests . there is no assurance that we will be successful in developing new technology or diagnostic tests , or that any technology or diagnostic tests that we may develop will be proven safe and effective in diagnosis of cancer in humans , or will be successfully commercialized . we believe we have sufficient cash , cash equivalents , and marketable equity securities to carry out our current operations through at least twelve months from the issuance date of our consolidated financial statements included elsewhere in this report . we expect that our operating expenses will continue to increase as we conduct our planned clinical trial of determarx , and if we successfully complete the development of determaio , determatx and determamx and commercialize those tests . we have hired a sales and marketing team , we are expanding the capacity of our clia laboratories to perform a larger volume of cancer related tests by constructing a new primary clinical laboratory facility in irvine , california , which is expected to be completed in 2021. we also plan to acquire a laboratory in germany through our planned merger with chronix and we will incur additional expenses resulting from the integration of chronix operations with our existing operations , including costs related to adding the european laboratory and an increase in headcount . we are continuing to seek other opportunities to acquire ownership of or marketing rights to additional cancer tests . because of the expected time frame to apply for and receive medicare reimbursement approval for our tests , our pre-medicare approval revenues from commercialization of our tests and revenues from services we perform for pharmaceutical companies are not expected to cover our operating expenses . we will need to obtain additional financing for our operations until such time as we generate sufficient revenues from the commercialization of our tests to cover our operating expenses . our determination as to when we will seek new financing and the amount of financing that we will need will be based on our evaluation of the progress we make in our research and development programs , any changes to or the expansion of the scope and focus of our research , progress and results of commercializing our tests after completion of development , progress in receiving medicare and other payor reimbursement approval , and our projection of future costs . see “ liquidity and capital resources ” for a discussion of our available capital resources , our need for future financing , and possible sources of capital . 42 critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states ( “ gaap ” ) , requires management to make estimates and assumptions that affect the reported amounts in our consolidated financial statements and related notes . our significant accounting policies are described in note 2 to our consolidated financial statements included elsewhere in this report . we have identified below our critical accounting policies and estimates that we believe require the greatest amount of judgment . on an ongoing basis , we evaluate estimates which are subject to significant judgment , including those related to the going concern assessments of our consolidated financial statements , allocation of direct and indirect expenses , useful lives associated with long-lived intangible assets , machinery and equipment , loss contingencies , valuation allowances related to deferred income taxes , and assumptions used to value stock-based awards , debt or other equity instruments . actual results could differ materially from those estimates . on an ongoing basis , we evaluate our estimates compared to historical experience and trends , which form the basis for making judgments about the carrying value of assets and liabilities . to the extent that there are material differences between our estimates and our actual results , our future financial statement presentation , financial condition , results of operations and cash flows will be affected . story_separator_special_tag consequently , the eventual realized value of the ipr & d project may vary from its fair value at the date of acquisition , and ipr & d impairment charges may occur in future periods . during the period between completion or abandonment , the ipr & d assets will not be amortized but will be tested for impairment on an annual basis and between annual tests if we become aware of any events occurring or changes in circumstances that would indicate a reduction in the fair value of the ipr & d projects below their respective carrying amounts . goodwill represents the excess of the purchase price over the fair value of net identifiable assets and liabilities . goodwill , similar to ipr & d , is not amortized but is tested for impairment at least annually , or if circumstances indicate its value may no longer be recoverable . qualitative factors considered in this assessment include industry and market conditions , overall financial performance , and other relevant events and factors affecting our business . based on the qualitative assessment , if it is determined that the fair value of goodwill is more likely than not to be less than its carrying amount , the fair value of a reporting unit will be calculated and compared with its carrying amount and an impairment charge will be recognized for the amount that the carrying value exceeds the fair value . we continue to operate in one segment and considered to be the sole reporting unit and , therefore , goodwill is tested for impairment at the enterprise level . accounting for warrants we determine the accounting classification of warrants we issue , as either liability or equity classified , by first assessing whether the warrants meet liability classification in accordance with asc 480-10 , accounting for certain financial instruments with characteristics of both liabilities and equity , then in accordance with asc 815-40 , accounting for derivative financial instruments indexed to , and potentially settled in , a company 's own stock . under asc 480 , warrants are considered liability classified if the warrants are mandatorily redeemable , obligate us to settle the warrants or the underlying shares by paying cash or other assets , and warrants that must or may require settlement by issuing variable number of shares . if warrants do not meet the liability classification under asc 480-10 , we assess the requirements under asc 815-40 , which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value , irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature . if the warrants do not require liability classification under asc 815-40 , in order to conclude equity classification , we also assess whether the warrants are indexed to our common stock and whether the warrants are classified as equity under asc 815-40 or other gaap . after all such assessments , we conclude whether the warrants are classified as liability or equity . liability classified warrants require fair value accounting at issuance and subsequent to initial issuance with all changes in fair value after the issuance date recorded in the statements of operations . equity classified warrants only require fair value accounting at issuance with no changes recognized subsequent to the issuance date . we do not have any liability classified warrants as of any period presented . see note 10 to our consolidated financial statements included elsewhere in this report . 44 stock-based compensation we recognize compensation expense related to share-based payments in accordance with asc 718 , compensation - stock compensation ( “ asc 718 ” ) , which requires the measurement and recognition of compensation expense for share-based payment awards made to directors and employees based on estimated fair values . we estimate the fair value of employee stock-based payment awards on the grant-date and recognize the resulting fair value over the requisite service period on a straight-line basis . for stock-based awards that vest only upon the attainment of one or more performance goals , compensation cost is recognized if and when we determine that it is probable that the performance condition or conditions will be , or have been , achieved . we utilize the black-scholes option pricing model for determining the fair value of stock options . our determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables . these variables include , but are not limited to , expected stock price volatility over the term of the awards , and actual and projected employee stock option exercise behaviors . for the years ended december 31 , 2020 and 2019 , we estimated the expected volatility using our own stock price volatility to the extent applicable or a combination of our stock price volatility and the stock price volatility of stock of peer companies , for a period equal to the expected term of the options . the expected term of options granted is based on our own experience and , in part , based upon the “ simplified method ” provided under staff accounting bulletin , topic 14 , or sab topic 14 , as necessary . the risk-free rate is based on the u.s. treasury rates in effect during the corresponding period of grant . although the fair value of employee stock options is determined in accordance with fasb guidance , the key inputs and assumptions may change as we develop our own company estimates , experience and key inputs including our expected term , and stock price volatility based on the trading history of our stock in the public market . changes in these subjective assumptions can materially affect the estimated value of equity grants and the stock-based compensation that we record in our consolidated financial statements . leases we account for leases in accordance with asc 842 , leases .
| results of operations the ongoing global outbreak of covid-19 , and the various attempts throughout the world to contain it , have created significant financial volatility , economic uncertainty , and changes to the way oncocyte conducts certain aspects of its operations . the covid-19 pandemic has had , and may continue to have , significant effects on our operations , ability to generate revenues , and financing activities . in response to government directives and guidelines , health care advisories and employee and other concerns , a number of our employees have had to work remotely from home and those on site have had to follow our social distance guidelines , which could impact their productivity . travel and visits related to our business and business meetings , including planned or expected travel and in-person meetings to market determarx , have been eliminated or severely curtailed . although employee absenteeism due to covid-19 illness has not had an adverse impact on our operations as of the date of this report , we face the risk of losing , at least temporarily , the services of employees if they become ill. the consequences of the covid-19 pandemic have led to uncertainties related to our growth and our ability to forecast the demand for our diagnostic testing and pharma services and resulting revenues , as we have not had time to establish a base of customers , revenues or other relevant trends prior to the outbreak of covid-19 . we had no commercial revenues until the first quarter of 2020 when we launched our first commercial diagnostic test , determarx , and acquired the pharma services business of insight . we had expected that initial determarx revenues would be constrained by the lack of medicare coverage .
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the company conducts a regular assessment of its debt securities with unrealized losses to determine whether securities have other-than-temporary impairment considering , among other factors , the nature of the securities story_separator_special_tag financial condition and results of operations . you should read the following discussion and analysis together with our consolidated financial statements and related notes included elsewhere in this annual report . the following discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those expressed or implied in any forward-looking statements due to various factors , including those set forth under the caption “ item 1a . risk factors. ” all forward-looking statements included in this annual report are based on information available to us as of the time we file this annual report and , except as required by law , we undertake no obligation to update publicly or revise any forward-looking statements . in addition , statements that “ we believe ” and similar statements reflect our beliefs and opinions on the relevant subject . these statements are based upon information available to us as of the date of this annual report , and while we believe such information forms a reasonable basis for such statements , such information may be limited or incomplete , and our statements should not be read to indicate that we have conducted an exhaustive inquiry into , or review of , all potentially available relevant information . these statements are inherently uncertain . overview we are a commercial stage rna platform-based life sciences company focused on advancing the promise of precision medicine . our product and service solutions are based on our proprietary next-generation htg edgeseq technology that enables full rna profiling using a small amount of biological sample , in liquid or solid forms . our menu of htg edgeseq assays is automated on our htg edgeseq platform , which applies genomic sequencing tools that generate gene expression data in a timely manner utilizing a simplified workflow for customers . we seek to leverage key business drivers in molecular profiling for biomarker analysis and diagnostics , including the acceleration of precision medicine , the migration of molecular testing to ngs-based applications , the movement to smaller and less invasive biopsies , the need for greater diagnostic sensitivity , the need to conform to challenging healthcare economics and the need for automation and an easily deployable workflow , including simplified bioinformatics . for example , these capabilities enable customers to extend the use of limited biological samples for retrospective analysis , gaining further understanding of the molecular drivers of disease with the goal of developing biomarker-driven targeted therapies . we also believe our htg edgeseq technology can be used as a platform technology in clinical applications that will simplify , consolidate and reduce the cost of ngs-based diagnostic workflows and in commercialized cdx tests . our products include instrumentation , consumables , including assay kits , and software that , as an integrated system , automate sample processing and can quickly , robustly and simultaneously profile tens , hundreds or thousands of molecular targets from samples a fraction of the size required by many prevailing technologies . our objective is to establish our solutions as the standard in molecular profiling , companion diagnostic development and molecular diagnostics , and to make their benefits accessible to all molecular labs from research to the clinic . we believe that our target customers desire high quality molecular profiling information in a multiplexed panel format from increasingly smaller and less invasive samples , with the ability to test and analyze such information locally to minimize turnaround time and cost . in 2014 , we launched our htg edgeseq technology , which generates a molecular profiling library for gene expression profiling using ngs . our htg edgeseq assays are automated on our htg edgeseq platform . our innovative platform and menu of molecular profiling panels are being utilized in two complimentary ways in advancing precision health . biopharmaceutical companies and other translational research centers utilize our technology to discover and validate biomarkers and develop molecular subtypes , which can identify patient populations most likely to respond to certain therapies . in addition to purchasing our technology for use in customer facilities , customers can also obtain the advantages of our proprietary technology through our service offerings . pre-clinical services , including custom assay development and sample processing services provided by our tucson-based veri/o laboratory , allow customers the ability to more efficiently identify and validate biomarker signatures across their drug portfolios or patient cohorts . our iso 13485 2016 quality system and diagnostic development teams also partner with biopharmaceutical company customers to develop , manufacture and commercialize companion diagnostics . although our initial focus is oncology , we offer customers a full solution from biomarker discovery to deployment of cdx tests across all disease states . utilizing ngs as our method of detection provides our customers with the benefits of our highly multiplexed and extraction-free chemistry and the sensitivity and dynamic range of the sequencers , providing a powerful value proposition and complete workflow . we have two primary sources of revenue : product and product-related services revenue from the sale of research use only ( “ ruo ” ) and ce/ivd marked profiling products , sample processing services and custom assay development services to biopharmaceutical companies , academic research centers and molecular testing laboratories ; and revenue from collaborative development services for companion diagnostic development programs for biopharmaceutical companies . profiling product and product-related services revenue includes customer purchases of our htg edgeseq instrument and related assay kits , development of custom ruo assay kits for customers and the use of our htg edgeseq instrument and ruo assay kits to process samples on the customer 's behalf in our veri/o laboratory . in addition , as of december 31 , 2019 , we sell two internally developed proprietary ce/ivd marked assays , including our htg edgeseq dlbcl cell of origin assay eu and htg edgeseq alkplus assay eu . story_separator_special_tag biopharmaceutical biomarker and companion diagnostic solutions biopharmaceutical companies are continually working to improve the efficacy of their drug development process and the safety and efficacy of their drugs . we believe that our technology can support these initiatives by providing a seamless solution from biomarker discovery to a commercialized companion diagnostic test that can be used to assist clinicians in confidently prescribing these drugs to their patients . our products and service solutions allow us to partner with our biopharmaceutical company customers to identify molecular biomarkers that can help determine which patients are most likely to benefit from a particular drug , validate these biomarkers in clinical trials and partner to commercialize the validated cdx assay . customers can access our technology by purchasing our platform and assays for their internal use or by engaging us to perform certain services , including molecular profiling of respective cohorts in our veri/o laboratory and development of custom ruo panels to support early stage clinical programs , iuo assays for clinical trials or companion diagnostic assays for approved drugs . our product and service solutions have provided us with a growing number of early stage biomarker discovery programs and new opportunities to collaborate with biopharmaceutical companies in their drug development programs . our business model is structured to allow us to capture revenue at each stage of the drug development lifecycle with the highest value in the form of a drug linked companion diagnostic as the ultimate objective . customer adoption of htg technology today we believe the primary measures of adoption for our technology are the number of active programs in our biopharmaceutical company customer pipeline , the number of total active customers and revenue growth relating to new and existing customers . in the future , we expect increased sales of our products and services as we add new proprietary panels to our product menu and as additional european customers adopt our existing assays or custom assays for use in clinical diagnostic testing . while our current customer mix is dominated by biopharmaceutical company customers , we expect to see growth in clinical diagnostic labs as we commercialize companion diagnostic assays from the collaborative development services programs and as biomarker strategies are validated through our partnerships with key opinion leaders in europe . our ability to increase instrument and consumable revenue depends on several factors , including ( i ) adoption of our htg edgeseq platforms by our customer base , including increasing market share for our proprietary panels for the research market ; ( ii ) the efforts of our sales and marketing teams to demonstrate the utility of our products and technology ; ( iii ) our ability to develop and market novel molecular profiling panels designed to meet customer needs , including unmet medical needs ; ( iv ) our ability to demonstrate the benefits of our products to key opinion leaders so they publish information supporting those benefits ; ( v ) pricing and reimbursement ; ( vi ) our ability to expand the addressable market of our htg edgeseq platform through the development of new applications ; ( vii ) our product capabilities compared with competition ; and ( viii ) successful outcomes to our companion diagnostic collaborations . given the length of our sales cycle , we have experienced historically , we expect fluctuations in our instrument and consumables sales on a period-to-period basis . a key element of increasing adoption of our technology is our assay and panel menu available for use by our customers on the htg edgeseq . to sell additional instruments , grow our installed base and drive larger consumable annuities we must develop and commercialize new assays and add to the utility of existing panels by expanding applications on our reveal software . our arrangements with biopharmaceutical companies are expected to generate new menu items in addition to our diagnostic development strategies in immuno-oncology and next-generation pathology . we will remain focused on high quality instrument placements and consumable pull through as the primary indicators of future commercial adoption and success in our business . timing and effectiveness of research and development expenses our spending on collaboration-based research and development may vary substantially from period to period due to the nature and timing of biopharmaceutical company drug development processes and the development effort involved in reaching key milestones under our companion diagnostic development agreements . costs from our collaborative development services programs , including but not limited to the quantity of htg edgeseq assay kits and instruments , third-party sequencing equipment and third-party or internal labor required to complete development milestones , all of which are expensed to research and development expense in our consolidated statements of operations , can vary significantly from one development stage to the next . expenses associated with our ongoing proprietary product research and development efforts are carefully managed and are standardized under our stage-gate-based new product development methodology . program progress and priorities are assessed by time , quality and adherence to budgetary metrics at each phase of the product development . 58 potential impact of the covid-19 pandemic significant uncertainty remains as to the potential impact of the covid-19 pandemic on our operations , and on the global economy as a whole . however , we believe it is likely that the covid-19 pandemic will have a negative impact on our product and product-related services revenue and collaborative development services revenue in 2020. we believe this negative impact will be primarily demand-side driven as our customers experience disruptions in their own businesses from the pandemic . however , it is possible that the covid-19 pandemic will also impact our workforce , supply chains or distribution networks or otherwise impact our ability to conduct sample processing services and custom assay development services and our ability to provide collaborative development services for companion diagnostic development programs .
| financial operations overview and consolidated results of operations comparison of the years ended december 31 , 2019 and 2018 replace_table_token_1_th revenue we generate revenue from two primary sources : product and product-related services revenue from the sale of ruo and ce/ivd marked profiling products , sample processing services and custom assay development services to biopharmaceutical companies , academic research centers and molecular testing laboratories ; and revenue from collaborative development services for biopharmaceutical companies under our companion diagnostic development programs . ruo profiling is currently made available to our customers through product sales and service offerings . customers can purchase our htg edgeseq instrument and related consumables , which consist primarily of our proprietary molecular profiling panels and other assay components . customers can also access our technology through contracted services . we perform these services using our htg edgeseq instruments and ruo consumables to process samples in our veri/o laboratory . our proprietary technology is also used to develop custom ruo panels which are expected to generate future sample processing or ruo consumables revenue . collaborative development services revenue generated to date has primarily related to three statements of work entered into under our governing agreement with qml . under these agreements , we and qml combined our technological and commercial strengths to offer biopharmaceutical companies a complete ngs-based solution for the development , manufacture and commercialization of companion diagnostic assays in support of and in conjunction with , biopharmaceutical companies ' drug development programs .
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on july 29 , 2016 , the company completed the sale of its hydra-stop product line for $ 15.0 million in cash , resulting in a pre-tax gain on the sale of $ 5.8 million . in addition , the company can earn up to $ 2 million based on the achievement of financial objectives for net sales in 2016 and 2017. the company recorded $ 2.8 million of income tax expense associated with this transaction during the year ended december 31 , 2016. the results of hydra-stop were reported within the fluid & metering technologies segment and generated $ 7.5 million story_separator_special_tag 2016 overview and outlook idex is an applied solutions company specializing in fluid and metering technologies , health and science technologies , and fire , safety and other diversified products built to customers ' specifications . idex 's products are sold in niche markets to a wide range of industries throughout the world . accordingly , idex 's businesses are affected by levels of industrial activity and economic conditions in the u.s. and in other countries where it does business and by the relationship of the u.s. dollar to other currencies . levels of capacity utilization and capital spending in certain industries and overall industrial activity are important factors that influence the demand for idex 's products . the company has three reportable business segments : fluid & metering technologies , health & science technologies and fire & safety/diversified products . within our three reportable segments , the company maintains thirteen platforms , where we focus on organic growth and strategic acquisitions . each of our thirteen platforms is also a reporting unit , where we annually test for goodwill impairment . the fluid & metering technologies segment contains the energy ( comprised of corken , faure herman , liquid controls , sampi , and toptech ) , valves ( comprised of alfa valvole , richter , and aegis ) , water ( comprised of pulsafeeder , knight , ads , trebor , and ipek ) , pumps ( comprised of viking and warren rupp ) , and agriculture ( comprised of banjo ) platforms . the health & science technologies segment contains the scientific fluidics & optics ( comprised of eastern plastics , rheodyne , sapphire engineering , upchurch scientific , erc , cidra precision services , cvi melles griot , semrock , and at films ) , sealing solutions ( comprised of precision polymer engineering , ftl seals technology , novotema , and sfc koenig ) , gast , micropump , and material processing technologies ( comprised of quadro , fitzpatrick , microfluidics , and matcon ) platforms . the fire & safety/diversified products segment is comprised of the fire & safety ( comprised of class 1 , hale , akron brass , awg fittings , godiva , dinglee , hurst jaws of life , lukas , and vetter ) , band-it , and dispensing platforms . the fluid & metering technologies segment designs , produces and distributes positive displacement pumps , flow meters , valves , injectors , and other fluid-handling pump modules and systems and provides flow monitoring and other services for the food , chemical , general industrial , water & wastewater , agriculture and energy industries . the health & science technologies segment designs , produces and distributes a wide range of precision fluidics , rotary lobe pumps , centrifugal and positive displacement pumps , roll compaction and drying systems used in beverage , food processing , pharmaceutical and cosmetics , pneumatic components and sealing solutions , including very high precision , low-flow rate pumping solutions required in analytical instrumentation , clinical diagnostics and drug discovery , high performance molded and extruded , biocompatible medical devices and implantables , air compressors used in medical , dental and industrial applications , optical components and coatings for applications in the fields of scientific research , defense , biotechnology , life sciences , aerospace , telecommunications and electronics manufacturing , laboratory and commercial equipment used in the production of micro and nano scale materials , precision photonic solutions used in life sciences , research and defense markets , and precision gear and peristaltic pump technologies that meet exacting original equipment manufacturer specifications . the fire & safety/diversified products segment produces firefighting pumps and controls , valves , monitors , nozzles , rescue tools , lifting bags and other components and systems for the fire and rescue industry , engineered stainless steel banding and clamping devices used in a variety of industrial and commercial applications , and precision equipment for dispensing , metering and mixing colorants and paints used in a variety of retail and commercial businesses around the world . our 2016 financial results were as follows : sales of $ 2.1 billion increased 5 % , reflecting a 1 % decrease in organic sales ( excluding acquisitions , divestitures and foreign currency translation ) , a 1 % decrease due to foreign currency translation , and a 7 % increase due to acquisitions/divestitures . operating income of $ 405.8 million and operating margin of 19.2 % were down 6 % and 220 basis points , respectively , from the prior year . net income decreased 4 % to $ 271.1 million . diluted eps of $ 3.53 decreased $ 0.09 or 2 % compared to 2015 . our 2016 financial results , adjusted for $ 3.7 million of restructuring costs , a $ 3.6 million pension settlement charge and a $ 22.3 million loss on sale of businesses , compared to our 2015 financial results adjusted for $ 11.2 million of restructuring costs and an $ 18.1 million gain on sale of a business are as follows ( these non-gaap measures have been reconciled to u.s. gaap measures in item 6 , “ selected financial data ” ) : adjusted operating income of $ 435.3 million and adjusted operating margin of 20.6 % were up 2 % and down 40 basis points , respectively , from the prior year . 17 adjusted net income increased 4 % to $ 288.4 million . story_separator_special_tag this increase reflected a 1 % decrease in organic sales , a 3 % increase from acquisitions / divestitures ( acquisitions : sfc koenig - september 2016 ; cidra precision services - july 2015 and novotema - may 2015. divestitures : cvi korea - december 2016 and cvi japan - september 2016 ) and 1 % of unfavorable foreign currency translation . in 2016 , sales decreased 1 % domestically and increased 3 % internationally . sales to customers outside the u.s. were approximately 55 % of total segment sales in both 2016 and 2015 . sales within our scientific fluidics & optics platform were down year over year due to a slowed demand in the industrial and laser optics end markets as well as the impact of the cvi japan and cvi korea divestitures in 2016 and the ismatec divestiture in 2015 partially offset by strong demand in the core biotech and in-vitro diagnostic markets coupled with the full year impact of the cidra precision services acquisition and a strong semiconductor market . sales within our material processing technologies platform decreased compared to 2015 due to challenges in the north american markets which offset strength in the european and indian pharma markets . sales within our sealing solutions platform increased compared to 2015 due to the full year impact of the novotema acquisition in 2015 , the 2016 acquisition of sfc koenig and continued strength in the semiconductor markets , partially offset by pressure in the oil & gas market . sales in our gast and micropump platforms decreased year over year due to continued softness in the north american industrial distribution markets . operating income and operating margin of $ 153.7 million and 20.6 % , respectively , in 2016 were down from $ 157.9 million and 21.4 % , respectively , in 2015 , primarily due to the inventory step-up charges related to the sfc koenig acquisition , the incremental impact of divestitures , partially offset by volume increases . fire & safety/diversified products segment replace_table_token_17_th sales of $ 520.0 million increased $ 96.1 million , or 23 % , in 2016 compared with 2015 . this increase reflected a 3 % decline in organic sales , a 27 % increase due to acquisitions ( awg fittings - july 2016 and akron brass - march 2016 ) and 1 % of unfavorable foreign currency translation . in 2016 , sales increased 28 % domestically and 18 % internationally . sales to customers outside the u.s. were approximately 51 % of total segment sales in 2016 compared with 52 % in 2015 . sales within our dispensing platform increased year over year due to a strong asian market and the overall strength of the x-smart product sales , partially offset by the foreign currency impact caused by the strength of the u.s. dollar and challenges within the european markets . sales decreased in our band-it platform compared to 2015 as a result of declines in the oil & gas market , offset by strength in the transportation industry and the rebound of the european and asian markets . sales within our fire & safety platform increased compared to 2015 primarily due to the akron brass and awg fittings acquisitions as well as increased sales due to new product development , partially offset by project delays in asia and large projects in europe in 2015 which did not reoccur . operating income of $ 121.9 million was higher than the $ 115.7 million in 2015 , while operating margin of 23.4 % was lower than the 27.3 % in 2015 , primarily due to the dilutive impact of acquisitions on margins and the inventory step-up charges related to the akron brass and awg fittings acquisitions . the higher operating income is primarily related to the impact of 2016 acquisitions . 20 performance in 2015 compared with 2014 replace_table_token_18_th sales in 2015 were $ 2.0 billion , a 6 % decrease from 2014. this decrease reflects a 4 % decrease in organic sales , a 4 % decrease from foreign currency translation and a 2 % increase from acquisitions ( cidra precision services — july 2015 ; alfa valvole — june 2015 ; novotema — may 2015 and aegis — april 2014 ) . sales to customers outside the u.s. represented approximately 50 % of total sales in both 2015 and 2014. in 2015 , fluid & metering technologies contributed 43 % of sales and 43 % of operating income ; health & science technologies contributed 36 % of sales and 33 % of operating income ; and fire & safety/diversified products contributed 21 % of sales and 24 % of operating income . gross profit of $ 904.3 million in 2015 decreased $ 45.0 million , or 5 % , from 2014 , while gross margins increased 60 basis points to 44.8 % in 2015 from 44.2 % in 2014. the margin increase is mainly attributable to benefits from productivity initiatives , partially offset by decreased sales volume . sg & a expenses decreased to $ 479.4 million in 2015 from $ 504.4 million in 2014. the $ 25.0 million decrease is mainly attributable to a reduction in volume-related expenses of $ 35.1 million , partially offset by approximately $ 10.1 million of incremental costs from new acquisitions . as a percentage of sales , sg & a expenses were 23.7 % for 2015 and 23.5 % for 2014. during 2015 , the company recorded pre-tax restructuring expenses totaling $ 11.2 million compared to $ 13.7 million recorded in 2014. the restructuring expenses for both years were mainly attributable to employee severance related to head count reductions across all three segments and corporate . operating income of $ 431.7 million in 2015 increased slightly from the $ 431.2 million recorded in 2014 , primarily reflecting improved productivity offset by decreased volumes . operating margin of 21.4 % in 2015 was up 130 basis points from 20.1 % in 2014 primarily due to the gain on the sale of the ismatec product line and productivity improvements .
| results of operations the following is a discussion and analysis of our results of operations for each of the three years in the period ended december 31 , 2016 . for purposes of this item , reference is made to the consolidated statements of operations in part ii , item 8 , “ financial statements and supplementary data. ” segment operating income excludes unallocated corporate operating expenses . management 's primary measurements of segment performance are sales , operating income , and operating margin . in the following discussion , and throughout this report , references to organic sales , a non-gaap measure , refers to sales from continuing operations calculated according to generally accepted accounting principles in the united states but excludes ( 1 ) the impact of foreign currency translation and ( 2 ) sales from acquired or divested businesses during the first twelve months of ownership or divestiture . the portion of sales attributable to foreign currency translation is calculated as the difference between ( a ) the period-to-period change in organic sales and ( b ) the period-to-period change in organic sales after applying prior period foreign exchange rates to the current year period . management believes that reporting organic sales provides useful information to investors by helping identify underlying growth trends in our business and facilitating easier comparisons of our revenue performance with prior and future periods and to our peers . the company excludes the effect of foreign currency translation from organic sales because foreign currency translation is not under management 's control , is subject to volatility and can obscure underlying business trends . the company excludes the effect of acquisitions and divestitures because the nature , size , and number of acquisitions and divestitures can vary dramatically from period to period and between the company and its peers and can also obscure underlying business trends and make comparisons of long-term performance difficult .
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as of december 31 , 2018 , there were unamortized issuance costs and debt discounts of $ 2.7 million , which were recorded as story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis , including information with respect to our plans and strategy for our business , include forward-looking statements that involve risks and uncertainties . you should review item 1a . “ risk factors ” for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a pharmaceutical company focused on the development and commercialization of our drug candidate , trc101 ( veverimer ) , a non-absorbed , orally administered polymer designed to treat metabolic acidosis by binding and removing acid from the gastrointestinal tract . our goal is to slow the progression of chronic kidney disease , or ckd , through the treatment of metabolic acidosis . in may 2018 , we completed our randomized , double-blind , placebo controlled , pivotal phase 3 clinical trial , trca-301 , in 217 ckd patients with metabolic acidosis . the trca-301 trial met both its primary and secondary endpoints in a highly statistically significant manner ( p < 0.0001 for both the primary and secondary endpoints ) . one hundred ninety-six of the 208 subjects who completed the 12-week treatment period in our pivotal phase 3 trial , trca-301 , agreed and were eligible to continue in our extension trial , trca-301e , which we completed in march 2019. based on the initial topline data analyses , the trca-301e trial met its primary and all secondary endpoints . we plan to submit a new drug application , or nda , in the second half of 2019 , seeking approval of trc101 through the u.s. food and drug administration 's , or fda 's , accelerated approval program . as part of the accelerated approval program , we have committed to conduct a confirmatory postmarketing trial , valor-ckd ( also known as trca-303 ) , to evaluate the efficacy and safety of trc101 in delaying ckd progression in subjects with metabolic acidosis . the valor-ckd trial has been initiated , and we have committed to completely enrolling , or nearly completely enrolling , subjects in the trial prior to our nda submission . metabolic acidosis is a chronic condition commonly caused by ckd and is believed to accelerate the progression of kidney deterioration . today , there are no fda-approved chronic therapies for treating metabolic acidosis . trc101 is an in-house discovered , new chemical entity , that we believe may effectively treat metabolic acidosis and slow the progression of kidney disease in ckd patients with metabolic acidosis . we estimate that metabolic acidosis affects approximately 3 million ckd patients in the united states , and we believe that slowing the progression of ckd in patients with metabolic acidosis represents a significant medical need and market opportunity . if approved , we plan to commercialize trc101 in the united states initially using a nephrologist-focused sales force . to address markets outside of the united states , we plan to seek one or more partners with international sales expertise who can sell trc101 in target markets . we have an intellectual property estate that we believe will provide patent protection for trc101 until at least 2034 in the united states , the european union , japan , china , india and certain other markets . tricida is led by a seasoned management team that includes a founder of ilypsa , inc. and relypsa , inc. our management team has extensive experience in the development and commercialization of therapeutics , with deep expertise in developing polymers for the treatment of kidney-related diseases . we have no products approved for marketing , and we have not generated any revenue from product sales or other arrangements . through december 31 , 2018 , we have primarily funded our operations through the net proceeds from our initial public offering , or ipo , of $ 237.7 million , the sale of $ 152.4 million of convertible preferred stock and net borrowing of $ 38.5 million after fees of $ 1.5 million under the loan and security agreement , or term loan , entered into with hercules capital inc. , or hercules , on february 28 , 2018. we have incurred losses in each year since our inception in 2013. our net losses were $ 102.8 million , $ 41.3 million and $ 28.7 million for the years ended december 31 , 2018 , 2017 and 2016 , respectively . as of december 31 , 2018 , we had an accumulated deficit of $ 192.2 million . substantially all of our operating losses resulted from expenses incurred in connection with advancing trc101 through development activities and general and administrative costs associated with our operations . we expect to continue to incur significant expenses and increasing operating losses for at least the next several years . 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 activities as we : 86 conduct clinical studies of trc101 ; optimize the scale-up of the manufacturing process and increase drug substance manufacturing for trc101 for planned clinical study materials , and upon a successful validation campaign , commercial launch materials ; increase our research and development efforts ; hire additional personnel ; create additional infrastructure to support our product development ; seek regulatory approval for trc101 ; engage in commercial launch activities ; conduct confirmatory postmarketing trial , valor-ckd maintain , expand and protect our intellectual property portfolio ; and add operational , financial and management information systems to support ongoing operations , including operating as a public company . story_separator_special_tag after giving effect to the third amendment , the amount available under the term loan is increased from up to $ 100.0 million to up to $ 200.0 million to be funded in tranches , subject to certain performance-based milestones , and the maturity of the term loan is extended . under the terms of the term loan , as amended by the third amendment , the $ 40.0 million of principal outstanding under the term loan with hercules remains outstanding , and additional tranches of $ 20.0 million and $ 15.0 million will be available for draw down prior to december 15 , 2019 and december 15 , 2020 , respectively . an additional tranche of $ 75.0 million will be available for draw down between january 1 , 2020 and december 15 , 2020 , on the condition that we obtain final approval from the fda for the nda for trc101 . a final tranche of $ 50.0 million will be available for draw down on or prior to december 15 , 2021 , upon our request and the approval of hercules ' investment committee . the term loan bears interest at a floating per annum interest rate equal to the greater of either ( i ) 8.35 % or ( ii ) the lesser of ( x ) 8.35 % plus the prime rate as reported in the wall street journal minus 6.00 % and ( y ) 9.85 % . the maturity date is extended to april 1 , 2023 , and may be extended to april 1 , 2024 if the tranche of $ 75.0 million described above is drawn . we will initially be making interest-only payments until april 1 , 2021. if we achieve certain performance milestones and financial covenants , the interest-only period could be extended for up to an additional 24 months . upon expiration of the interest-only period , we will repay the term loan in equal monthly installments comprised of principal and interest , based on a 30 month amortization schedule , through maturity . we will pay an additional amount of ( a ) $ 2.6 million due on march 1 , 2022 and ( b ) the product of 7.55 % and the aggregate loans funded under the term loan due at maturity or on any earlier date on which the loans become due . if we prepay the term loan , we will be required to pay a prepayment charge equal to ( i ) 2.00 % of the amount being prepaid at any time during the first 12 months following the effective date of the third amendment ( ii ) 1.50 % of the amount being prepaid after 12 months but prior to 24 months following the effective date of the third amendment ( iii ) 1.00 % of the amount being prepaid after 24 months but prior to 36 months following the effective date of the third amendment and ( iv ) zero if prepaid any time after 36 months following the effective date of the third amendment but prior to the maturity . the term loan is secured by substantially all of our assets , except our intellectual property , which is the subject of a negative pledge ; however , the collateral does consist of rights to payments and proceeds from the sale , licensing or disposition of all or any part of , or rights in , our intellectual property . under the term loan , we are subject to certain covenants , including but not limited to requirements to deliver financial reports at designated times of the year and maintain a minimum level of cash . these covenants also limit or restrict our ability to incur additional indebtedness or liens , acquire , own or make any investments , pay cash dividends , repurchase stock or enter into certain corporate transactions , including mergers and changes of control . 90 we are currently evaluating the accounting impact of the loan modification . refer to note 11 `` subsequent events `` to our financial statements included in this annual report on form 10-k for more information . funding requirements we have incurred losses and negative cash flows from operations since our inception in 2013 and anticipate that we will continue to incur net losses for the foreseeable future . as of december 31 , 2018 , we had an accumulated deficit of $ 192.2 million . management expects to incur additional losses in the future to conduct research and development and to conduct pre-commercialization activities and recognizes the need to raise additional capital to fully implement its business plan . such future capital requirements are difficult to forecast and will depend on many factors , including : our ability to initiate , and the progress and results of , our planned clinical studies of trc101 ; the timing and outcome of regulatory reviews of trc101 ; the costs , timing and success of the scale-up and optimization of the process for manufacturing trc101 ; the revenue , if any , received from commercial sales of trc101 for which we may receive regulatory approval ; our ability to maintain and enforce our intellectual property rights and defend any intellectual property-related claims ; the costs , timing and success of future commercialization activities , including product manufacturing , marketing , sales and distribution , for trc101 if we receive regulatory approval and do not partner for commercialization ; and the extent to which we acquire or in-license other products and technologies . until such time , if ever , as we can generate substantial product revenue , we expect to finance our cash needs through a combination of equity offerings , debt financings , collaborations , strategic partnerships and licensing arrangements .
| results of operations and comprehensive loss the following table presents our results of operations and comprehensive loss for the years ended december 31 , 2018 , 2017 and 2016 . replace_table_token_3_th n/m = not meaningful research and development expense the following table presents our research and development expense for the years ended december 31 , 2018 , 2017 and 2016 . replace_table_token_4_th research and development expense increased $ 49.7 million for the year ended december 31 , 2018 compared with the year ended december 31 , 2017 . the increase was due to activities in connection with our trc101 clinical development program , resulting in increased clinical development costs of $ 39.7 million related to initiation and enrollment of our confirmatory postmarketing trial , known as valor-ckd , our extension trial , trca-301e , drug-drug interaction , or ddi , studies , scale-up costs related to the optimization of our manufacturing process and drug substance manufacturing ; increased personnel and related costs of $ 5.3 million related to headcount growth ; increased stock-based compensation expense of $ 2.3 million related to headcount growth and higher fair value of award grants and increased other research and development costs of $ 2.4 million , primarily related to facilities and office expenses . 88 research and development expense increased $ 14.1 million for the year ended december 31 , 2017 compared with the year ended december 31 , 2016 . the increase was primarily due to activities in connection with our trc101 clinical development program , resulting in increased clinical development costs of $ 13.3 million related to our ddi studies , trca-301 trial recruitment and trca-301e trial preparation , increased personnel and related costs of $ 0.3 million and increased stock-based compensation expense of $ 0.2 million related to headcount growth and increased other research and development costs of $ 0.3 million .
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in connection with the ipo , we acquired a 10.6 % interest in opco and a 100 % interest in opco gp , which is the general partner of opco . on april 29 , 2015 , we purchased an additional 2.7 % newly-issued limited partner interest in opco , resulting in an aggregate 13.3 % limited partner interest in opco effective april 1 , 2015. on september 29 , 2017 , we completed a secondary public offering of 5,175,000 common units and purchased an additional 5.0 % newly-issued limited partner interest in opco , resulting in an aggregate 18.3 % limited partner interest in opco , effective as of july 1 , 2017. the 12,686,115 subordinated units of the partnership , all of which were previously owned by westlake , were converted into common units of the partnership on august 30 , 2017. currently , our sole revenue generating asset is our 18.3 % limited partner interest in opco , a limited partnership formed by westlake and us in anticipation of the ipo to own and operate an ethylene production business . we control opco through our ownership of its general partner . westlake retains the remaining 81.7 % limited partner interest in opco as well as a significant interest in us through its ownership of our general partner , 43.8 % of our limited partner units ( consisting of 14,122,230 common units ) and our incentive distribution rights . opco 's assets include ( 1 ) two ethylene production facilities ( `` petro 1 '' and `` petro 2 '' and , collectively , `` lake charles olefins '' ) at westlake 's lake charles , louisiana site ; ( 2 ) one ethylene production facility ( `` calvert city olefins '' ) at westlake 's calvert city , kentucky site ; and ( 3 ) a 200-mile common carrier ethylene pipeline ( the `` longview pipeline '' ) that runs from mont belvieu , texas to westlake 's longview , texas facility . 31 how we generate revenue we generate revenue primarily by selling ethylene and the resulting co-products we produce . opco and westlake have entered into an ethylene sales agreement ( the `` ethylene sales agreement '' ) pursuant to which we generate a substantial majority of our revenue . the ethylene sales agreement is a long-term , fee-based agreement with a minimum purchase commitment and includes variable pricing based on opco 's actual feedstock and natural gas costs and estimated other costs of producing ethylene ( including opco 's estimated operating costs and a five-year average of opco 's expected future maintenance capital expenditures and other turnaround expenditures based on opco 's planned ethylene production capacity for the year ) , plus a fixed margin per pound of $ 0.10 less revenue from co-products sales . pursuant to the ethylene sales agreement , westlake 's obligation to pay for the annual minimum commitment ( 95 % of opco 's budgeted ethylene production ) , which is measured at the end of the year , is generally not reduced for the first 45 days of a force majeure event , but is reduced for the portion of a force majeure event extending beyond the 45th day . westlake has an option to take 95 % of volumes in excess of the minimum commitment on an annual basis under the ethylene sales agreement if we produce more than our planned production . under the ethylene sales agreement , the price for the sale of such excess ethylene to westlake is based on a formula similar to that used for the minimum purchase commitment , with the exception of certain fixed costs . in addition , under the ethylene sales agreement , if production costs billed to westlake on an annual basis are less than 95 % of the actual production costs incurred by opco during the contract year , opco is entitled to recover the shortfall in such production costs ( proportionate to the volume sold to westlake ) in the subsequent year ( `` shortfall '' ) . the shortfall is recognized during the period in which the related operating , maintenance or turnaround activities occur . we sell ethylene production in excess of volumes sold to westlake , as well as all associated co-products resulting from the ethylene production , directly to third parties on either a spot or contract basis . net proceeds ( after transportation and other costs ) from the sales of associated co-products that result from the production of ethylene purchased by westlake are netted against the ethylene price charged to westlake under the ethylene sales agreement , thereby substantially reducing our exposure to fluctuations in the market prices of these co-products . during 2018 , all the third-party ethylene and associated co-products sales generated 16.4 % of our total revenues . under the services and secondment agreement , opco uses a portion of its production capacity to process purge gas for westlake . on august 4 , 2016 , opco and westlake entered into an amendment to the ethylene sales agreement in order to provide that certain of the pricing components that make up the price for ethylene sold thereunder would be modified to reflect the portion of opco 's production capacity that is used to process westlake 's purge gas instead of producing ethylene and to clarify that costs specific to the processing of westlake 's purge gas would be recovered under the services and secondment agreement , and not the ethylene sales agreement . please refer to note 2 to the consolidated financial statements included within this report for more information on the ethylene sales agreement . how we source feedstock opco has entered into a 12-year feedstock supply agreement ( the `` feedstock supply agreement '' ) with westlake petrochemicals llc , a wholly owned subsidiary of westlake , under which westlake petrochemicals llc supplies opco with ethane and other feedstocks that opco uses to produce ethylene under the ethylene sales agreement . story_separator_special_tag mlp distributable cash flow and ebitda should not be considered in isolation or as a substitute for analysis of our results as reported under gaap . see reconciliations for each of mlp distributable cash flow and ebitda under item 6 `` selected financial data '' above . factors affecting our business supply and demand for ethylene and resulting co-products we generate a substantial majority of our revenue from the ethylene sales agreement . this contract is intended to promote cash flow stability and minimize our direct exposure to commodity price fluctuations in the following ways : ( 1 ) the cost-plus pricing structure of the ethylene sales agreement is expected to generate a fixed margin of $ 0.10 per pound , adjusting automatically for changes in feedstock costs ; and ( 2 ) westlake is committed to purchase 95 % of the annual planned output , subject to a maximum commitment of 3.8 billion pounds of ethylene per year , with an option to purchase an additional 95 % of actual output in excess of the planned output on a contract year basis . as a result , our direct exposure to commodity price risk is limited to approximately 5 % of our total ethylene production , which is that portion sold to third parties , assuming westlake exercises its option to purchase 95 % of the over production , as well as to our co-products sales . we also have indirect exposure to commodity price fluctuations to the extent such fluctuations affect the ethylene consumption patterns of third-party purchasers . demand for ethylene exhibits cyclical commodity characteristics as margins earned on ethylene derivative products are influenced by changes in the balance between supply and demand , the resulting operating rates and general economic activity . while we believe we have substantially mitigated our indirect exposure to commodity price fluctuations during the term of the ethylene sales agreement through the minimum commitment and the cost-plus based pricing , our ability to execute our growth strategy in our areas of operation will depend , in part , on the demand for ethylene derivatives in the geographical areas served by our ethylene production facilities . recent developments on november 1 , 2018 , opco and westlake entered into an amendment to the ethylene sales agreement in order to provide opco with the option to curtail up to approximately 5 % of its ethylene production annually in the event opco reasonably determines that its sales of such ethylene to third parties during the relevant period would be uneconomic . on october 4 , 2018 , the partnership and westlake chemical partners gp llc , the general partner of the partnership , entered into an equity distribution agreement ( the `` atm agreement '' ) with ubs securities llc , barclays capital inc. , citigroup global markets inc. , deutsche bank securities inc. , rbc capital markets , llc , merrill lynch , pierce , fenner & smith incorporated and wells fargo securities , llc ( collectively , the `` managers '' ) . pursuant to the terms of the atm agreement , the partnership may offer and sell common units representing limited partner interests in the partnership from time to time to or through the managers , as the partnership 's sales agents or as principals , having an aggregate offering amount of up to $ 50.0 million . the partnership intends to use the net proceeds of sales of the common units for general partnership purposes , including the funding of potential drop-downs and other acquisitions . on september 25 , 2018 , the opco revolver was amended to extend the maturity date from august 4 , 2019 to september 25 , 2023 and to revise the applicable margin from 3 % to 2 % . see note 8 `` long-term debt '' to the consolidated financial statements included within this report . on july 27 , 2018 , the partnership 's partnership agreement was amended to revise the minimum quarterly distribution thresholds for the partnership 's incentive distribution rights to westlake . the amended partnership agreement provides that the partnership will distribute cash each quarter to all the unitholders , pro-rata , until each common unit has received a distribution of $ 1.2938 . if cash distributions to the partnership 's unitholders exceed $ 1.2938 per common unit in any quarter , the partnership 's unitholders and westlake , as the holder of the partnership 's incentive distribution rights , will receive distributions according to the percentage allocations per the amendment . for more information on the partnership 's amended distribution allocation percentages , see note 9 `` distributions and net income per limited partner unit '' to the consolidated financial statements included within this report . 34 results of operations the table below and descriptions that follow represent the consolidated results of operations of the partnership for the years 2018 , 2017 and 2016 . replace_table_token_4_th replace_table_token_5_th replace_table_token_6_th ( 1 ) see item 6 , selected financial data , for discussions on non-gaap financial measures . ( 2 ) industry pricing data was obtained through ihs . we have not independently verified the data . ( 3 ) represents average north american spot prices of ethylene over the period as reported by ihs . 35 story_separator_special_tag parties in 2017 , as compared to 2016. gross profit . gross profit margin percentage was 34.4 % in 2017 as compared to 39.7 % in 2016. the lower gross profit margin was primarily due to the higher depreciation and amortization expense in 2017 as a result of the 2016 lake charles petro 1 facility upgrade and expansion and the recognition of the shortfall in 2016 , partially offset by higher sales volume to third parties and westlake , as compared to 2016. gross profit increased to $ 403.7 million in 2017 from $ 391.3 million in 2016 , primarily because of higher sales volume in 2017. selling , general and administrative expenses .
| summary for the year ended december 31 , 2018 , net income was $ 330.6 million on net sales of $ 1,285.6 million . this represents a decrease in net income of $ 22.5 million compared to 2017 net income of $ 353.1 million on net sales of $ 1,173.0 million . net income in 2018 was lower due to lower margins on third party ethylene sales resulting from lower ethylene sales prices and higher feedstock costs . this decrease was partially offset by higher ethylene sales volumes to westlake , higher pipeline services fee income and lower state income tax expense as compared to 2017 . net income attributable to the partnership in 2018 was $ 49.3 million as compared to $ 48.7 million in 2017 , an increase of $ 0.6 million , which was primarily due to a 5 % increase in the partnership 's interest in opco , effective as of july 1 , 2017 and increased production at opco 's facilities , partially offset by lower margins on third party sales volumes . net sales for 2018 increased by $ 112.6 million as compared to 2017 mainly due to higher sales volumes to westlake and third parties , higher ethylene sales prices to westlake and higher pipeline services fee income , partially offset by lower third party ethylene sales prices . income from operations was $ 349.6 million for 2018 as compared to $ 374.4 million for 2017 . income from operations decreased mainly as a result of lower third party ethylene sales margins , partially offset by higher ethylene sales to westlake and higher pipeline services fee income , as compared to 2017 . 2018 compared with 2017 net sales .
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the forward contracts that are used to hedge the value of api 's future sales and purchases are accounted for as cash flow hedges in accordance with asc 815. these hedges are fully effective and accordingly , 56 the changes in fair value are recorded in aoci and , story_separator_special_tag of operations the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes thereto that are available elsewhere in this annual report on form 10-k. the following is a discussion and analysis of splp 's consolidated results of operations for the years ended december 31 , 2016 , 2015 and 2014 . in addition to historical consolidated financial information , the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in `` risk factors '' in item 1a . all monetary amounts used in this discussion are in thousands except common unit , per common unit , share and per share amounts . business segments 21 splp operates through the following segments : diversified industrial , energy , financial services , and corporate and other , which are managed separately and offer different products and services . for a more complete description of the company 's segments , see `` item 1 - business - the company '' found elsewhere in this form 10-k. recent developments below is a summary of recent developments that impacted the company . for additional information on the acquisitions described below , see note 3 - `` acquisitions '' to the splp consolidated financial statements found elsewhere in this form 10-k. hnh acquired sli for $ 40.00 per share in cash , for a total purchase price of $ 161,985 , resulting in a new electrical products business for hnh . sli subsequently acquired eme for a cash purchase price of $ 62,575 , expanding sli 's capabilities in the hybrid electric vehicle , transportation refrigeration , aerospace and defense sectors . api acquired hazen for $ 14,000 , which is part of api 's strategy to focus on brand enhancement solutions for the packaging market , and it enables api to provide a combined foils and laminate offering to customers in the u.s. , while giving broader coverage for its global customers . also , api acquired amp for $ 7,800 , which is part of api 's strategy to further strengthen its brand enhancement mission of utilizing high-end material substrates for luxury packaging and other niche markets , adding new products to api 's offerings and providing an entry point into new packaging sectors . on december 7 , 2016 , the board of directors of the general partner of the company approved the repurchase of up to 2,000,000 of the company 's common units . the repurchase program supersedes and cancels , to the extent any amounts remain available , all previously approved repurchase programs . during 2016 , the company purchased 503,463 common units for an aggregate price of approximately $ 7,297. on december 22 , 2016 , the company declared a special one-time cash dividend of $ 0.15 per common unit , which totaled $ 3,923 and was paid in january 2017. on december 23 , 2016 , the company entered into an amended agreement and plan of merger with a subsidiary of the company and steel excel to make a tender offer ( the `` offer '' ) to purchase any and all of the outstanding shares of common stock of steel excel not already owned by the company or any of its affiliates . in exchange for each share of steel excel common stock , the company offered 0.712 of new 6.0 % series a preferred units , no par value ( the `` splp preferred units '' ) . the offer commenced on january 9 , 2017 and expired on february 6 , 2017. as a result of the completion of the offer , the company issued approximately 2,500,000 splp preferred units with a liquidation value of approximately $ 63,500 to steel excel shareholders and the company now owns 100 % of steel excel . due to a decline in market conditions and demand for certain of hnh ' product lines in its performance materials business , as well as its continual focus to optimize infrastructure costs , hnh recorded goodwill and asset impairment charges totaling $ 35,711 during 2016. results of operations comparison of the years ended december 31 , 2016 and 2015 replace_table_token_4_th 22 revenue revenue in 2016 increased $ 198,490 , or 20.6 % , when compared to 2015 . excluding growth from the acquisitions of sli ( including eme ) , jps and api of 24.7 % and other activity of 0.6 % , primarily due to higher silver prices , revenues declined 4.7 % . the revenue decrease of 4.7 % was primarily due to decreases in the energy and diversified industrial segments , partially offset by an increase in the financial services segment . cost of goods sold cost of goods sold in 2016 increased $ 145,529 , or 21.7 % , when compared to 2015 primarily due to an increase in the diversified industrial segment , which increased due to the acquisitions of sli ( including eme ) , jps and api , as well as from higher duties paid on certain imports , amortization related to the fair value adjustment to acquisition-date inventories associated with hnh 's sli ( including eme ) acquisition and certain inventory write-downs at hnh due to the planned closure of two facilities . this increase was partially offset by a decrease in the energy segment due to lower revenue . story_separator_special_tag excluding the impact of the sli ( including eme ) , jps and api acquisitions and the change in silver prices , net sales decreased by approximately $ 8,700 due to lower volume of $ 6,200 at hnh , primarily from the performance materials business , partially offset by growth from the building materials business , and lower revenue of approximately $ 2,500 at api due to the negative impact of foreign exchange rates . the average silver market price was approximately $ 17.11 per troy ounce in 2016 , as compared to $ 15.70 per troy ounce in 2015. segment operating income in 2016 decreased by $ 23,106 , or 54.6 % , when compared to 2015 , primarily due to the goodwill and asset impairment charges recorded in 2016 of $ 35,711 discussed above , of which $ 1,400 unfavorably impacted gross profit , as 24 well as higher sg & a of $ 59,522 , principally due to the segment 's recent acquisitions . these declines in segment operating income were partially offset by higher gross profit of $ 62,322 and higher income of $ 9,330 recorded from equity method investments . the higher gross profit and sg & a in 2016 were primarily driven by the sli ( including eme ) , jps and api acquisitions . gross profit was also favorably impacted by an increase at hnh of approximately $ 2,800 from its building materials business due to higher sales volume , partially offset by its joining materials business due to lower sales volume . energy weakness in the oil services industry had an adverse effect on the results of operations of the company 's energy segment in 2016. the decline in energy prices that began in late 2014 , particularly the significant decline in oil prices , has resulted in the energy segment 's customers , the oil and gas exploration and production companies ( `` e & p companies '' ) , cutting back on their capital expenditures , which has resulted in reduced drilling , completion , and work over activity . in addition , the e & p companies sought price concessions from their service providers to offset their drop in revenue . such actions on the part of the e & p companies had an adverse effect on the operations of the energy segment in 2016. steel excel has taken certain actions and instituted cost-reduction measures in an effort to mitigate these adverse effects . the energy segment 's results of operations going forward will be dependent on the price of oil in the future , the resulting well production and drilling rig count in the basins in which it operates , and steel excel 's ability to return to the pricing and service levels of the past as oil prices increase . the drilling rig count in north america has declined significantly since its peak in 2014 , which has directly impacted the segment 's rig utilization , and the pricing for the segment 's services has declined . the north american drilling rig count continued to decline during the first half of 2016 , and is still substantially lower than in prior years . as a result , steel excel experienced a further decline in operating results in 2016 , as compared to the 2015 results . however , the north american drilling rig count has since been steadily increasing in the latter half of 2016 and into 2017 , resulting in a more favorable outlook for 2017. in 2016 , net revenue decreased $ 38,625 , or 29.1 % , when compared to 2015 . the decrease in net revenue in 2016 was primarily due to a decrease of approximately $ 36,100 in steel excel 's energy business due to the decline in rig utilization and the decline in prices that resulted from the adverse effects the decline in energy prices had on the oil services industry . net revenue from steel excel 's sports businesses decreased by $ 2,600 in 2016 , when compared to 2015. segment operating loss in 2016 decreased $ 83,653 , or 88.0 % , when compared to 2015 . significant changes in the 2016 period were lower impairment charges of $ 52,579 related to marketable securities , lower goodwill impairment charges of $ 19,571 , lower sg & a of $ 3,438 , due to the receipt of a litigation settlement , net of higher corporate overhead costs , and higher income from equity method investments of $ 26,046 . these changes were partially offset by a decrease in gross profit of $ 11,105 and lower gains on sales of investments of $ 7,787 in the year ended december 31 , 2016 , when compared to 2015. the decrease in gross profit was primarily due to the decline in revenue in the energy business . financial services revenue in 2016 increased $ 1,568 , or 2.3 % , when compared to 2015 . the net increase was due to higher non-interest income of approximately $ 1,700 in 2016 , compared to 2015 , as a result of the restructuring of programs , which created a gain on sale of certain loans , partially offset by lower interest income of approximately $ 200 in 2016 , compared to 2015 , due to declines in a number of webbank 's key programs caused by capital market disruptions and the restructuring of some arrangements . segment operating income in 2016 decreased $ 3,802 , or 8.2 % , when compared to 2015. the higher revenue was more than offset by higher costs and expenses including higher sg & a of $ 3,401 driven by higher personnel expenses due to growth in the number of webbank 's programs , supporting new initiatives , and the continued expansion of webbank 's compliance and oversight group to meet increasing regulatory expectations .
| cash flow summary replace_table_token_14_th cash flows from operating activities net cash provided by in operating activities for the year ended december 31 , 2016 was $ 194,920 . net income from continuing operations of $ 2,571 was impacted by certain non-cash items and a net decrease of $ 70,668 relating to changes in certain operating assets and liabilities . the decrease in operating assets and liabilities was primarily due to a decrease of $ 78,900 in loans held for sale due to the timing of loan originations and the level of activity at webbank . this decrease was partially offset by an increase of $ 11,747 in trade and other receivables due to the timing of receipts and an increase in prepaid expenses and other current assets of $ 8,246 . 32 net cash used in operating activities for the year ended december 31 , 2015 was $ 15,753. net income from continuing operations of $ 70,311 was impacted by certain non-cash items and a net increase of $ 113,175 relating to changes in certain operating assets and liabilities . of this increase , $ 118,706 was from an increase in loans held for sale , $ 23,504 was from a decrease in accounts payable and accrued and other liabilities and $ 666 was from an increase in prepaid and other assets . these operating asset and liability increases were partially offset by a $ 17,167 decrease in trade and other receivables and a $ 12,534 decrease in inventories . net cash used in operating activities was also impacted by $ 2,254 in cash used in operating activities of discontinued operations . net cash provided by operating activities for the year ended december 31 , 2014 was $ 78,033. net loss from continuing operations of $ 17,572 was impacted by certain non-cash items and a net increase of $ 43,581 relating to changes in certain operating assets and liabilities .
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this review should be read in conjunction with the corporation 's consolidated financial statements and accompanying notes included elsewhere in this annual report . this analysis provides an overview of the significant changes that occurred during the periods presented . critical accounting policies general the corporation 's financial statements are prepared in accordance with accounting principles generally accepted in the united states ( gaap ) . the financial information contained within our statements is , to a significant extent , based on measures of the financial effects of transactions and events that have already occurred . a variety of factors could affect the ultimate value that is obtained either when earning income , recognizing expense , recovering an asset or relieving a liability . we use historical loss factors as one factor in determining the inherent loss that may be present in our loan portfolio . actual losses could differ significantly from the historical factors that we use . in addition , gaap itself may change from one previously acceptable method to another method . although the economics of our transactions would be the same , the timing of events that would impact our transactions could change . allowance for loan losses the allowance for loan losses is an estimate of the losses that may be sustained in our loan portfolio . the allowance is based on two basic principles of accounting : ( i ) sfas 5 , accounting for contingencies , which requires that losses be accrued when they are probable of occurring and estimable and ( ii ) sfas 114 , accounting by creditors for impairment of a loan , which requires that losses be accrued based on the differences between the value of collateral , present value of future cash flows or values that are observable in the secondary market and the loan balance . the use of these values is inherently subjective and our actual losses could be greater or less than the estimates . the allowance for loan losses is increased by charges to income and decreased by charge-offs ( net of recoveries ) . management 's periodic evaluation of the adequacy of the allowance is based on past loan loss experience , known and inherent risks in the portfolio , adverse situations that may affect the borrower 's ability to repay , the estimated value of any underlying collateral , and current economic conditions . overview the corporation 's strategic plan is directed toward the enhancement of its franchise value and operating profitability by increasing its asset size and expanding its customer base . the corporation operates six full service offices between its headquarters in tappahannock , virginia along the u. s. 360 corridor to the richmond , virginia metropolitan market . management believes that its most significant profitable growth opportunities will continue to be in the greater richmond metropolitan area . ( see part i , item 1. business , general for further explanation on the corporation 's strategic plan . ) year 2005 compared to year 2004 on december 31 , 2005 the corporation had total assets of $ 261.9 million , total loans of $ 182.5 million , total deposits of $ 223.1 million and total stockholders ' equity of $ 26.2 million . boe had net income of $ 3.1 million in 2005 , a $ 215,000 , or 7.5 % increase from $ 2.9 million in net income in 2004. this resulted in a return on average equity of 12.18 % in 2005 compared to 12.12 % in 2004. return on average assets in 2005 was 1.24 % , compared to 1.23 % in 2004. boe 's total loans increased 14.3 % , or $ 22.9 million , in 2005 over 2004 . 14 total loans were $ 182.5 million at december 31 , 2005 compared to $ 159.6 million at december 31 , 2004. loan increases came from loans secured by real estate , including loans secured by 1 4 family properties , commercial real estate and construction lending . this is due to continued growth in and around the corridor surrounding richmond , virginia , including the area in and around essex county . at december 31 , 2005 , the ratio of non-performing assets to total assets was 0.10 % compared to 0.14 % at december 31 , 2004. net charge offs to average loans were 0.07 % in 2005 compared to 0.21 % in 2004. loans past due 90 days or more and still accruing interest at december 31 , 2005 were $ 260,000 and $ 100,000 at december 31 , 2004. the corporation 's allowance for loan losses to period end loans at december 31 , 2005 was 1.23 % compared to 1.31 % at december 31 , 2004. year 2004 compared to year 2003 on december 31 , 2004 the corporation had total assets of $ 237.1 million , total loans of $ 159.6 million , total deposits of $ 207.0 million and total stockholders ' equity of $ 24.7 million . boe had net income of $ 2.9 million in 2004 , a $ 478,000 , or 19.9 % increase from $ 2.4 million in net income in 2003. this resulted in a return on average equity of 12.12 % in 2004 compared to 10.80 % in 2003. return on average assets in 2004 was 1.23 % , compared to 1.04 % in 2003. boe 's total loans declined 0.6 % , or $ 950,000 in 2004 over 2003. total loans were $ 159.6 million at december 31 , 2004 compared to $ 160.5 million at december 31 , 2003. at december 31 , 2004 , the ratio of non-performing assets to total assets was 0.14 % compared to 0.75 % at december 31 , 2003. net charge offs to average loans were 0.21 % in 2004 compared to 0.42 % in 2003. loans past due 90 days or more and still accruing interest at december 31 , 2004 were $ 100,000 and $ 285,000 at december 31 , 2003. the corporation 's allowance for loan losses to period end loans at december 31 , story_separator_special_tag management believes the allowance for loan losses is adequate to absorb losses inherent in the loan portfolio . in view of the corporation 's plans to continue its loan growth , management will continue to closely monitor the performance of its portfolio and make additional provisions as necessary . 20 non-interest income non-interest income in 2005 was $ 1.6 million , a decrease of $ 26,000 , or 1.6 % , from non-interest income of $ 1.6 million in 2004. service charges on deposit accounts decreased $ 8,000 , or 0.8 % , to $ 986,000 in 2005 from $ 994,000 in 2004. other income increased 8.8 % , or $ 45,000 , in 2005. other income was $ 556,000 in 2005 and $ 511,000 in 2004. securities gains were $ 3,000 in 2005 , a $ 63,000 decrease from securities gains of $ 66,000 in 2004. gains on sales of loans were $ 56,000 in 2005 and $ 57,000 in 2004 , a $ 1,000 decrease . net gains/ ( losses ) on sales of other properties decreased $ 72,000 , or 147.2 % , from a $ 49,000 gain in 2004 to a $ 23,000 loss in 2005. non-interest income in 2004 was $ 1.6 million , an increase of $ 244,000 , or 17.6 % , from non-interest income of $ 1.4 million in 2003. service charges on deposit accounts were the largest component of this increase , $ 129,000 , or 15.0 % , from $ 865,000 in 2003 to $ 994,000 in 2004. the increase in 2004 over 2003 was primarily from the implementation in july 2003 of an automated program for overdraft fees , which significantly reduced the percentage of fees waived by the bank . also , in december 2004 the company closed on the sale of an 1.837 acre parcel adjoining it 's bank of essex virginia center office on brook road in henrico county . this resulted in a gain on the sale of $ 63,000. other income increased 20.1 % , or $ 86,000 , in 2004. other income was $ 511,000 in 2004 and $ 425,000 in 2003. net security gains were $ 66,000 in 2004 and $ 31,000 in 2003. this increase is 114.4 % , or $ 35,000. non-interest expense non-interest expense was $ 7.3 million in 2005 , a $ 380,000 , or 5.5 % increase , over non-interest expense of $ 6.9 million in 2004. salaries were $ 3.1 million in 2005 and were the largest component of this increase , $ 196,000 , or 6.9 % , over salaries of $ 2.9 million in 2004. this increase was due to an increase in full-time equivalent employees from 88 in 2004 to 93 in 2005. employee benefits were $ 982,000 , up $ 178,000 , or 22.1 % higher than employee benefits in 2004 of $ 804,000. this increase was due to the increase in full-time equivalent employees described above and continued increases in health industry costs provided to employees . data processing expense of $ 530,000 in 2005 was 12.4 % , or $ 59,000 , higher than data processing expense of $ 471,000 in 2004. other operating expenses of $ 1.4 million were $ 32,000 , or 2.3 % , higher than other operating expenses of $ 1.4 million in 2004. bank franchise tax increased $ 7,000 , or 3.5 % , in 2005 and was $ 222,000 compared to $ 214,000 in 2004. offsetting these increases in non-interest expenses were the following . stationary and printing expenses decreased $ 42,000 , or 23.1 % , and were $ 138,000 in 2005 compared to $ 180,000 in 2004. this was due in part to better supplies management as a result of consolidating several vendors into one . furniture and equipment related expenses were $ 415,000 in 2005 compared to $ 437,000 in 2004 , a decrease of $ 22,000 , or 5.1 % . decreases in costs associated with product specific support , service contracts and equipment rent accounted for $ 20,000 of this change . postage expense decreased $ 18,000 , or 10.2 % , and was $ 153,000 in 2005 compared to $ 171,000 in 2004. the reduction in postage expense was attributed to the timing of payments for postage advances . occupancy expenses decreased $ 12,000 , or 3.5 % , and were $ 330,000 in 2005 compared to $ 342,000 in 2004. improvements in occupancy expense were due to lower maintenance and repair costs in 2005. non-interest expense was $ 6.9 million in 2004 , a $ 255,000 , or 3.8 % increase , over non-interest expense of $ 6.6 million in 2003. salaries were $ 2.9 million in 2004 and were the largest component of this increase , 6.0 % , or $ 161,000 over salaries of $ 2.7 million in 2003. data processing expense of $ 471,000 in 2004 was 28.9 % , or $ 106,000 , higher than data processing expense of $ 366,000 in 2003. this increase occurred due to computer upgrades throughout the company and start up costs related to internet banking which was launched in september of 2004. bank franchise tax increased $ 50,000 , or 30.6 % , in 2004 and was $ 214,000 compared to $ 164,000 in 2003. this increase was due to the addition of trust preferred capital notes into the bank of essex capital base in december of 2003. part of the calculation of the franchise tax , paid to the treasurer of the commonwealth of virginia , includes bank equity capital .
| results of operations net income year 2005 compared to year 2004 boe had net income of $ 3.1 million in 2005 compared to $ 2.9 million in 2004. this represented an increase of 7.5 % , or $ 215,000. diluted earnings per share in 2005 were $ 2.58 , compared to diluted earnings per share in 2004 of $ 2.42. these earnings per share are based on average shares outstanding of 1,203,725 in 2005 and 1,194,511 in 2004. boe 's profitability increased in 2005 in comparison to 2004 due to an increase of $ 605,000 , or 6.5 % , in net interest income . net interest income increased from $ 9.3 million in 2004 to $ 9.9 million in 2005. additionally , provision for loan losses decreased by $ 65,000 , or 21.2 % , in 2005 compared to 2004. provision for loan losses was $ 240,000 in 2005 compared to $ 305,000 in 2004. provision for loan losses decreased in 2005 compared to 2004 due to a reduction in net charged-off loans . net charged-off loans were $ 80,000 in 2005 compared to $ 346,000 in 2004. this combination resulted in a net interest income after provision for loan losses increase of $ 670,000 , or 7.5 % . offsetting these increases in net income was a $ 380,000 , or 5.5 % increase for 2005 compared to 2004 in noninterest expenses . noninterest expenses were $ 7.3 million in 2005 and $ 6.9 million in 2004. also offsetting net income increases was an increase of $ 49,000 , or 5.9 % , in income tax expenses .
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references to the class a common stock , the class b common stock , story_separator_special_tag the following discussion should be read in conjunction with apollo global management , inc. 's consolidated financial statements and the related notes as of december 31 , 2020 and 2019 and for the years ended december 31 , 2020 , 2019 and 2018. this discussion contains forward-looking statements that are subject to known and unknown risks and uncertainties . actual results and the timing of events may differ significantly from those expressed or implied in such forward-looking statements due to a number of factors , including those included in the section of this report entitled “ item 1a risk factors. ” the highlights listed below have had significant effects on many items within our consolidated financial statements and affect the comparison of the current period 's activity with those of prior periods . general our businesses founded in 1990 , apollo is a leading global alternative investment manager . we are a contrarian , value-oriented investment manager in credit , private equity and real assets with significant distressed expertise and a flexible mandate in the majority of our funds which enables our funds to invest opportunistically across a company 's capital structure . we raise , invest and manage funds on behalf of some of the world 's most prominent pension , endowment and sovereign wealth funds as well as other institutional and individual investors . apollo is led by our managing partners , leon black , joshua harris and marc rowan , who have worked together for more than 34 years and lead a team of 1,729 employees , including 557 investment professionals , as of december 31 , 2020. apollo conducts its business primarily in the united states through the following three reportable segments : ( i ) credit —primarily invests in non-control corporate and structured debt instruments including performing , stressed and distressed instruments across the capital structure ; ( ii ) private equity —primarily invests in control equity and related debt instruments , convertible securities and distressed debt instruments ; and ( iii ) real assets —primarily invests in ( i ) real estate equity and infrastructure equity for the acquisition and recapitalization of real estate and infrastructure assets , portfolios , platforms and operating companies , ( ii ) real estate and infrastructure debt including first mortgage and mezzanine loans , preferred equity and commercial mortgage backed securities and ( iii ) european performing and non-performing loans , and unsecured consumer loans . these business segments are differentiated based on the varying investment strategies . the performance is measured by management on an unconsolidated basis because management makes operating decisions and assesses the performance of each of apollo 's business segments based on financial and operating metrics and data that exclude the effects of consolidation of any of the managed funds . our financial results vary since performance fees , which generally constitute a large portion of the income we receive from the funds that we manage , as well as the transaction and advisory fees that we receive , can vary significantly from quarter to quarter and year to year . as a result , we emphasize long-term financial growth and profitability to manage our business . in addition , the growth in our fee-generating aum during the last year has primarily been in our credit segment driven by continued growth in traditional funds and managed accounts as well as growth in asset management services to the insurance industry and in performing credit products . the average management fee rate for these new credit products is at market rates for such products and in certain cases is below our historical rates . also , due to the complexity of these new product offerings , the company has incurred and will continue to incur additional costs associated with managing these products . to date , these additional costs have been offset by realized economies of scale and ongoing cost management . as of december 31 , 2020 , we had total aum of $ 455.5 billion across all of our businesses . more than 90 % of our total aum was in funds with a contractual life at inception of five years or more , and 60 % of such aum was in permanent capital vehicles . -110- the following table presents the gross and net returns for apollo 's credit segment by category type : replace_table_token_0_th on december 31 , 2017 , fund ix held its final closing , raising a total of $ 23.5 billion in third-party capital and approximately $ 1.2 billion of additional capital from apollo and affiliated investors for total commitments of $ 24.7 billion . on december 31 , 2013 , fund viii held a final closing raising a total of $ 17.5 billion in third-party capital and approximately $ 880 million of additional capital from apollo and affiliated investors , and as of december 31 , 2020 , fund viii had $ 2.5 billion of uncalled commitments remaining . additionally , fund vii held a final closing in december 2008 , raising a total of $ 14.7 billion , and as of december 31 , 2020 , fund vii had $ 1.8 billion of uncalled commitments remaining . we have consistently produced attractive long-term investment returns in our traditional private equity funds , generating a 39 % gross irr and a 24 % net irr on a compound annual basis from inception through december 31 , 2020. apollo 's private equity fund appreciation was 6.9 % for the year ended december 31 , 2020. for our real assets segment , there was a total gross return of 1.0 % for the year ended december 31 , 2020 , which represents gross return for our real estate equity funds and their co-investment capital , the european principal finance funds , and infrastructure equity funds . for further detail related to fund performance metrics across all of our businesses , see “ —the historical investment performance of our funds. story_separator_special_tag price fluctuations within equity , credit , commodity , foreign exchange markets , as well as interest rates , which may be volatile and mixed across geographies , can significantly impact the valuation of our funds ' portfolio companies and related income we may recognize . in the u.s. , the s & p 500 index increased by 16.3 % in 2020 , following an increase of 28.9 % in 2019. global equity markets also appreciated during the year , with the msci all country world ex usa index increasing 8.1 % following an increase of 23.2 % in 2019. conditions in the credit markets also have a significant impact on our business . credit markets were positive in 2020 , with the bofaml hy master ii index increasing by 6.2 % , while the s & p/lsta leveraged loan index increased by 2.8 % . the u.s. 10-year treasury yield at the end of the year was 0.93 % . the federal reserve lowered the benchmark interest rate two times during the year , for a target range of 0 % to 0.25 % at the end of 2020 , down from to a target range of 1.50 % to 1.75 % at the end of 2019. foreign exchange rates can materially impact the valuations of our investments and those of our funds that are denominated in currencies other than the u.s. dollar . relative to the u.s. dollar , the euro appreciated 9.0 % during the year , after depreciating by 2.2 % in 2019 , while the british pound appreciated 3.1 % in 2020 , after appreciating 3.9 % in 2019. the price of crude oil depreciated by 20.5 % during 2020 , after appreciating by 34.5 % during 2019. in terms of economic conditions in the u.s. , the bureau of economic analysis reported real gdp decreased at an annual rate of 3.5 % in 2020 , following an increase of 2.1 % in 2019. as of january 2021 , the international monetary fund estimated that the u.s. economy will expand by 5.1 % in 2021 and 2.5 % in 2022. the u.s. bureau of labor statistics reported that the u.s. unemployment rate stood at 6.7 % as of december 31 , 2020. regardless of the market or economic environment at any given time , apollo relies on its contrarian , value-oriented approach to consistently invest capital on behalf of its fund investors by focusing on opportunities that management believes are often overlooked by other investors . as such , apollo 's global integrated investment platform deployed $ 88.2 billion of capital through the funds it manages during the year ended december 31 , 2020. drawdown capital deployed was $ 17.0 billion during the year ended december 31 , 2020. we believe apollo 's expertise in credit and its focus on nine core industry sectors , combined with more than 30 years of investment experience , has allowed apollo to respond quickly to changing environments . -113- apollo 's core industry sectors include chemicals , manufacturing and industrial , natural resources , consumer and retail , consumer services , business services , financial services , leisure , and media/telecom/technology . apollo believes that these attributes have contributed to the success of its private equity funds investing in buyouts and credit opportunities during both expansionary and recessionary economic periods . in general , institutional investors continue to allocate capital towards alternative investment managers for more attractive risk-adjusted returns in a low interest rate environment , and we believe the business environment remains generally accommodative to raise larger successor funds , launch new products , and pursue attractive strategic growth opportunities , such as continuing to grow the assets of our permanent capital vehicles . as such , apollo had $ 122.7 billion of capital inflows during the year ended december 31 , 2020. apollo returned $ 8.7 billion of capital and realized gains to the investors in the funds it manages during the year ended december 31 , 2020 , respectively . on october 20 , 2020 , at a regularly scheduled meeting of agm inc. 's board of directors , apollo 's chairman and chief executive officer , leon black , requested that the conflicts committee of the board of directors ( comprised of independent directors ) retain outside counsel to conduct a thorough review of , and independently confirm , the information that mr. black has conveyed about his previous professional relationship with mr. jeffrey epstein . the conflicts committee had retained dechert llp as outside counsel to conduct a thorough , independent review which included interviewing individuals and examining relevant documents . on january 25 , 2021 , the company announced that the conflicts committee of the board of directors has completed its previously announced independent review of chairman and ceo leon black 's previous professional relationship with jeffrey epstein and publicly released the review 's findings . the findings of the report are consistent with statements made by mr. black and apollo regarding the prior relationship . on january 25 , 2021 , the company announced that , at a meeting of the executive committee of our board of directors on january 24 , 2021 , mr. black informed the executive committee members that he intends to retire from his position as chief executive officer of the company on or before july 31 , 2021. leon black , marc rowan and josh harris , on behalf of our class c stockholder , voted to appoint mr. rowan as our chief executive officer to begin serving in such role effective upon mr. black 's retirement . mr. black will continue to serve as chairman of our board of directors following his retirement from his position as chief executive officer . managing business performance we believe that the presentation of segment de supplements a reader 's understanding of the economic operating performance of each of our segments . segment distributable earnings and distributable earnings segment de is the key performance measure used by management in evaluating the performance of apollo 's credit , private equity and real assets segments .
| results of operations below is a discussion of our consolidated results of operations for the years ended december 31 , 2020 , 2019 and 2018. for additional analysis of the factors that affected our results at the segment level , see “ —segment analysis ” below : replace_table_token_16_th note : “ nm ” denotes not meaningful . changes from negative to positive amounts and positive to negative amounts are not considered meaningful . increases or decreases from zero and changes greater than 500 % are also not considered meaningful . a discussion of our consolidated results of operations for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 is included in the company 's annual report on form 10-k filed with the sec on february 21 , 2020 ( the “ 2019 annual report ” ) . in march 2020 , the world health organization declared the outbreak of a novel coronavirus ( covid-19 ) pandemic , which has resulted in uncertainty and disruption in the global economy and financial markets . while we are unable to accurately predict the full impact that covid-19 will have on our results from operations , financial condition , liquidity and cash flows due to numerous uncertainties , including the duration and severity of the pandemic and containment measures , our -134- compliance with these measures has impacted our day-to-day operations and could disrupt our business and operations , as well as that of the apollo funds and their portfolio companies , for an indefinite period of time . see “ item 1a . risk factors — risks related to our businesses — the covid-19 pandemic has caused severe disruptions in the u.s. and global economy and is expected to continue to impact our business , financial condition and results of operations .
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this report includes the results for the partnership prior to the conversion and the blackstone group inc. following the conversion . in this report , references to “ blackstone , ” the “ company , ” “ we , ” “ us ” or “ our ” refer to ( a ) the blackstone group inc. and its consolidated subsidiaries following the conversion and ( b ) the partnership and its consolidated subsidiaries prior to the conversion . all references to shares or per share amounts prior to the conversion refer to units or per unit amounts . unless otherwise noted , all references to shares or per share amounts following the conversion refer to shares or per share amounts of class a common stock . all references to dividends prior to the conversion refer to distributions . see “ — organizational structure. ” our business blackstone is one of the world 's leading investment firms . our business is organized into four segments : real estate . our real estate business is a global leader in real estate investing . our real estate segment operates as one globally integrated business , with investments in north america , europe , asia and latin america . our real estate investment teams seek to utilize our global expertise and presence to generate attractive risk-adjusted returns for our investors and to make a positive impact on the communities in which we invest . our blackstone real estate partners ( “ brep ” ) funds are geographically diversified and target a broad range of “ opportunistic ” real estate and real estate-related investments . the brep funds include global funds as well as funds focused specifically on europe or asia investments . brep seeks to invest thematically in high-quality assets , focusing where we see outsized growth potential driven by global economic and demographic trends . brep has made significant investments in logistics , rental housing , office hospitality and retail properties around the world , as well as a variety of real estate operating companies . our blackstone real estate debt strategies ( “ breds ” ) vehicles primarily target real estate-related debt investment opportunities . breds ' scale and investment mandates enable it to provide a variety of lending and investment options including mezzanine loans , senior loans and liquid securities . the breds platform includes a number of high-yield real estate debt funds , liquid real estate debt funds and bxmt , a nyse-listed real estate investment trust ( “ reit ” ) . our core+ real estate business includes blackstone property partners ( “ bpp ” ) and a non-exchange traded reit ( “ breit ” ) . bpp has assembled a global portfolio of high-quality investments across north america , europe and asia , which target substantially stabilized assets in prime markets with a focus on industrial , multifamily , office and retail assets . breit invests primarily in stabilized income-oriented commercial real estate in the u.s. and to a lesser extent in real estate-related securities . private equity . our private equity segment includes our corporate private equity business , which consists of ( a ) our flagship private equity funds ( blackstone capital partners ( “ bcp ” ) funds ) , ( b ) our sector-focused private equity funds , including our energy-focused funds ( blackstone energy partners ( “ bep ” ) funds ) and ( c ) our asia-focused fund ( blackstone capital partners asia ( “ bcp asia ” ) fund ) . in addition , our private equity segment includes ( a ) our core private equity fund , blackstone core equity partners ( “ bcep ” ) , 74 ( b ) our opportunistic investment platform that invests globally across asset classes , industries and geographies , blackstone tactical opportunities ( “ tactical opportunities ” ) , ( c ) our secondary fund of funds business , strategic partners fund solutions ( “ strategic partners ” ) , ( d ) our infrastructure-focused funds , blackstone infrastructure partners ( “ bip ” ) , ( e ) our life sciences private investment platform , blackstone life sciences ( “ bxls ” ) , ( f ) a multi-asset investment program for eligible high net worth investors offering exposure to certain of blackstone 's key illiquid investment strategies through a single commitment , blackstone total alternatives solution ( “ btas ” ) and ( g ) our capital markets services business , blackstone capital markets ( “ bxcm ” ) . we are a world leader in private equity investing . our corporate private equity business , established in 1987 , pursues transactions across industries in both established and growth-oriented businesses across the globe . it strives to create value by investing in great businesses where our capital , strategic insight , global relationships and operational support can drive transformation . our core private equity fund targets control-oriented investments in high-quality companies with durable businesses and seeks to offer a lower level of risk and a longer hold period than traditional private equity . tactical opportunities invests globally across asset classes , industries and geographies , seeking to identify and execute on attractive , differentiated investment opportunities , leveraging the intellectual capital across our various businesses while continuously optimizing its approach in the face of ever-changing market conditions . strategic partners is a total fund solutions provider that acquires interests in high-quality private funds from original holders seeking liquidity , makes primary investments and co-investments with financial sponsors and provides investment advisory services to clients investing in primary and secondary investments in private funds and co-investments . bip focuses on investments across all infrastructure sectors , including energy , water and waste and communications . bxls is our private investment platform with capabilities to invest across the life cycle of companies and products within the life sciences sector . hedge fund solutions . the principal component of our hedge fund solutions segment is blackstone alternative asset management ( “ baam ” ) . story_separator_special_tag volatility moderated slightly in 2019 , with the vix index averaging 15.4 , down 5 % from the 2018 average , and ending the year at 13.8. global equity issuance was fairly steady , down 1 % in 2019. merger and acquisition ( m & a ) activity was also fairly steady , with global announced m & a volumes down 1 % in 2019. the industrial sector remains soft , as industrial production declined 0.9 % in the fourth quarter from the year-ago period . the institute for supply management manufacturing purchasing managers ' index also declined in the fourth quarter to the lowest level since june 2009 , signaling ongoing contraction in the u.s. manufacturing sector . 76 the u.s. continues to experience low unemployment , with a jobless rate of 3.5 % — the lowest level since december 1969. wage growth continued in the fourth quarter , with average hourly earnings increasing 3.3 % year-over-year , based on the three-month average for production and nonsupervisory employees . although the growth rate moderated from the third quarter of 2019 , it remains elevated . the global growth cycle is in a mature phase and signs of slowdown are evident in certain regions around the world , although most economists continue to expect moderate economic growth in the near term , with limited signals of an imminent recession in the u.s. as consumer and government spending remain healthy . although the broader outlook remains constructive and progress was made on trade , including a phase one deal with china and the united states-mexico-canada agreement , geopolitical instability continues to pose risk . in particular , the recent outbreak of the novel coronavirus in many countries , which is a rapidly evolving situation , has disrupted global travel and supply chains , and has adversely impacted global commercial activity and a number of industries , such as transportation , hospitality and entertainment . the rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of the novel coronavirus , which may have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown . notable transactions on april 10 , 2019 , blackstone issued 600 million aggregate principal amount of 1.500 % senior notes maturing on april 10 , 2029. effective july 1 , 2019 , the blackstone group l.p. converted from a delaware limited partnership to a delaware corporation , the blackstone group inc. see “ — organizational structure. ” on october 10 , 2019 , blackstone completed the retirement of its 5.875 % senior notes maturing on march 15 , 2021 ( the “ 2021 notes ” ) . on september 3 , 2019 , blackstone commenced a cash tender offer ( the “ tender offer ” ) on the notes and subsequently redeemed the non-tendered notes . on september 10 , 2019 , blackstone issued $ 500 million aggregate principal amount of 2.500 % senior notes maturing on january 10 , 2030 and $ 400 million aggregate principal amount of 3.500 % senior notes maturing on september 10 , 2049. organizational structure effective july 1 , 2019 , the blackstone group l.p. converted from a delaware limited partnership to a delaware corporation , the blackstone group inc. 77 the simplified diagram below depicts our current organizational structure . the diagram does not depict all of our subsidiaries , including intermediate holding companies through which certain of the subsidiaries depicted are held . key financial measures and indicators we manage our business using certain financial measures and key operating metrics since we believe these metrics measure the productivity of our investment activities . we prepare our consolidated financial statements in accordance with gaap . see “ — item 8. financial statements and supplementary data — notes to consolidated financial statements — note 2. summary of significant accounting policies ” and “ — critical accounting policies. ” our key non-gaap financial measures and operating indicators and metrics are discussed below . distributable earnings distributable earnings is derived from blackstone 's segment reported results . distributable earnings is used to assess performance and amounts available for dividends to blackstone shareholders , including blackstone personnel and others who are limited partners of the blackstone holdings partnerships . distributable earnings is the sum of segment distributable earnings plus net interest income ( loss ) less taxes and related payables . distributable earnings excludes unrealized activity and is derived from and reconciled to , but not equivalent to , its most directly comparable gaap measure of income ( loss ) before provision ( benefit ) for taxes . see “ — non-gaap financial measures ” for our reconciliation of distributable earnings . net interest income ( loss ) is presented on a segment basis and is equal to interest and dividend revenue less interest expense , adjusted for the impact of consolidation of blackstone funds , and interest expense associated with the tax receivable agreement . taxes and related payables represent the total gaap tax provision adjusted to include only the current tax provision ( benefit ) calculated on income ( loss ) before provision ( benefit ) for taxes excluding the tax impact of any divestitures and including the payable under the tax receivable agreement . 78 segment distributable earnings segment distributable earnings is blackstone 's segment profitability measure used to make operating decisions and assess performance across blackstone 's four segments . segment distributable earnings represents the net realized earnings of blackstone 's segments and is the sum of fee related earnings and net realizations for each segment . blackstone 's segments are presented on a basis that deconsolidates blackstone funds , eliminates non-controlling ownership interests in blackstone 's consolidated operating partnerships , removes the amortization of intangible assets and removes transaction-related charges . transaction-related charges arise from corporate actions including acquisitions , divestitures and blackstone 's initial public offering .
| consolidated results of operations following is a discussion of our consolidated results of operations for each of the years in the three-year period ended december 31 , 2019. for a more detailed discussion of the factors that affected the results of our four business segments ( which are presented on a basis that deconsolidates the investment funds we manage ) in these periods , see “ — segment analysis ” below . 82 the following table sets forth information regarding our consolidated results of operations and certain key operating metrics for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_5_th n/m not meaningful . 83 year ended december 31 , 2019 compared to year ended december 31 , 2018 revenues revenues were $ 7.3 billion for the year ended december 31 , 2019 , an increase of $ 505.0 million compared to $ 6.8 billion for the year ended december 31 , 2018. the increase in revenues was primarily attributable to increases of $ 570.2 million in investment income , $ 444.4 million in management and advisory fees , net and $ 72.4 million in incentive fees , partially offset by a decrease of $ 592.3 million in other revenue . the increase in investment income was primarily attributable to increases in our real estate , credit and hedge fund solutions segments of $ 1.0 billion , $ 173.4 million and $ 53.7 million , respectively , partially offset by a decrease in our private equity segment of $ 632.8 million . the increase in our real estate segment was primarily attributable to higher net appreciation of investment holdings in our brep opportunistic funds .
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45 the valuation allowance at january 31 , 2012 relates to certain state research and development tax credit carryforwards which are expected to expire unused . the change in the valuation allowance is approximately $ 35,000 and represents a reserve against the additional state research and development credits generated during the current year net of federal benefit . the company reasonably believes that it is possible that some unrecognized tax benefits , accrued interest and penalties could decrease income tax expense in the next year due to either the review of previously filed tax returns or the expiration of certain statutes of limitation . the company estimates the reversal of the unrecognized tax benefit to be approximately $ 241,000 , excluding interest and penalties . a reconciliation of unrecognized tax benefits , excluding interest and penalties follows : replace_table_token_25_th if the $ 779,543 is recognized , $ 443,337 would decrease the effective tax rate in the period in which each of the benefits is recognized and the remainder would be offset by a reversal of deferred tax assets . during fiscal 2012 and 2011 the company recognized $ 32,839 and $ 60,127 , respectively , of potential interest and penalties , which are included as a component of income tax expense in the accompanying statement of operations . at january 31 , 2012 and 2011 , the company had accrued potential interest and penalties of $ 453,000 and $ 420,000 , respectively . the company and its subsidiaries file income tax returns in u.s. federal jurisdictions , various state jurisdictions , and various foreign jurisdictions . the company is no longer subject to u.s. federal examinations prior to 2008. at january 31 , 2012 , the company has indefinitely reinvested $ 2,632,000 of the cumulative undistributed earnings of its foreign subsidiary in germany , all of which would be subject to u.s. taxes if repatriated to the u.s. through january 31 , 2012 , the company has not provided deferred income taxes on the undistributed earnings of this subsidiary because such earnings are considered to be indefinitely reinvested . non-u.s. income taxes are , however , provided on these undistributed earnings . note 9contractual obligations the following table summarizes our contractual obligations : replace_table_token_26_th * purchase commitments consists primarily of inventory and equipment purchase orders made in the ordinary course of business , including the purchase commitment agreement interest into with buyer of the asheboro operations as described in note 2. the company incurred rent and lease expenses in the amount of $ 706,000 and $ 641,000 for the fiscal years 2012 and 2011 , respectively . 46 note 10nature of operations , segment reporting and geographical information the company 's operations consist of the design , development , manufacture and sale of specialty data recorder and acquisition systems , label printing and applicator systems , neuropsychological instrumentation systems and consumable supplies . the company organizes and manages its business as a portfolio of products and services designed around a common theme of data acquisition and information output . the company reports three reporting segments consistent with its sales product groups : test & measurement ( t & m ) , quicklabel systems ( quicklabel ) , and grass technologies ( grass ) . t & m produces data recording equipment used worldwide for a variety of recording , monitoring and troubleshooting applications for the aerospace , automotive , metal mill , power and telecommunications industries . quicklabel produces an array of high-technology digital label printers , labeling software and consumables for a variety of commercial industries worldwide . grass produces a range of instrumentation equipment story_separator_special_tag overview astro-med is a multi-national enterprise , which designs , develops , manufactures , distributes and services a broad range of products that acquire , store , analyze and present data in multiple formats . the company organizes its structure around a core set of competencies , including research and development , manufacturing , service , marketing and distribution . it markets and sells its products and services through the following three sales product groups : test and measurement product group ( t & m ) offers a suite of ruggedized printer products designed for military and commercial applications to be used in the avionics industry to print weather maps , communications and other critical flight information . t & m also comprises a suite of telemetry recorder products sold to the aerospace and defense industries , as well as portable data acquisition recorders , which offer diagnostic and test functions to a wide range of manufacturers including automotive , energy , paper and steel fabrication . quicklabel systems product group ( quicklabel ) offers label printer hardware , labeling software , servicing contracts , and label and ink consumable products that digitally print color labels on a broad range of label and tag substrates . grass technologies product group ( grass ) offers monitoring and diagnostic instrumentation that serves the clinical and research neurophysiology and life sciences markets , as well as a range of consumable supplies . 14 astro-med markets and sells its products and services globally through a diverse distribution structure of direct sales personnel , manufacturer 's representatives and authorized dealers that deliver a full complement of branded products and services to customers in our respective markets . our growth strategy centers on organic growth through product innovation made possible by research and development initiatives , as well as strategic acquisitions that fit into existing core businesses . story_separator_special_tag net cash flow provided by investing activities for fiscal 2012 was $ 430,000 , which included cash used for capital expenditures of approximately $ 1,155,000 including $ 480,000 for machinery and equipment , $ 335,000 for tools and dies , $ 228,000 for information technology , $ 102,000 for land and building improvements and $ 10,000 for furniture and fixtures . included in net cash flow used by financing activities for fiscal 2012 were dividends paid of $ 2,055,000. dividends paid in fiscal 2011 were $ 2,036,000. the company 's annual dividend per share was $ 0.28 in fiscal 2012 and 2011. the company has not repurchased any shares of its common stock in fiscal 2012 ; however , since the inception of the common stock buy back program in fiscal 1997 , the company has repurchased a total of 1,420,010 shares of its common stock . at january 31 , 2012 , the company 's board of directors has authorized the purchase of an additional 500,000 shares of the company 's common stock in the future . contractual obligations , commitments and contingencies astro-med is subject to contingencies , including legal proceedings and claims arising out of its businesses that cover a wide range of matters , such as : contract and employment claims ; workers compensation claims ; product liability claims ; warranty claims ; and claims related to modification , adjustment or replacement of component parts of units sold . while it is impossible to ascertain the ultimate legal and financial liability with respect to contingent liabilities , including lawsuits , we believe that the aggregate amount of such liabilities , if any , in excess of amounts provided or covered by insurance , will not have a material adverse effect on our consolidated financial position or results of operations . it is possible , however , that results of operations for any particular future period could be materially affected by changes in our assumptions or strategies related to these contingencies or changes out of the company 's control . 18 critical accounting policies and estimates astro-med 's discussion and analysis of financial condition and results of operations are based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . certain of our accounting policies require the application of judgment in selecting the appropriate assumptions for calculating financial estimates . by their nature , these judgments are subject to an inherent degree of uncertainty . we periodically evaluate the judgments and estimates used for our critical accounting policies to ensure that such judgments and estimates are reasonable for our interim and year-end reporting requirements . these judgments and estimates are based on the company 's historical experience , current trends and information available from other sources , as appropriate . if different conditions result from those assumptions used in our judgments , the results could be materially different from our estimates . we believe the following are our most critical accounting policies as they require significant judgments and estimates in the preparation of our financial statements : revenue recognition : our product sales are recognized when all of the following criteria have been met : persuasive evidence of an arrangement exists ; price to the buyer is fixed or determinable ; delivery has occurred and legal title and risk of loss have passed to the customer ; and collectability is reasonably assured . when other significant obligations remain after products are delivered , revenue is recognized only after such obligations are fulfilled . returns and customer credits are infrequent and are recorded as a reduction to sales . rights of return are not included in sales arrangements . revenue associated with products that contain specific customer acceptance criteria is not recognized before the customer acceptance criteria are satisfied . when a sale arrangement involves training or installation , the deliverables in the arrangement are evaluated to determine whether they represent multiple element arrangements . this evaluation occurs at inception of the arrangement and as each item in the arrangement is delivered . the total fee from the arrangement is allocated to each unit of accounting based on its relative fair value . fair value for each element is established generally based on the sales price charged when the same or similar element is sold separately . we allocate revenue to each element in our multiple-element arrangements based upon their relative selling prices . we determine the selling price for each deliverable based on a selling price hierarchy . the selling price for a deliverable is based on our vendor specific objective evidence ( vsoe ) if available , third-party evidence ( tpe ) if vsoe is not available , or estimated selling price ( esp ) if neither vsoe nor tpe is available . revenue allocated to each element is then recognized when the basic revenue recognition criteria for that element have been met . the amount of product revenue recognized is affected by our judgments as to whether an arrangement includes multiple elements . infrequently , astro-med recognizes revenue for non-recurring engineering ( nre ) fees for product modification orders upon completion of agreed-upon milestones . revenue is deferred for any amounts received prior to completion of milestones . certain of our nre arrangements include formal customer acceptance provisions . in such cases , we determine whether we have obtained customer acceptance for the specific milestone before recognizing revenue . infrequently , the company receives requests from customers to hold product being purchased from us for the customers ' convenience .
| results of operations replace_table_token_3_th fiscal 2012 compared to fiscal 2011 astro-med 's sales in fiscal 2012 were $ 79,193,000 , representing an 11.5 % increase as compared to prior year sales of $ 71,016,000. domestic sales of $ 55,004,000 increased 8.7 % from the prior year sales of $ 50,614,000. international sales of $ 24,189,000 includes a favorable impact of $ 705,000 due to foreign exchange rates and reflects an 18.6 % increase as compared to the prior year . hardware sales in fiscal 2012 were $ 34,767,000 , a 21.2 % increase as compared to prior year 's sales of $ 28,686,000. all three product groups achieved double-digit growth in the current year , with t & m hardware sales up 21.0 % , quicklabel hardware sales up 37.5 % and grass technologies ' hardware sales up 12.4 % . the primary drivers of this increase relates to the increase in t & m 's ruggedized product sales , the increase in sales of quicklabel 's vivo ! and zeo ! product lines and the increase in grass ' clinical line of diagnostic systems , especially eeg and long term epilepsy monitoring systems . the increase in the current year 's hardware sales was tempered by lower sales of t & m 's recorder and data acquisition product lines . consumable sales in fiscal 2012 were $ 39,269,000 , representing a 5.8 % increase as compared to prior year sales of $ 37,113,000. the overall increase in consumable sales for the current fiscal year was primarily traceable to sales of digital color printer supplies within the quicklabel product group , which were up 38.9 % over the prior year . also contributing to the current year increase were sales of grass ' electrodes and cream products which increased 10.7 % as compared to the prior year .
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story_separator_special_tag style= '' font : 10pt times new roman , times , serif ; margin : 0pt 0.05in 0pt 0 ; text-align : justify ; text-indent : 0.5in '' > a very large percentage of the products we produce are used on military as opposed to civilian aircraft . these products can be replacements for aircraft already in the fleet of the armed services or for the production of new aircraft . reductions to the defense department budget and decreased usage of aircraft have reduced the demand for both new production and replacement spares . this has reduced our sales , particularly in our complex machining segment . in response to the reduction in military sales , we are focusing greater efforts on the civilian aircraft market though we still remain dependent upon the military for an overwhelming portion of our revenues . 15 public offering on july 12 , 2017 , we sold 5,175,000 shares of common stock at a price of $ 1.50 per for gross proceeds of $ 7,762,500 in a firm commitment underwritten public offering ( the “ public offering ” ) . we received net proceeds of approximately $ 6,819,125 from the sale of our shares in the public offering . for additional information concerning the public offering and the related restructuring transactions ( the “ restructuring transactions ” ) , see the discussion under the caption “ liquidity , ” below . segment data we follow financial accounting standards board ( `` fasb ” ) asc 280 , “ segment reporting ” ( “ asc 280 ” ) , which establishes standards for reporting information about operating segments in annual and interim financial statements , asc 280 requires that companies report financial and descriptive information about their reportable segments based on a management approach . asc 280 also establishes standards for related disclosures about products and services , geographic areas and major customers . we currently divide our operations into three operating segments : complex machining ; aerostructures and electronics ; and turbine engine components . we separately report our corporate overhead ( which was comprised of certain operating costs that were not directly attributable to a particular segment ) . effective january 1 , 2015 , all operating costs are allocated to the company 's three operating segments . in light of the pending sale of wmi and our focus on complex , machined parts to achieve profitability and growth , in the future we may change our reportable operating segments . the accounting policies of each of the segments are the same as those described in the summary of significant accounting policies . we evaluate performance based on revenue , gross profit contribution and assets employed . results of operations-continuing operations years ended december 31 , 2017 and 2016 : in march 2018 , we announced our intention to divest wmi and related operations . these operations are part of our aerostructures & electronics operating segment . once the sale is completed , our company will be more focused on complex , machined products for aircraft landing gear and jet turbine applications . although wmi and the related operations have been classified as a discontinued operation , we will continue to operate these businesses until the sale is closed which is anticipated to occur in may or june 2018. we anticipate that from january 2018 through the closing date , these operations will generate a net loss . for purposes of the following discussion of our selected financial information and operating results , we have presented our financial information based on our continuing operations unless otherwise noted . selected financial information : replace_table_token_1_th balance sheet data : replace_table_token_2_th 16 the following sets forth the results of operations for each of our segments individually and on a consolidated basis for the periods indicated : replace_table_token_3_th net sales : consolidated net sales for the year ended december 31 , 2017 were $ 49,869,000 , a decrease of $ 1,452,000 , or 2.8 % , compared with $ 51,321,000 for the year ended december 31 , 2016. net sales of our complex machining segment were $ 38,489,000 , an increase of $ 1,365,000 , or 3.7 % , from $ 37,124,000 in the prior year . net sales of our aerostructures & electronics segment , after elimination of discontinued operations , were $ 4,574,000 , an increase of $ 1,350,000 , or 41.9 % , from $ 3,224,000 in the prior year . this increase can be attributed to increased volume at eur-pac . net sales in our turbine engine components segment were $ 6,806,000 , a decrease of $ 4,167,000 , compared with $ 10,973,000 for the year ended december 31 , 2016. this decrease was due almost entirely to the sale of amk in january 2017 which had sales of $ 4,511,000 in 2016 and $ 417,000 in 2017. excluding the results of amk in both annual periods , consolidated net sales would have been $ 49,452,000 in 2017 or an increase of 5.6 % as compared to $ 46,810,000 in 2016. as indicated in the table below , three customers represented 62.0 % and three customers represented 52.3 % of total sales for the years ended december 31 , 2017 and 2016 , respectively . replace_table_token_4_th 17 as indicated in the table below , three customers represented 68.7 % and two customers represented 35.3 % of gross accounts receivable at december 31 , 2017 and 2016 , respectively . replace_table_token_5_th * customer was less than 10 % of gross accounts receivable at december 31 , 2016. gross profit : consolidated gross profit from operations for the year ended december 31 , 2017 was $ 4,867,000 , an increase of $ 598,000 , or 14.0 % , as compared to gross profit of $ 4,269,000 for the year ended december 31 , 2016. consolidated gross profit as a percentage of sales was 9.8 % and 8.3 % for the years ended december 31 , 2017 and 2016 , respectively . story_separator_special_tag the remaining $ 500,000 will be applied to outstanding accounts payable on a future date to be determined by pnc or used to reduce the revolving loans . the fourteenth amendment to the loan facility required that we maintain a fixed charge coverage ratio of not less than 1.25 to 1.00 , tested quarterly on a consolidated rolling twelve ( 12 ) month basis; however , for the quarter ending june 30 , 2017 , which was to be tested based upon the prior six ( 6 ) months , we were required to maintain a fixed charge coverage ratio of not less than 1.00 to 1.00 and for the quarter ending september 30 , 2017 , which was to be tested based upon the prior nine ( 9 ) months , we were required to maintain a fixed charge coverage ratio of not less than 1.10 to 1.00. the amendment also reduced the amount to be paid weekly in repayment of excess advances under the revolving credit facility from $ 100,000 to $ 50,000 for each monday during the months of january , february and march of 2017. thereafter , the weekly payments were to return to $ 100,000 until such excess advances were repaid in full . on june 19 , 2017 , we entered into the fifteenth amendment to the loan facility , which waived the failure to comply with the minimum ebitda covenant for the periods ended december 31 , 2016 and march 31 , 2017 and the capital expenditures covenant for the period ended december 31 , 2016. the amendment also requires that we maintain at all times a fixed charge coverage ratio , tested quarterly on a consolidated basis beginning september 30 , 2017 , as follows : ( i ) 1.00 to 1.00 for the quarter ending september 30 , 2017 , tested based upon the prior three ( 3 ) months , ( ii ) 1.05 to 1.00 for the quarter ending december 31 , 2017 , tested based upon the prior six ( 6 ) months and ( iii ) 1.05 to 1.00 for the quarter ending march 31 , 2018 , tested based upon the prior nine ( 9 ) months and that we maintain ebitda of not less than $ 345,000 for the period ending june 30 , 2017. the amendment also provided that we were not required to maintain a fixed charge coverage ratio and that no testing was required to the fixed charge coverage ratio for the periods ending december 31 , 2016 and march 31 , 2017 and that we were not required to maintain a fixed charge coverage ratio and no testing was required of the fixed charge coverage ratio for the period ending june 30 , 2017. in addition , the amendment reduces the weekly payments we are required to make to reduce our $ 2,244,071 over-advance under the revolving credit facility as of june 19 , 2017 from $ 100,000 to $ 25,000 per week during the period commencing may 22 , 2017 through and including july 10 , 2017. we paid $ 50,000 to pnc in connection with the amendment and reimbursed pnc 's counsel fees . as of december 31 , 2017 , we were not in compliance with our fixed charge coverage ratio covenant . as of december 31 , 2017 , our outstanding indebtedness to pnc was $ 19,926,000 and consisted of revolving loans in the amount of $ 16,455,000 and the term loan of $ 3,471,000 , as compared to december 31 , 2016 , when our debt to pnc was $ 31,042,000 and consisted of revolving loans of $ 24,393,000 and the term loan of $ 6,649,000. in addition , as of december 31 , 2017 we had capitalized lease obligations to third parties of $ 3,073,000 , as compared to capitalized lease obligations of $ 4,215,000 as of december 31 , 2016 . 19 significant transactions since january 1 , 2017 which have impacted our liquidity dispositions on january 27 , 2017 , we sold all of the outstanding shares of amk to meyer tool , inc. , pursuant to a stock purchase agreement dated january 27 , 2017 , for a purchase price of $ 4,500,000 , net of a working capital adjustment of $ ( 163,000 ) , plus additional quarterly payments , not to exceed $ 1,500,000 , equal to five percent ( 5 % ) of net revenues of amk commencing april 1 , 2017. in june 2017 , we agreed to a final working capital adjustment with the buyer reducing the gain on sale from $ 451,000 to $ 200,000. the gain on sale was the difference between the non-contingent payments and the carrying value of the disposed business . the company has made an accounting policy decision to record the contingent consideration as it is determined to be realizable . the proceeds of the sale were applied in accordance with the terms of the fourteenth amendment to the loan facility , as discussed above . on march 21 , 2018 , we entered into a stock purchase agreement ( “ spa ” ) for the sale of wmi and related operations , for a purchase price of $ 9,000,000 , subject to a working capital adjustment . the spa also provides for contingent payments of up to an aggregate of $ 1,000,000 if wmi enters into specified agreements by may 31 , 2018 and july 31 , 2018 , respectively ( the “ specified dates ” ) , which contingent payments are subject to reduction by $ 100,000 for each calendar month after the specified dates which passes before wmi enters into the specified agreements . the sale is subject to certain conditions , including the buyer obtaining financing for the amount of the purchase price , and requires an escrow deposit of $ 2,000,000 to cover the working capital adjustment and our obligation to indemnify the buyer against damages arising out of the breach of our representations and warranties and obligations under the spa .
| business overview we are an aerospace company operating primarily in the defense industry , though the proportion of our business represented by the commercial and industrial sector is increasing . we manufacture and design structural parts and assemblies that focus on flight safety , including landing gear , arresting gear , engine mounts , flight controls , throttle quadrants , and other components . our turbine engine components segment makes components and provides services for jet engines and ground-power turbines . our products are currently deployed on a wide range of high profile military and commercial aircraft including sikorsky 's uh-60 blackhawk and ch-47 chinook helicopters , lockheed martin 's f-35 joint strike fighter , northrop grumman 's e2d hawkeye , the us navy f-18 and usaf f-16 fighter aircraft , boeing 's 777 and airbus ' 380 commercial airliners . our turbine engine segment makes components for jet engines that are used on the usaf f-15 and f-16 , the airbus a-330 and a-380 , and the boeing 777 , in addition to a number of ground-power turbine applications . air industries machining , corp. ( “ aim ” ) became a public company in 2005 when its net sales were approximately $ 30 million . aim has manufactured components and subassemblies for the defense and commercial aerospace industry for over 45 years and has established long-term relationships with leading defense and aerospace manufacturers . since becoming public , we have completed a series of acquisitions of defense aerospace and commercial aerospace businesses which have enabled us to broaden the range of products and services beyond those which were provided by aim .
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10.07 1998 director stock option plan , as amended and restated effective december 16 , 2004 , including forms of option agreements . ( incorporated by reference from form 10-k for 2004 filed on march 1 , 2005 ; file no . 033-07012-99 . ) 10.08 amended and restated 2007 non-employee director equity plan as of february 12 , 2009 , including statements of additional terms and conditions for awards granted after that date . ( incorporated by reference from form 10-q for the quarterly period ended march 31 , 2009 filed on april 22 , 2009 ; file no . 033-07012-99 . ) 10.10 t. rowe price group , inc. outside directors deferred compensation plan . ( incorporated by reference from form 10-k for 2004 filed on march 1 , 2005 ; file no . 033-07012-99 . ) 10.13.1 story_separator_special_tag general . our revenues and net income are derived primarily from investment advisory services provided to individual and institutional investors in our sponsored mutual funds and other managed investment portfolios . the other managed investment portfolios include separately managed accounts , subadvised funds , and other sponsored investment portfolios including common trust funds and mutual funds offered to investors outside the united states and through variable annuity life insurance plans . investment advisory clients outside the united states account for 11 % of our assets under management at december 31 , 2011. we manage a broad range of u.s. , international and global stock , bond , and money market mutual funds and other investment portfolios , which meet the varied needs and objectives of individual and institutional investors . investment advisory page 23 revenues depend largely on the total value and composition of assets under our management . accordingly , fluctuations in financial markets and in the composition of assets under management affect our revenues and results of operations . background . u.s. equity markets ended 2011 virtually unchanged from the end of 2010 despite experiencing wide trading ranges over the course of the year . economic and geopolitical concerns weighed heavily on markets at times during the year and contributed to high volatility . the positive momentum in equity markets in late 2010 continued into 2011 as signs of an improving u.s. economy and the release of strong corporate earnings helped lift major indexes by the end of april to new highs not seen since march 2009. equities began to fall in may and continued to decline through the summer , as the u.s. and european economies showed signs of weakening , the european debt crisis intensified , and u.s. congress struggled to reach an agreement on deficit reduction and raising the federal debt ceiling . the uncertainties surrounding these macro concerns combined with standard & poor 's downgrade in august of the u.s. government 's long-term sovereign credit rating led investors in search of less risky assets and increased selling pressure on markets through early october . volatility in the markets continued through the end of the year , despite favorable u.s. economic data , as the bipartisan congressional super committee failed to reach a deficit reduction agreement and european leaders failed to develop a concrete plan to address their own debt crisis . in this volatile environment , the global stock indexes produced flat to negative results . the s & p 500 index of large-cap companies in leading industries of the u.s. economy returned 2.1 % in 2011 , while the nasdaq composite index , which is heavily weighted with technology companies , was down 1.8 % ( excluding dividends ) and the russell 2000 , which generally reflects smaller companies , decreased 4.2 % . performance for stock markets outside the u.s. was notably worse , although a strengthening u.s. dollar decreased the magnitude of the losses in dollar terms . in 2011 , the msci eafe index , which measures the performance of mostly large-cap stocks in europe , australasia , and the far east , produced an 11.7 % loss while the msci emerging markets index decreased 18.2 % . despite the s & p downgrade , treasury yields fell to historic lows in the third quarter of 2011 and prices rose as investors sought the safety of these securities in the wake of the equity market weakness , the intensifying european debt crisis , and slowing economic growth . to support the u.s. economy , the federal reserve announced in the third quarter of 2011 that it would keep the federal funds target rate near 0 % until at least mid-2013 , trade short-term treasury holdings for longer-term issues , and resume mortgage-backed security purchases . treasury yields ended the year below their levels at the end of 2010 as nervous global investors continued to seek out less risky investments . the yield on the benchmark 10-year u.s. treasury at december 31 , 2011 , was 1.9 % , a decrease of 141 basis points from the end of 2010. bonds produced positive overall returns in 2011 , as strong gains among long-term government bonds compensated for lower returns in other categories . municipal and corporate bonds did very well , while high yield securities trailed as solid returns in the first half of 2011 were followed by flat performance in the second half of 2011 as investors sought less risky assets . for 2011 , the barclays capital municipal bond index returned 10.7 % , the barclays capital u.s. aggregate index gained 7.8 % , and the credit suisse high yield index was up 5.5 % . a similar trend was seen in the non-u.s. bond markets though the page 24 gains were limited by a stronger u.s. dollar versus other currencies . the j.p. morgan emerging markets index plus gained 9.2 % in 2011 , while the barclays capital global aggregate ex-u.s. dollar bond index was up 4.4 % . assets under management . with an uncertain and volatile market environment as a backdrop , our assets under management increased $ 7.5 billion over the course of 2011 and ended the year at $ 489.5 story_separator_special_tag administrative fees increased $ 6.5 million to $ 294.3 million in 2010. increases in our mutual fund servicing and defined contribution plan revenues of $ 10.2 million were offset by a $ 3.7 million decrease in brokerage fees due to a reduction in per-trade commissions charged beginning july 1 , 2010 , to customers with substantial assets . changes in administrative fees are generally offset by similar changes in related operating expenses that are incurred to provide services to the funds and their investors . distribution and servicing fees earned from 12b-1 plans of the advisor and r classes of our sponsored mutual fund shares were $ 43.2 million in 2010 , an increase of $ 12.2 million from 2009. we recognized higher fees in 2010 on greater assets under management in these share classes . changes in these fees are offset by an equal increase in the distribution and servicing costs paid to those third-party financial intermediaries that distribute these assets . operating expenses compensation and related costs , increased $ 87.0 million , or 11.2 % , compared to 2009. the largest part of the change is attributable to a $ 63.9 million increase in our annual variable compensation programs . greater use of outside contractors increased our 2010 costs by $ 14.1 million with the remainder of the change primarily attributable to higher other employee benefits and employee related costs . at december 31 , 2010 , we employed 5,052 associates , an increase of 5.2 % from the end of 2009 , to support both business growth and added capabilities . advertising and promotion expenditures were up $ 13.7 million , or 18.7 % , compared to 2009 in response to investor interest in recovering markets over the 2010 period . distribution and servicing costs paid to third-party financial intermediaries that distribute our advisor and r classes of mutual fund shares increased $ 12.2 million from 2009 , as average assets under management in these classes was greater . these costs are offset by an equal increase in our distribution and servicing fees earned from 12b-1 plans of these classes , as discussed above . page 29 occupancy and facility costs together with depreciation expense increased $ 4.1 million , or 2.4 % , versus 2009. the amount of office space occupied , and the operating costs of our facilities have all risen to meet increased business demands . these increasing business demands have also led us to upgrade our technology capabilities and related maintenance programs . other operating expenses increased $ 47.9 million , or 39.7 % , from 2009. this increase includes a $ 16.4 million charge related to the one-time contribution made to certain money market funds to offset the effects of cumulative net losses realized in recent years . the remainder of the increase relates to higher consulting fees , travel costs , and other professional services , incurred to meet increasing business demands . non-operating investment income ( loss ) our non-operating investment income activity resulted in a net gain of $ 33.5 million in 2010 , compared to a net loss of $ 12.7 million in the 2009 period . this change of $ 46.2 million includes $ 36.1 million in other than temporary impairments recognized on our investments in sponsored mutual funds in 2009. the change also includes $ 1.3 million in more gains recognized in the 2010 period for the settlement and valuation of a series of non-deliverable forward contracts used to economically hedge the foreign currency exposure associated with the uti acquisition price and $ 5.3 million in net earnings from our investment in uti . provision for income taxes the 2010 provision for income taxes as a percentage of pretax income is 37.2 % . the 2010 income tax provision includes nonrecurring discrete benefits of .4 % related to the settlement of prior years state income tax positions and .2 % from the firm 's reorganization of its international entities , which was completed to help realize additional operational efficiencies . capital resources and liquidity . during 2011 , stockholders ' equity increased from $ 3.3 billion to $ 3.4 billion . we repurchased nearly 8.7 million common shares for $ 479.7 million in 2011 from existing cash balances and cash generated from operations . tangible book value is $ 2.8 billion at december 31 , 2011 , and our cash and cash equivalents and our mutual fund investment holdings total nearly $ 1.7 billion . given the availability of these financial resources , we do not maintain an available external source of liquidity . at december 31 , 2011 , we had outstanding commitments to make additional contributions totaling $ 42.5 million to various investment partnerships in which we have an existing investment . we presently anticipate funding 2012 property and equipment expenditures of about $ 100 million from our cash balances and operating cash inflows . 2011 versus 2010 . operating activities during 2011 provided cash flows of $ 948.4 million , up $ 215.6 million from 2010 , including a $ 101.0 million increase in net income . the increase also includes an $ 81.7 million change in the timing differences in the cash settlement of our income taxes , accounts receivable and accrued revenues and payables , and accrued liabilities . page 30 net cash used in investing activities totaled $ 165.0 million , down $ 111.9 million from the 2010 period . cash flows in 2010 included $ 143.6 million in cash used to purchase our 26 % equity interest in uti . we spent $ 35.7 million less in property and equipment expenditures in 2011 compared to 2010 due to the construction of our technology support facility being substantially complete at the end of 2010. these reductions in cash used in 2011 were offset by an increase of $ 57.0 million in net investments made into our sponsored mutual funds compared to the 2010 period .
| results of operations . in 2011 , we changed the presentation of our consolidated statements of income . we are presenting distribution and servicing fees earned from 12b-1 plans of the advisor , r , and vip ii classes of our sponsored mutual funds , previously included in administrative fees , as a separate line to enhance transparency of these fees . we also are presenting as a separate line the offsetting distribution and servicing costs , previously included in other operating expenses , paid to third-party financial intermediaries who source those share classes noted above . investment income earned by our savings bank subsidiary , previously presented on its own , is being reported net of interest expense paid on savings bank deposits . the line was renamed net revenue of savings bank subsidiary and the details of this line are included in note 4 to the consolidated financial statements . all amounts for the comparable calendar years have been reclassified to conform to the 2011 presentation . 2011 versus 2010. investment advisory revenues were up 15.9 % , or $ 322.2 million , to $ 2.3 billion in 2011 , as average assets under our management increased $ 74.5 billion to $ 497.1 billion . the average annualized fee rate earned on our assets under management was 47.3 basis points during 2011 compared to 48.0 basis points earned in 2010. the decrease in our average annualized fee rate is primarily a result of the $ 11.3 million increase in money market management fees voluntarily waived by the firm in order to maintain a positive yield for fund investors . the firm waived $ 36.4 million in money market fees in 2011 compared to $ 25.1 million in 2010. the firm expects that these fee waivers will continue in 2012. net revenues increased $ 379.9 million , or 16.0 % , to $ 2.7 billion .
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in addition , on december 16 , 2014 , we announced that we received a binding offer to sell lastminute.com , the european portion of our travelocity business , which closed on march 1 , 2015. our travelocity segment has no remaining operations subsequent to these dispositions . the financial results of our travelocity segment are included in net ( loss ) income from discontinued operations in our consolidated statements of operations for all periods presented . the assets and liabilities of travelocity.com and lastminute.com to be disposed of as of december 31 , 2014 and 2013 are classified as assets held for sale and liabilities held for sale in our consolidated balance sheets . the discussion and analysis of our results of operations refers to continuing operations unless otherwise indicated . a significant portion of our revenue is generated through transaction based fees that we charge to our customers . for travel network , this fee is in the form of a transaction fee for bookings on our gds ; for airline and hospitality solutions , this fee is a recurring usage-based fee for the use of our saas and hosted systems , as well as implementation fees and consulting fees . items that are not allocated to our business segments are identified as corporate and include primarily certain shared technology costs as well as stock-based compensation expense , litigation costs related to occupancy or other taxes and other items that are not identifiable with one of our segments . factors affecting our results the following is a discussion of trends that we believe are the most significant opportunities and challenges currently impacting our business and industry . the discussion also includes management 's assessment of the effects these trends have had and are expected to have on our results of continuing operations . this information is not an exhaustive list of all of the factors that could affect our results and should be read in conjunction with the factors referred to in the sections entitled “ risk factors ” and “ cautionary note regarding forward looking statements ” included elsewhere in this annual report on form 10-k. shift to saas and hosted solutions by airlines and hotels to manage their daily operations initially , large travel suppliers built custom in house software and applications for their business process needs . in response to a desire for more flexible systems given increasingly complex and constantly changing technological requirements , reduced it budgets and increased focus on cost efficiency , many travel suppliers turned to third party solutions providers for many of their key technologies and began to license software from software providers . we believe that significant revenue opportunity remains in this outsourcing trend , as legacy in house systems continue to migrate and upgrade to third party systems . by moving away from one time license fees to recurring monthly fees associated with our saas and hosted solutions , our revenue stream has become more predictable and sustainable . the saas and hosted models ' centralized deployment also allows us to save time and money by reducing maintenance and implementation tasks and lowering operating costs . geographic mix there are structural differences between the geographies in which we operate . due to our geographic concentration , our results of operations are particularly sensitive to factors affecting north america . for example , booking fees per transaction in north america have traditionally been lower than those in europe . by growing internationally with our tmc and ota customers and expanding the travel content available on our gds to target regional traveler preferences , we anticipate that we will maintain share in north america and grow share in europe , apac and latin america . for the year ended december 31 , 2014 , we derived approximately 68 % of our direct billable bookings from north america , 19 % from emea and 13 % from the rest of the world . for the year ended december 31 , 2013 , we derived approximately 69 % of our direct billable bookings from north america , 17 % from emea and 14 % from the rest of the world . 39 continued focus by travel suppliers on cost cutting and exerting influence over distribution travel suppliers continue to look for ways to decrease their costs and to increase their control over distribution . airline consolidations , pricing pressure during contract renegotiations and the use of direct distribution may continue to subject our business to challenges . the shift from indirect distribution channels , such as our gds , to direct distribution channels , may result from increased content availability on supplier operated websites or from increased participation of meta search engines , such as kayak and google , which direct consumers to supplier operated websites . this trend may adversely affect our travel network contract renegotiations with suppliers that use alternative distribution channels . for example , airlines may withhold part of their content for distribution exclusively through their own direct distribution channels or offer more attractive terms for content available through those direct channels . however , since 2010 , we believe the rate at which bookings are shifting from indirect to direct distribution channels has slowed for a number of reasons , including the increased participation of lcc/hybrids in indirect channels . over the last several years , notable carriers that previously only distributed directly , including jetblue and norwegian , have adopted our gds . other carriers such as eva airways and virgin australia have further increased their participation in a gds . these trends have impacted the revenue of travel network , which recognizes revenue for airline ticket sales based on transaction volumes , and the revenue of airline and hospitality solutions , which recognizes a portion of its revenue based on the number of pbs , depending upon the applicable revenue model . simultaneously , this focus on cost cutting and direct distribution has also presented opportunities for airline and hospitality solutions . story_separator_special_tag cost of revenue also includes amortization of upfront incentive consideration representing upfront payments or other consideration provided to travel agencies for reservations made on our gds which are capitalized and amortized over the expected life of the contract . selling , general and administrative expenses selling , general and administrative expenses consist of personnel-related expenses for employees that sell our services to new customers and administratively support the business , information technology and communication costs , professional services fees , certain settlement charges and costs to defend legal disputes , bad debt expense , depreciation and amortization and other overhead costs . intersegment transactions we account for significant intersegment transactions as if the transactions were with third parties , that is , at estimated current market prices . airline and hospitality solutions pays fees to travel network for airline trips booked through our gds . in addition , travel network historically recognized intersegment incentive consideration expense for bookings generated by our discontinued travelocity business . such costs are representative of costs incurred on a consolidated basis relating to travel network 's revenue from airlines for bookings transacted through our gds . see note 3 , discontinued operations and dispositions , and note 18 , segment information , to our consolidated financial statements . 41 key metrics “ direct billable bookings ” and “ passengers boarded ” are the primary metrics utilized by travel network and airline solutions , respectively , to measure operating performance . travel network generates fees for each direct billable booking which include bookings made through our gds ( e.g. , air , car and hotel bookings ) and through our joint venture partners in cases where we are paid directly by the travel supplier . passengers boarded ( “ pbs ” ) is the primary metric used by airline solutions to recognize saas and hosted revenue from recurring usage-based fees . the following table sets forth our key metrics ( in thousands ) : replace_table_token_15_th matters affecting comparability mergers and acquisitions in the third quarter of 2014 , we acquired the assets of genares worldwide reservation services , ltd. ( “ genares ” ) , a global , privately-held hospitality technology company , to further strengthen our position as a leading technology partner to hoteliers worldwide . the acquisition added more than 2,300 independent and chain hotel properties to our existing hospitality solutions portfolio . the acquisition of genares did not have a material impact on our results of operations . in the third quarter of 2012 , we acquired all of the outstanding stock and ownership interests of prism , a leading provider of end to end airline contract business intelligence and decision support software . the acquisition , which adds to our portfolio of products within the airline and hospitality solutions , allows for new relationships with airlines and adds to our existing business intelligence capabilities . see “ —results of operations. ” dispositions impacting results from continuing operations on february 24 , 2012 , we completed the sale of our 51 % stake in sabre pacific , an entity jointly owned by a subsidiary of sabre ( 51 % ) and abacus ( 49 % ) , to abacus for $ 46 million of proceeds , which resulted in reduced revenue and expense for travel network in 2013 compared to 2012 , and to a greater extent , in 2012 compared to 2011. of the proceeds received , $ 9 million was for the sale of stock , $ 18 million represented the repayment of an intercompany note receivable from sabre pacific , which was entered into when the joint venture was originally established , and the remaining $ 19 million represented the settlement of operational intercompany receivable balances with sabre pacific and associated amounts we owed to abacus . we recorded $ 25 million as gain on sale of business in our consolidated statements of operations . we have also entered into a license and distribution agreement with sabre pacific , under which it will market , sub license , distribute , provide access to and support for our gds in australia , new zealand and surrounding territories . sabre pacific is required to pay us an ongoing transaction fee based on booking volumes under this agreement . for the year ended december 31 , 2012 , joint venture equity income included a $ 24 million impairment of goodwill recorded by abacus associated with its acquisition of sabre pacific . 42 story_separator_special_tag style= '' margin-bottom:0pt ; margin-top:0pt ; margin-left:0pt ; ; text-indent:0pt ; ; font-weight : bold ; color : # ; font-size:8pt ; font-family : times new roman ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > ( amounts in thousands ) selling , general and administrative $ 468,152 $ 429,290 $ 38,862 9 % selling , general and administrative expenses increased by $ 39 million , or 9 % , for the year ended december 31 , 2014 compared to the prior year . the increase was due to an increase of $ 15 million in management fees paid to tpg and silver lake related to our initial public offering , a $ 10 million increase in professional fees primarily related to the implementation of certain public company requirements and strategic transactions , a $ 9 million increase in labor costs to support the growth of the business and a $ 5 million increase in bad debt expenses . these increases were partially offset by lower information technology and communication costs and depreciation and amortization . 44 interest expense , net year ended december 31 , 2014 2013 change ( amounts in thousands ) interest expense , net $ 218,877 $ 274,689 $ ( 55,812 ) ( 20 ) % interest expense , net , decreased $ 56 million , or 20 % , for the year ended december 31 , 2014 compared to the prior year .
| results of operations the following table sets forth our consolidated statement of operations data for each of the periods presented : replace_table_token_16_th years ended december 31 , 2014 and 2013 revenue replace_table_token_17_th travel network —revenue increased $ 33 million , or 2 % , for the year ended december 31 , 2014 compared to the prior year . the increase in revenue primarily resulted from : ● a $ 26 million increase in transaction-based revenue to $ 1,615 million as a result of an 8 million increase in direct billable bookings , or 2 % , to 376 million for the year ended december 31 , 2014. the increase in bookings was partially offset by a decrease of less than 1 % in the average booking fee primarily due to the impact on our average booking fee from us airways merger with american airlines , the unfavorable political and economic environment in venezuela and the resolution of a billing dispute with us airways . see “ liquidity and capital resources—recent events impacting our liquidity—political and economic environment in venezuela ” for a description of the impact of the environment in venezuela on our business ; and ● a $ 7 million increase in other revenue including media and marketing services . airline and hospitality solutions —revenue increased $ 75 million , or 10 % , for the year ended december 31 , 2014 compared to the prior year . the increase in revenue primarily resulted from : ● a $ 36 million increase in airline solutions ' sabresonic css revenue for the year ended december 31 , 2014 compared to the prior year . pbs increased 33 million , or 7 % , to 511 million for the year ended december 31 , 2014 which was driven by growth from existing customers and resulted in an increase in revenue of $ 18 million .
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goodwill is not amortized , but instead is tested at least annually for impairment , or more frequently when events or changes in circumstances indicate that goodwill might be impaired . in assessing goodwill impairment for each of its reporting units , the company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount . the company 's qualitative assessment of the recoverability of goodwill considers various macroeconomic , industry-specific and company-specific factors , including : ( i ) severe adverse story_separator_special_tag you should read this discussion together with the financial statements , related notes and other financial information included in this annual report on form 10-k. the following discussion may contain predictions , estimates and other forward-looking statements that involve a number of risks and uncertainties , including those discussed under item 1a— “ risk factors ” and elsewhere in this annual report on form 10-k. these risks could cause our actual results to differ materially from any future performance suggested below . executive overview we are a global medical technology company that develops , manufactures and markets a variety of noninvasive monitoring technologies . our mission is to improve patient outcomes and reduce cost of care by taking noninvasive monitoring to new sites and applications . we invented masimo set ® , which provides the capabilities of measure-through motion and low perfusion ® pulse oximetry to address the primary limitations of conventional pulse oximetry . pulse oximetry is the noninvasive measurement of the oxygen saturation level of arterial blood , or the blood that delivers oxygen to the body 's tissues , and pulse rate . pulse oximetry is one of the most common measurements made in and out of hospitals around the world . masimo set ® has been validated in over 100 independent clinical studies and is the only pulse oximetry technology we are aware of that has been proven to help clinicians detect critical congenital heart disease in newborns , reduce retinopathy of prematurity in neonates , and decrease intensive care unit transfers and rapid response activations on the general floor . after introducing masimo set ® , we have continued to innovate by introducing noninvasive measurements beyond arterial blood oxygen saturation level and pulse rate , which create new market opportunities in both the hospital and non-hospital care settings . we believe our masimo rainbow set platform , which utilizes masimo set ® and both licensed and proprietary rainbow ® technologies , includes the first devices cleared by the u.s. food and drug administration ( fda ) to noninvasively and continuously monitor multiple measurements that previously required invasive or complicated procedures . spco ® , our noninvasive carboxyhemoglobin parameter , allows measurement of carbon monoxide levels in the blood . carbon monoxide is the most common cause of poisoning in the world . spmet ® , our noninvasive methemoglobin sensor , allows for the measurement of methemoglobin levels in the blood . methemoglobin in the blood leads to a dangerous condition known as methemoglobinemia , which occurs as a reaction to some common drugs used in hospitals and outpatient procedures . our pvi ® parameter measures dynamic changes in perfusion index ( pi ) during the respiratory cycle and can assist clinicians with fluid administration . rpvi is a multi-wavelength version of pvi ® that is designed to provide enhanced specificity to changes in fluid volume compared to pvi ® . our noninvasive hemoglobin sensor , sphb ® , monitors hemoglobin , the oxygen-carrying component of red blood cells . hemoglobin measurement is one of the most frequent invasive laboratory measurements in the world , often measured as part of a complete blood count . a low hemoglobin status is called anemia , which is generally caused by bleeding or the inability of the body to produce red blood cells . rra ® allows for the continuous and noninvasive monitoring of respiration rate , via rainbow acoustic monitoring ® . respiration rate is the number of breaths per minute . a low respiration rate is indicative of respiratory depression and a high respiration rate is indicative of patient distress . traditional methods used to measure respiration rate are often considered inaccurate or are not tolerated well by patients . rrp ® allows clinicians to noninvasively and continuously measure and monitor respiration rate using a standard masimo set ® pulse oximetry or rainbow ® pulse co-oximeter ® sensor . the rrp ® measurement is determined by the variations in the plethysmograph waveform due to respiration . spfo 2 , or fractional oxygen saturation , allows more precise arterial oxygenation assessment in patients with elevated dyshemoglobins , common throughout the hospital and pre-hospital setting , compared to functional oxygen saturation , and may also allow earlier interventions and more timely therapeutic decisions . ori provides real-time visibility to oxygenation status in moderate hyperoxic range , which we define as a patient 's oxygen “ reserve ” . ori can be trended and has optional alarms to notify clinicians of changes in a patient 's oxygen reserve . our products consist of a monitor or circuit board , and a “ board-in-cable ” solution , for use with our proprietary single-patient-use and reusable sensors and cables . we sell our products to end-users through our direct sales force and certain distributors , and also sell some of our products to our oem partners , for incorporation into their equipment . as of december 30 , 2017 , we estimate that the worldwide installed base of our pulse oximeters and oem monitors that incorporate masimo set ® and rainbow set was more than 1,591,000 units . our installed base is the primary driver for the recurring sales of our sensors , most notably single-patient adhesive sensors . story_separator_special_tag joe kiani , our chairman and chief executive officer , is also the chairman and chief executive officer of cercacor . we have also entered into various other agreements with cercacor , including an administrative services agreement , a consulting services agreement and a sublease agreement . see note 4 to our accompanying consolidated financial statements included in part iv , item 15 ( a ) of this annual report on form 10-k for additional information on these agreements and other transactions with cercacor . as a result of recent changes in the capital structure of cercacor , as well as certain of its contractual relationships with us , we completed a re-evaluation of the authoritative consolidation guidance during the first quarter of 2016 and determined that although cercacor remains a variable interest entity ( vie ) , we are no longer its primary beneficiary as we can no longer be deemed to have the power to direct the activities of cercacor that most significantly impact cercacor 's economic performance 63 and can no longer be deemed to have an obligation to absorb cercacor 's losses pursuant to our on-going contractual relationships with cercacor . based on such determination , we discontinued consolidating cercacor within our consolidated financial statements effective as of january 3 , 2016. however , cercacor continues to be a related party following its deconsolidation . we recognized a gain of $ 0.3 million upon such deconsolidation , which has been reported within non-operating income in the consolidated statement of operations for the year ended december 31 , 2016. see note 3 to our accompanying consolidated financial statements included in part iv , item 15 ( a ) of this annual report on form 10-k for additional information on the deconsolidation of cercacor . story_separator_special_tag style= '' line-height:120 % ; padding-top:17px ; font-size:10pt ; '' > research and development . research and development expenses consist primarily of salaries and related expenses for engineers and other personnel engaged in the design and development of our products . these expenses also include third-party fees paid to consultants , prototype and engineering supply expenses and the costs of clinical trials . research and development expenses for fiscal years 2017 and 2016 were as follows ( dollars in thousands ) : replace_table_token_9_th research and development expenses increased $ 2.6 million , or 4.4 % , to $ 62.0 million for the year ended december 30 , 2017 from $ 59.4 million for the year ended december 31 , 2016 . this net increase was due primarily to increases in payroll-related costs of approximately $ 4.9 million and occupancy-related costs of approximately $ 0.9 million , which were offset by approximately $ 3.6 million of costs related to nre services , $ 2.9 million of which was reclassified to cost of goods sold and $ 0.7 million of which was capitalized to deferred cost of sales . included in research and development expenses was approximately $ 3.6 million and $ 2.7 million of stock-based compensation expense for the years ended december 30 , 2017 and december 31 , 2016 , respectively . the increase in stock-based compensation expense during the year ended december 30 , 2017 was primarily due to the increase in the fair market value of our stock from the prior year that increased the value of the equity awards granted during the year . see note 15 to our accompanying consolidated financial statements included in part iv , item 15 ( a ) of this annual report on form 10-k for additional information on our stock-based compensation programs . litigation settlement , award and or defense costs . litigation settlement , award and or defense costs for fiscal years 2017 and 2016 were as follows ( dollars in thousands ) : litigation settlement , award and or defense costs year ended december 30 , 2017 percentage of net revenues year ended december 31 , 2016 percentage of net revenues increase/ ( decrease ) percentage change $ — — % $ ( 270,000 ) ( 38.9 ) % $ 270,000 ( 100.0 ) % 66 on november 5 , 2016 , we entered into a settlement agreement ( the philips settlement agreement ) with koninklijke philips n.v. ( philips n.v. ) , which among other things , settled all of the claims , legal proceedings and contractual disputes between us , philips and its affiliates . pursuant to the philips settlement agreement , philips n.v. paid us $ 300 million , $ 30 million of which related to certain future performance obligations by us and , therefore , was deferred to future periods in accordance with authoritative accounting guidance . see note 17 to our accompanying consolidated financial statements under the caption “ litigation ” included in part iv , item 15 ( a ) of this annual report on form 10-k for additional information on the philips legal disputes and the philips settlement agreement . non-operating ( income ) expense . non-operating ( income ) expense consists primarily of interest income , interest expense and foreign exchange losses . non-operating expense for fiscal years 2017 and 2016 was as follows ( dollars in thousands ) : replace_table_token_10_th non-operating income was $ 2.0 million for the year ended december 30 , 2017 , as compared to $ 2.4 million of non-operating expense for the year ended december 31 , 2016 . this net increase of approximately $ 4.4 million was primarily due to increased interest income of $ 2.5 million and lower interest expense of approximately $ 2.6 million , both of which resulted primarily from the cash received pursuant to the phillips settlement agreement in the fourth quarter of 2016. in addition , we recognized approximately $ 0.3 million of net realized and unrealized losses on foreign currency denominated transactions during the year ended december 30 , 2017 , as compared to $ 0.1 million of net realized and unrealized gains on foreign currency denominated transactions during the year ended december 31 , 2016 . provision for income taxes .
| results of operations the following table sets forth , for the periods indicated , our results of operations expressed as u.s. dollar amounts and as a percentage of revenue . replace_table_token_5_th comparison of the year ended december 30 , 2017 to the year ended december 31 , 2016 revenue . total revenue increased $ 103.5 million , or 14.9 % , to $ 798.1 million for the year ended december 30 , 2017 , from $ 694.6 million for the year ended december 31 , 2016 . the following table details our total product revenues by the geographic 64 area to which the products were shipped for fiscal years 2017 and 2016 ( dollars in thousands ) : replace_table_token_6_th product revenues increased $ 77.5 million , or 11.7 % , to $ 741.3 million for the year ended december 30 , 2017 from $ 663.8 million for the year ended december 31 , 2016 . this increase was primarily due to higher sales of our consumable and reusable sensor products resulting from an increase in our installed base of circuit boards and pulse oximeters , as well as higher sales of rainbow ® products and monitoring equipment . total rainbow ® product revenue rose $ 9.9 million , or 14.9 % , to $ 76.6 million for the year ended december 30 , 2017 from $ 66.7 million for the year ended december 31 , 2016 . during the year ended december 30 , 2017 , the movement in foreign exchange rates from the prior year period on the u.s. dollar translation of foreign sales that were denominated in various foreign currencies did not have a significant impact on product revenue . as of december 30 , 2017 , we estimate that our installed base of circuit boards and pulse oximeters totaled more than 1,591,000 units , up from 1,504,000 units at december 31 , 2016 .
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except for the historical information contained in this report , including the following discussion , this report contains forward-looking statements that involve risks and uncertainties . see “ forward-looking statements ” beginning on page 1 of this report . in prior periods , our consolidated financial statements present the accounts of endo health solutions inc. , which was incorporated under the laws of the state of delaware on november 18 , 1997 , and all of its subsidiaries ( ehsi ) . endo international plc was incorporated in ireland on october 31 , 2013 as a private limited company and re-registered effective february 18 , 2014 as a public limited company . endo international plc was established for the purpose of facilitating the business combination between ehsi and paladin labs inc. ( paladin ) . on february 28 , 2014 , we became the successor registrant of ehsi and paladin in connection with the consummation of certain transactions further described elsewhere in our consolidated financial statements . the ordinary shares of endo international plc are traded on the nasdaq global market ( nasdaq ) and the toronto stock exchange ( tsx ) under the ticker symbol “ endp , ” the same symbol under which ehsi 's shares previously traded . references throughout to “ ordinary shares ” refer to ehsi 's common shares , 350,000,000 authorized , par value $ 0.01 per share , prior to the consummation of the february 2014 transactions and to endo international plc 's ordinary shares , 1,000,000,000 authorized , par value $ 0.0001 per share , subsequent to the consummation of these transactions . in addition , on february 11 , 2014 endo international plc issued 4,000,000 euro deferred shares of $ 0.01 each at par . references throughout to “ endo , ” the “ company , ” “ we , ” “ our ” or “ us ” refer to financial information and transactions of endo health solutions inc. and its consolidated subsidiaries prior to february 28 , 2014 and endo international plc and its consolidated subsidiaries thereafter . through the date of their sales in february 2014 and august 2015 , the assets and liabilities of the healthtronics , inc. ( healthtronics ) and the men 's health and prostate health businesses , respectively , are classified as held for sale in the consolidated balance sheets for all periods presented . the operating results of the healthtronics and the entire american medical systems holdings , inc. ( ams ) business , which includes men 's health and prostate health and the women 's health business ( referred to herein as astora ) , are reported as discontinued operations , net of tax in the consolidated statements of operations for all periods presented . for additional information , see note 3. discontinued operations and held for sale in the consolidated financial statements , included in part iv , item 15 of this report `` exhibits , financial statement schedules '' . executive summary endo international plc is an ireland-domiciled , global specialty pharmaceutical company focused on generic and branded pharmaceuticals . we aim to be the premier partner to healthcare professionals and payment providers , delivering an innovative suite of generic and branded drugs to meet patients ' needs . this executive summary provides highlights from the results of operations that follow : total revenues in 2016 increase d 23 % to $ 4,010.3 million from 2015 . this revenue increase was primarily attributable to revenues related to our september 2015 acquisition of par pharmaceutical holdings , inc. ( par ) . the increase was partially offset by decreased revenues for certain products in our u.s. branded pharmaceuticals segment , driven mainly by decrease d voltaren ® gel , lidoderm ® , opana ® er and frova ® revenues related to generic competition and decreased revenues from our legacy u.s. generic pharmaceuticals segment as a result of competitive pressure on commoditized generic products . gross margin for 2016 decrease d to 34 % from 36 % in 2015 . this decrease was primarily attributable to the mix of revenue being more heavily weighted toward lower margin generic pharmaceutical product sales as compared to the higher margin branded products , increased intangible asset amortization of $ 315.1 million for 2016 and charges to increase excess inventory reserves . asset impairment charges in 2016 increased to $ 3,781.2 million compared to $ 1,140.7 million in 2015 driven primarily by goodwill and intangible asset impairment charges in our generics , paladin , litha , and somar reporting units . during the year ended december 31 , 2016 , the company recognized an income tax benefit of $ 700.1 million on $ 3,923.9 million of loss from continuing operations before income tax , compared to $ 1,137.5 million of tax benefit on $ 1,437.9 million of loss from continuing operations before income tax during the comparable 2015 period . during the year ended december 31 , 2016 , the company completed a legal entity restructuring as part of its continuing integration of its business . this resulted in the realization of a $ 636.1 million tax benefit arising from an outside basis difference that was reduced by a $ 394.6 million charge for the establishment of a valuation allowance on a portion of the company 's u.s. deferred tax assets . the tax benefit for the comparable 2015 period was primarily related to losses from continued operations combined with benefits resulting from the expected realization of deferred tax assets for certain components of the company 's ams business arising from tax refunds relating to the carryback of net operating losses . loss from continuing operations for 2016 increased to $ 3,223.8 million from $ 300.4 million for the year ended december 31 , 2015 , primarily attributable to the goodwill and intangible asset impairments noted above . 50 critical accounting estimates to understand our financial statements , it is important to understand our critical accounting estimates . story_separator_special_tag our return policy generally allows customers to receive credit for expired products within six months prior to expiration and within one year after expiration . the primary factors we consider in estimating our potential product returns include : the shelf life or expiration date of each product ; historical levels of expired product returns ; external data with respect to inventory levels in the wholesale distribution channel ; external data with respect to prescription demand for our products ; and estimated returns liability to be processed by year of sale based on analysis of lot information related to actual historical returns . in determining our estimates for returns and allowances , we are required to make certain assumptions regarding the timing of the introduction of new products and the potential of these products to capture market share . in addition , we make certain assumptions with respect to the extent and pattern of decline associated with generic competition . to make these assessments , we utilize market data for similar products as analogs for our estimations . we use our best judgment to formulate these assumptions based on past experience and information available to us at the time . we continually reassess and make the appropriate changes to our estimates and assumptions as new information becomes available to us . 52 our estimate for returns and allowances may be impacted by a number of factors , but the principal factor relates to the level of inventory in the distribution channel . when we are aware of an increase in the level of inventory of our products in the distribution channel , we consider the reasons for the increase to determine if the increase may be temporary or other-than-temporary . increases in inventory levels assessed as temporary will not result in an adjustment to our provision for returns and allowances . other-than-temporary increases in inventory levels , however , may be an indication that future product returns could be higher than originally anticipated and , accordingly , we may need to adjust our estimate for returns and allowances . some of the factors that may be an indication that an increase in inventory levels will be temporary include : recently implemented or announced price increases for our products ; and new product launches or expanded indications for our existing products . conversely , factors that may be an indication that an increase in inventory levels will be other-than-temporary include : declining sales trends based on prescription demand ; recent regulatory approvals to shorten the shelf life of our products , which could result in a period of higher returns related to older product with the shorter shelf life ; introduction of new product or generic competition ; increasing price competition from generic competitors ; and recent changes to the national drug codes ( ndcs ) of our products , which could result in a period of higher returns related to product with the old ndc , as our customers generally permit only one ndc per product for identification and tracking within their inventory systems . rebates we establish contracts with wholesalers , chain stores and indirect customers that provide for rebates , sales incentives , dsa fees , and other allowances . some customers receive rebates upon attaining established sales volumes . we estimate rebates , sales incentives and other allowances based upon the terms of the contracts with our customers , historical experience , estimated inventory levels of our customers and estimated future trends . our rebate programs can generally be categorized into the following four types : direct rebates ; indirect rebates ; managed care rebates ; and medicaid and medicare part d rebates . direct rebates are generally rebates paid to direct purchasing customers based on a percentage applied to a direct customer 's purchases from us , including dsa fees paid to wholesalers under our dsa 's , as described above . indirect rebates are rebates paid to indirect customers which have purchased our products from a wholesaler under a contract with us . we are subject to rebates on sales made under governmental and managed-care pricing programs . in estimating our provisions for these types of rebates , we consider relevant statutes with respect to governmental pricing programs and contractual sales terms with managed-care providers and group purchasing organizations . starting in 2011 , as a result of the implementation of certain provisions of the patient protection and affordable care act ( ppaca ) , we are required to provide a 50 % discount on our brand-name drugs to patients who fall within the medicare part d coverage gap , also referred to as the donut hole . we estimate an accrual for managed care , medicaid , medicare part d and coverage gap rebates as a reduction of revenue at the time product sales are recorded . these rebate reserves are estimated based upon the historical utilization levels , historical payment experience , historical relationship to revenues , estimated future trends , and include an estimate of outstanding claims for end-customer sales that occurred but for which the related claim has not been billed and an estimate for future claims that will be made when inventory in the distribution channel is sold through to plan participants . changes in the level of utilization of our products through private or public benefit plans and group purchasing organizations will affect the amount of rebates that we owe . we participate in state government-managed medicaid programs , as well as certain other qualifying federal and state government programs whereby discounts and rebates are provided to participating government entities . medicaid rebates are amounts owed based upon contractual agreements or legal requirements with public sector ( medicaid ) benefit providers , after the final dispensing of the product by a pharmacy to a benefit plan participant . medicaid reserves are based on expected payments , which are driven by patient usage , contract performance , as well as field inventory that will be subject to a medicaid rebate .
| results of operations we reported net loss attributable to endo international plc in 2016 of $ 3,347.1 million or $ 15.03 per diluted share on total revenues of $ 4,010.3 million compared with net loss attributable to endo international plc of $ 1,495.0 million or $ 7.59 per diluted share on total revenues of $ 3,268.7 million in 2015 and net loss attributable to endo international plc of $ 721.3 million or $ 4.60 per diluted share on total revenues of $ 2,380.7 million in 2014 . consolidated results review year ended december 31 , 2016 compared to year ended december 31 , 2015 total revenues . total revenues in 2016 increase d 23 % to $ 4,010.3 million from $ 3,268.7 million in 2015 . this revenue increase was primarily attributable to revenues related to our september 2015 acquisition of par . the increase was partially offset by decreased revenues for certain products in our u.s. branded pharmaceuticals segment , driven mainly by decrease d voltaren ® gel , lidoderm ® , opana ® er and frova ® revenues related to generic competition . in addition , we experienced decreased revenues in our legacy u.s. generic pharmaceuticals business , which resulted from competitive pressure on commoditized generic products . gross margin , costs and expenses . the following table sets forth costs and expenses for the years ended december 31 ( dollars in thousands ) : replace_table_token_11_th * percentages may not add due to rounding . 58 cost of revenues and gross margin . cost of revenues in 2016 increase d 27 % to $ 2,635.0 million from 2015 . these increases were primarily attributable to increased costs related to our acquisition of par , including intangible asset amortization , and increased charges related to excess inventory reserves of approximately $ 36 million .
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under asc 718 , the measurement date for equity-classified story_separator_special_tag you should read the following in conjunction with the sections of this annual report on form 10-k entitled `` risk factors , '' `` cautionary note concerning forward-looking statements , '' `` selected financial data '' and `` business '' and our historical financial statements and related notes thereto included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements reflecting current expectations that involve risks and uncertainties . actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors , including those discussed in the section entitled `` risk factors '' and elsewhere in this annual report on form 10-k. non-gaap measures this annual report on form 10-k includes certain non-gaap measures , including homebuilding gross margin before impairments ( or home sales gross margin before impairments ) , homebuilding gross margin percentage before impairments , adjusted ebitda , adjusted ebitda margin percentage , the ratio of adjusted ebitda to total interest incurred , adjusted net income , adjusted earnings per share , adjusted earnings per diluted share , net debt , the ratio of net debt-to-capital , adjusted homebuilding gross margin , adjusted homebuilding gross margin percentage , and the effective tax rate before discrete items . for a reconciliation of homebuilding gross margin before impairments , homebuilding gross margin percentage before impairments , adjusted ebitda , adjusted ebitda margin percentage , and the ratio of adjusted ebitda to total interest incurred to the comparable gaap measures please see item 7 , `` management 's discussion and analysis of financial condition and results of operations - consolidated financial data . '' for a reconciliation of adjusted net income , adjusted earnings per share and adjusted earnings per diluted share to the comparable gaap measures , please see `` management 's discussion and analysis of financial condition and results of operations - overview . '' for a reconciliation of adjusted homebuilding gross margin and adjusted homebuilding gross margin percentage to the comparable gaap measures , please see item 7 , `` management 's discussion and analysis of financial condition and results of operations - results of operations - homebuilding gross margin . '' for a reconciliation of net debt and net debt-to-capital to the comparable gaap measures , please see item 7 , `` management 's discussion and analysis of financial condition and results of operations - liquidity and capital resources - debt-to-capital ratios . '' for reconciliation of effective rate before discrete items see `` management 's discussion and analysis of financial condition and results of operations - provision ( benefit ) for income taxes . '' 35 consolidated financial data replace_table_token_5_th 36 ( 1 ) home sales gross margin before impairments ( also referred to as homebuilding gross margin before impairments ) is a non-gaap measure . the table below reconciles this non-gaap financial measure to homebuilding gross margin , the nearest gaap equivalent . replace_table_token_6_th ( 2 ) adjusted ebitda , adjusted ebitda margin percentage and ratio of adjusted ebitda to total interest incurred are non-gaap measures . adjusted ebitda margin percentage is calculated as a percentage of total revenue . management believes that adjusted ebitda , which is a non-gaap measure , assists investors in understanding and comparing the operating characteristics of homebuilding activities by eliminating many of the differences in companies ' respective capitalization , interest costs , tax position and inventory impairments . due to the significance of the gaap components excluded , adjusted ebitda should not be considered in isolation or as an alternative to net income ( loss ) , cash flows from operations or any other performance measure prescribed by gaap . the table below reconciles net income ( loss ) , calculated and presented in accordance with gaap , to adjusted ebitda . replace_table_token_7_th overview fiscal 2018 was a transition year for our company as we expanded and diversified our product portfolio to more affordably priced communities , which resulted in a 38 % decrease in our average price of homes delivered to $ 1.0 million from $ 1.6 million in 2017. the fourth quarter of 2018 was particularly challenging from a sales , closings and profitability perspective . the healthy buyer demand experienced in the first half of 2018 weakened during the second half of the year as homebuyer hesitation emerged . we believe home affordability concerns stemming from higher interest rates and higher absolute home prices slowed our sales absorption rates in the back half of 2018 , particularly in the fourth quarter , and resulted in an overall decline in our monthly sales per community for 2018 as compared to 2017. the slower sales pace contributed to an increase in incentives and estimated carrying costs at certain communities , which along with a mix shift in deliveries partially attributable to construction delays , resulted in a 380 basis point decline in our gross margin from home sales ( 220 basis points excluding inventory impairments * ) . in addition , higher incentives and pricing adjustments at two of our higher-priced southern california communities resulted in $ 10.0 million of noncash pretax inventory impairment charges for 2018. the company also incurred $ 20.0 million in noncash , pretax impairment charges related to a master plan land development joint venture in northern california in the 2018 fourth quarter . while 2018 home deliveries were up 46 % due to increased community count and a strategic shift to more affordable product , our average selling price declined 38 % . the lower year over year average selling price , coupled with slower sales absorption rates experienced in the second half of 2018 , offset the delivery increase and resulted in a 10 % decline in homes sales revenue from 2017 to $ 504.0 million . home sales revenue was also adversely impacted by construction delays at a few of our communities where the delivery of several homes scheduled to occur in the fourth quarter of 2018 were delayed . story_separator_special_tag there can be no assurance that such acquisitions will occur . ( 2 ) lots owned by third party property owners for which we perform general contracting or construction management services . the company increased the number of wholly owned lots owned and controlled by 2 % and 75 % year-over-year for the years ending december 31 , 2018 and 2017 , respectively . of the lots owned and controlled at december 31 , 2018 , 41 % were controlled through option contracts . the increase in wholly owned lots owned and controlled was due to contracts entered into during 2018 for new developments across all markets . in southern california , contracts were executed for three communities for control of 272 lots within the inland empire . purchase agreements for two new communities in the greater phoenix area were executed for a total of 226 lots increasing our geographic footprint in the arizona market . in northern california , we entered into an agreement for 60 lots in a community in rocklin , ca . the increase in wholly owned lots owned and controlled was partially offset by a 46 % increase in home deliveries for 2018. the increase in wholly owned lots owned and controlled in 2017 compared to 2016 was due to our planned expansion in arizona where we entered into contracts on four land parcels totaling 562 aggregate lots , and an increase in lots controlled in northern california primarily due to two new developments with multiple planning areas , one for 418 lots in vacaville , ca and a second for 394 lots in a masterplan development in folsom , ca . the increase in wholly owned lots owned and controlled was partially offset by a 36 % increase in new home deliveries in 2017. the decrease in fee building lots at december 31 , 2018 as compared to 2017 was primarily attributable to the delivery of 600 homes to customers during 2018. this impact was offset by fee lot additions of 486 lots for new contracts entered into during 2018 , including construction management contracts the company entered into with a new customer during the 2018 second quarter totaling 165 lots across five communities . 41 home sales revenue and new homes delivered replace_table_token_13_th new home deliveries increased 46 % for the year ended december 31 , 2018 compared to the prior year . the increase in deliveries was the result of a higher number of homes in backlog at december 31 , 2017 , and an increase in new home orders during the year . notwithstanding the increase in 2018 deliveries , home sales revenue decreased 10 % compared to 2017 primarily due to a 38 % lower average sales price per delivery that resulted from the company 's strategic shift to more affordable price points . the year-over-year decrease in average sales price was most pronounced in southern california where over half of 2018 deliveries were from more-affordable communities with base pricing of $ 750,000 or less compared to only about 10 % of total deliveries from this price point in 2017. additionally , the 2017 average selling price was heavily influenced by deliveries from two crystal cove luxury communities in newport coast , ca where average selling prices exceeded $ 6.0 million for the year . 2018 home sales revenue was also adversely impacted by closing delays of several homes in backlog that were scheduled to be delivered in the 2018 fourth quarter and an overall slowing in sales rates in the second half of 2018 , particularly in the fourth quarter . most notably , homes in backlog from our multifamily condominium community in playa vista , ca were scheduled to close in the 2018 fourth quarter but were rescheduled for delivery in the 2019 first quarter , which negatively impacted 2018 home sales revenue by approximately $ 20.0 million . new home deliveries increased 36 % for the year ended december 31 , 2017 compared to 2016. the increase in deliveries was the result of a higher number of homes in backlog at december 31 , 2016 and an increase in new home orders generated during 2017. home sales revenue for 2017 increased 10 % compared to 2016 primarily due to an increase in new home deliveries , which was offset by a 19 % lower average sales price per delivery . the year-over-year decrease in average sales price in 2017 versus 2016 was driven by increased deliveries from our northern california operations , which had lower-priced communities than southern california , coupled with a product mix shift for both southern california and northern california from deliveries from more affordably-priced communities increased . homebuilding gross margin homebuilding gross margin percentage for 2018 was 11.4 % versus 15.2 % in the prior year . homebuilding gross margin for 2018 included a $ 10.0 million in noncash inventory impairment charges related to two higher-priced communities in southern california that were experiencing slower monthly sales absorption and required sales price adjustments . inventory impairment charges for 2017 totaled $ 2.2 million and related to one homebuilding community in southern california where slower monthly sales required additional incentives . homebuilding gross margin percentage before impairments was 13.4 % and 15.6 % for 2018 and 2017 , respectively . homebuilding gross margin before impairments is a non-gaap measure . see the table below reconciling this non-gaap financial measure to homebuilding gross margin , the nearest gaap equivalent . the 220 basis point decline in homebuilding gross margin before impairments was primarily due to higher interest costs included in cost of homes sales , and to a lesser extent a product mix shift . interest in cost of home sales increased for 2018 as the amount of previously capitalized interest from our senior notes issued in 2017 began to flow through cost of homes sales in greater proportion than capitalized interest from our unsecured credit facility , which carries a lower interest rate .
| results of operations net new home orders replace_table_token_9_th ( 1 ) monthly sales absorption represents the number of net new home orders divided by the number of average selling communities for the period . net new home orders for the year ended december 31 , 2018 were up 30 % compared to 2017 as a result of a 54 % increase in average selling communities , partially offset by a decline in the monthly sales absorption rate . demand was healthy across our markets throughout the first half of 2018 , however , buyer hesitancy emerged in the second half of the year , particularly in the 2018 fourth quarter , which was spurred by higher interest rates and higher absolute home prices and resulted in an overall decline in sales per community for 2018. orders were up 53 % in 2018 for southern california primarily driven by a 71 % increase in average selling communities , which included six communities that opened in late 2017 and 2018 with base pricing of $ 750,000 or less . the increase in more affordably priced communities helped maintain southern california 's monthly sales absorption rate at 2.2 sales per community , nearly flat with the pace in 2017 , as buyer demand was less impacted at lower price points . the decline in net new orders for northern california was largely attributable to a 13 % decrease in 2018 monthly sales absorption rate to 2.7 sales per community from 3.1 in the year ago period . northern california benefited in 2017 from strong sales activity from high-demand communities that sold out during 2017 , two of which were located in the bay area and one in davis , ca . new for 2018 , were contributions of 1.7 sales per month from our first wholly owned projects in arizona which were largely driven by our single-family detached , move-up belmont community in gilbert .
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the statements in this discussion regarding our expectations of our future performance , liquidity and capital resources , and other non-historical statements are forward-looking statements . these forward-looking statements are subject to numerous risks and uncertainties , including , but not limited to , the risks and uncertainties described under risk factors and elsewhere in this annual report on form 10-k. our actual results may differ materially from those contained in or implied by any forward-looking statements . overview we are a leading provider of data and information management software applications and related services in terms of product breadth and functionality and market penetration . we develop , market and sell a unified suite of data and information management software applications under the simpana ® brand . our simpana software is a platform with licensable modules that work together seamlessly , sharing a single code and common function set , to deliver backup and recovery , archive , replication , search and resource management capabilities . with a single platform approach , simpana is specifically designed to protect , manage and access data throughout its lifecycle in less time , at lower cost and with fewer resources than alternative solutions . our products and capabilities enable our customers to deploy solutions for data protection , business continuance , corporate compliance and centralized management and reporting . we also provide our customers with a broad range of highly effective services that are delivered by our worldwide support and field operations . as of march 31 , 2012 , we had licensed our software applications to approximately 16,100 registered customers . history and background in early 2000 , we launched commvault galaxy for backup and recovery , a storage industry award winner . in the years since , commvault has forged numerous alliances with top software application and hardware vendors , such as dell , hp , hitachi data systems , microsoft , network appliance , fujitsu , novell and oracle , to enhance capabilities and to create a premiere suite of data and information management solutions . in 2002 , we launched our single-platform technology that provides the foundation of our information management approach to storing , managing , and accessing data . our simpana software suite is comprised of the following five distinct data and information management software application modules : backup and recovery , archive , replication , resource management and search . all of our software application modules share a common platform that provides back-end services and advanced capabilities , like encryption ; deduplication ; content indexing ; policy-based automation ; data classification ; e-discovery and role-based security . in addition to backup and recovery , the subsequent release of our other software application modules has substantially increased our addressable market . each application module can be used individually or in combination with other application modules from our single platform suite . in january 2009 , our commvault simpana 8.0 software suite ( simpana 8 ) was made available for public release . simpana 8 included advances in recovery management , data reduction , virtual server protection and content organization . in addition , we believe that simpana 8 met a broad spectrum of customer 's discovery and recovery management requirements and eliminated the need for a myriad of point level products . in august 2010 , our commvault simpana 9.0 software suite ( simpana 9 ) was made available for public release . we believe that simpana 9 , which builds on and significantly expands simpana 8 , allows customers to deploy a modern data management solution to achieve gains in efficiency , cost optimization and scale . we believe that simpana 9 solves real-world it challenges with major technology advancements , including increased virtualization scalability and performance , integrated source and target data deduplication , automatic and transparent integration with hardware array-based snapshots , as well as new tools that ease migration to our next generation simpana 9 platform . 36 in january 2012 , we released enhancements to our existing simpana 9 software suite . these enhancements include new capabilities that converges backup , archive and reporting processes ; additional snapprotect technology that delivers hardware snapshot integration ; enhancements to virtual server protection ; new innovations to protect data on laptops and desktops with embedded source deduplication for optimized efficiency ; and new integration with microsoft sharepoint . our software licenses typically provide for a perpetual right to use our software and are sold on a capacity basis , on a per-copy basis or as site licenses . during the fiscal year ended march 31 , 2012 , approximately 62 % of software license transactions were sold on a capacity basis . capacity based software licenses provide our customers with unlimited licenses of specified software products based on a defined level of terabytes of data under management . as a result , when we sell our platform through a capacity license , many of the various simpana functionalities are bundled into one capacity based price . we anticipate that capacity based licenses will continue to account for the majority of our software license transactions for the foreseeable future . the industry in which we currently operate continues to go through accelerating changes as the result of compounding data growth and the introduction of new technologies . we are continuing to pursue an aggressive product development program in both data and information management solutions . our data management solutions include not only traditional backup , but also new innovations in de-duplication , data movement , virtualization , snap-based backups and enterprise reporting . our information management innovations are primarily in the areas of archiving , ediscovery , records management , governance and compliance . we remain focused on both the data and information management trends in the marketplace and , in fact , a material portion of our existing research and development expenses are utilized toward the development of such new technologies discussed above . story_separator_special_tag dell , hitachi data systems and netapp have no obligation to recommend or offer our software applications exclusively or at all , and they have no minimum sales requirements and can terminate our relationship at any time . a material portion of our software revenue is sometimes generated through our original equipment manufacturer agreements . sales through our original equipment manufacturer agreements accounted for 12 % of our total revenues for fiscal 2012 , 10 % of our total revenues for fiscal 2011 and 10 % of our total revenues for fiscal 2010. we also have non-exclusive distribution agreements covering our north american commercial markets and our u.s. federal government market with arrow enterprise computing solutions , inc. ( arrow ) , a subsidiary of arrow electronics , inc. , and avnet technology solutions ( avnet ) , a subsidiary of avnet , inc. pursuant to these distribution agreements , these distributors ' primary role is to enable a more efficient and effective distribution channel for our products and services by managing our reseller partners and leveraging their own industry experience . many of our north american resellers have been transitioned to either arrow or avnet . we generated approximately 26 % of our total revenues through arrow in fiscal 2012 , approximately 25 % of our total revenues in fiscal 2011 and approximately 24 % of our total revenues in fiscal 2010. avnet 's total revenue contribution was not material in fiscal 2012 , 2011 or 2010. if arrow or avnet were to discontinue or reduce the sales of our products or if our agreement with arrow or avnet was terminated , and if we were unable to take back the management of our reseller channel or find another north american distributor to replace arrow or avnet , then it could have a material adverse effect on our future revenues . 38 we also derive a significant portion of our total revenues from services revenue . our services revenue is made up of fees from the delivery of customer support and other professional services , which are typically sold in connection with the sale of our software applications . customer support agreements provide technical support and unspecified software updates on a when-and-if-available basis for an annual fee based on licenses purchased and the level of service subscribed . other professional services include consulting , assessment and design services , implementation and post-deployment services and training , all of which to date have predominantly been sold in connection with the sale of software applications . our services revenue was 50 % of our total revenues for fiscal 2012 , 52 % for fiscal 2011 and 50 % for fiscal 2010. the gross margin of our services revenue was 75.3 % for fiscal 2012 , 76.6 % for fiscal 2011 and 76.1 % for fiscal 2010. the decrease in the gross margin of our services revenue in the fiscal year ended march 31 , 2012 compared to the fiscal year ended march 31 , 2011 was primarily due to a higher percentage of our services revenue being derived from professional services engagements as well as higher costs of services associated with the expansion of our worldwide customer support operations . overall , our services revenue has lower gross margins than our software revenue . the gross margin of our software revenue was 98.6 % for fiscal 2012 , 98.4 % for fiscal 2011 and 97.8 % for fiscal 2010. an increase in the percentage of total revenues represented by services revenue may adversely affect our overall gross margins . description of costs and expenses our cost of revenues is as follows : cost of software revenue , consists primarily of third-party royalties and other costs such as media , manuals , translation and distribution costs ; and cost of services revenue , consists primarily of salary and employee benefit costs in providing customer support and other professional services . our operating expenses are as follows : sales and marketing , consists primarily of salaries , commissions , employee benefits , stock-based compensation and other direct and indirect business expenses , including travel and related expenses , sales promotion expenses , public relations expenses and costs for marketing materials and other marketing events ( such as trade shows and advertising ) ; research and development , which is primarily the expense of developing new software applications and modifying existing software applications , consists principally of salaries , stock-based compensation and benefits for research and development personnel and related expenses ; contract labor expense and consulting fees as well as other expenses associated with the design , certification and testing of our software applications ; and legal costs associated with the patent registration of such software applications ; general and administrative , consists primarily of salaries , stock-based compensation and benefits for our executive , accounting , human resources , legal , information systems and other administrative personnel . also included in this category are other general corporate expenses , such as outside legal and accounting services , compliance costs and insurance ; and depreciation and amortization , consists of depreciation expense primarily for computer equipment we use for information services and in our development and test labs . we anticipate that each of the above categories of operating expenses will increase in dollar amounts , but will decline as a percentage of total revenues in the long-term . foreign currency exchange rates ' impact on results of operations sales outside the united states were approximately 39 % of our total revenue for fiscal 2012 , 39 % for fiscal 2011 and 38 % for fiscal 2010. the income statements of our non-u.s. operations are translated into u.s. dollars 39 at the average exchange rates for each applicable month in a period . to the extent the u.s. dollar weakens against foreign currencies , the translation of these foreign currency denominated transactions generally results in increased revenue , operating expenses and income from operations for our non-u.s. operations .
| results of operations the following table sets forth each of our sources of revenues and costs of revenues for the specified periods as a percentage of our total revenues for those periods : replace_table_token_6_th fiscal year ended march 31 , 2012 compared to fiscal year ended march 31 , 2011 revenues total revenues increased $ 91.9 million , or 29 % , from $ 314.8 million in fiscal 2011 to $ 406.6 million in fiscal 2012. software revenue . software revenue increased $ 52.0 million , or 35 % , from $ 149.8 million in fiscal 2011 to $ 201.8 million in fiscal 2012. software revenue represented 50 % of our total revenues in fiscal 2012 compared to 48 % in fiscal 2011. the overall increase in software revenue was primarily driven by higher enterprise software transactions ( transactions greater than $ 0.1 million ) , which increased by $ 33.1 million in fiscal 2012 compared to fiscal 2011. as a result , enterprise software transactions represented approximately 52 % of our software revenue in fiscal 2012 and approximately 48 % of our software revenue in fiscal 2011. the increase in enterprise software transactions is due to both a 37 % increase in the number of transactions of this type and an 7 % increase in the average dollar amount of such transactions .
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this included controls over the completeness of the tax positions evaluated for recognition and measurement and the probabilities applied to each scenario story_separator_special_tag the following “ 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 and section 21e of the exchange act . any statements contained herein regarding our future financial performance , operations , or other activities ( including , without limitation , statements to the effect that we “ believe , ” “ expect , ” “ plan , ” `` intend to , ” “ may , ” “ will , ” “ project , ” “ anticipate ” , “ continue , ” `` strive to , '' `` seek to , '' `` are encouraged by , '' `` remain cautious , '' `` remain optimistic , '' or “ estimate ” ; statements of `` goals '' or `` visions '' ; or other variations thereof or comparable terminology or the negative thereof ) should be considered forward-looking statements . actual results could differ materially from those projected in the forward-looking statements as a result of a number of important factors including those set forth under the heading “ risk factors ” , and elsewhere in this form 10-k. although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . you should not place undue reliance on these forward-looking statements . we disclaim any obligation to update information contained in any forward-looking statement . overview for more than 40 years , we have enabled engineers and scientists around the world to accelerate productivity , innovation and discovery . our software-centric platform provides an advanced approach through integration of software and modular hardware to create automated test and automated measurement systems . we believe our long-term track record of innovation and our differentiated platform helps support the success of our customers , employees , suppliers and shareholders . we have been profitable in every year since 1990. we sell to a large number of customers in a wide variety of industries . no single customer represented more than 3 % of our sales in each of the last three years . the key strategies that we focus on in running our business are the following : expand our available market opportunity we strive to increase our available market by identifying new opportunities in existing customers , attracting and serving new customers , and expanding our business to market adjacencies . our large network of existing customers provides a broad base from which to expand . maintaining a high level of customer satisfaction to maintain a high level of customer satisfaction we strive to offer innovative , modular and integrated products through a global sales and support network . we strive to maintain a high degree of backwards compatibility across different platforms to preserve the customer 's investment in our products . in this time of intense global competition , we believe it is crucial that we continue to offer products with high quality and reliability , and that our products provide cost-effective solutions for our customers . leveraging external and internal technology our product strategy is to provide superior products by leveraging generally available technology , supporting open architectures on multiple platforms and by leveraging our core technologies across multiple products . we sell into test and measurement and industrial/embedded applications in a broad range of industries and are subject to the economic and industry forces that drive those markets . it has been our experience that the performance of these industries and our performance are impacted by general trends in industrial production for the global economy and by the specific performance of certain vertical markets that are intensive consumers of measurement technologies . examples of these markets are semiconductor , transportation , and aerospace , defense and government . leveraging a worldwide sales , distribution and manufacturing network we distribute and sell our software and hardware products primarily through a direct sales organization . we also use independent distributors , oems , vars , system integrators and consultants to market and sell our products . we have sales offices in the u.s. and sales offices and distributors in key international markets . sales outside of the americas accounted for approximately 60 % of our revenues in each of 2019 and 2018 and 61 % of our revenues during 2017. the vast majority of our foreign sales are denominated in the customers ' local currency , which exposes us to the effects of changes in foreign currency exchange rates . we expect that a significant portion of our total revenues will continue to be derived from international sales . ( see note 2 – revenue and note 14 - segment information of notes to consolidated financial statements for details concerning the geographic breakdown of our net sales and long-lived assets , respectively ) . 25 we manufacture substantially all of our product volume at our facilities in debrecen , hungary and penang , malaysia . our product manufacturing operations can be divided into four areas : electronic circuit card and module assembly ; chassis and cable assembly ; technical manuals and product support documentation ; and software duplication . most of our electronic circuit card assemblies , modules and chassis are manufactured in house , although contractors are used from time to time . the majority of our electronic cable assemblies are produced by contractors ; however , we do manufacture some on an exception basis . our software duplication , technical manuals and product support documentation are primarily produced by contractors . delivering high quality , reliable products we believe that our long-term growth and success depend on delivering high quality software and hardware products on a timely basis . accordingly , we focus significant efforts on research and development . story_separator_special_tag we intend to continue to expand our international operations by increasing our presence in existing markets , adding a presence in some new geographical markets and continuing the use of distributors to sell our products in some countries . almost all of the sales made by our direct sales offices in the americas ( excluding the u.s. ) , emeia , and apac are denominated in local currencies , and accordingly , the u.s. dollar equivalent of these sales is affected by changes in foreign currency exchange rates . in order to provide a framework for assessing how our underlying business performed excluding the effects of foreign currency fluctuations between periods , we compare the percentage change in our results from period to period using constant currency calculations . to calculate the change in constant currency , current and comparative prior period results for entities reporting in currencies other than u.s. dollars are converted into u.s. dollars at constant exchange rates ( i.e . the average rates in effect during the years ended december 31 , 2019 and 2018 , respectively ) . the following tables present this information , along with the impact of changes in foreign currency exchange rates on sales denominated in local currencies , for the years ended december 31 , 2019 and 2018 , respectively . replace_table_token_6_th figures may not sum due to rounding . 28 replace_table_token_7_th figures may not sum due to rounding . to help protect against changes in the u.s. dollar equivalent value caused by fluctuations in foreign currency exchange rates of forecasted foreign currency cash flows resulting from international sales , we hedge portions of our forecasted revenue denominated in foreign currencies with average rate forward contracts . ( see note 5 - derivative instruments and hedging activities of notes to consolidated financial statements for further discussion regarding our cash flow hedging program and its related impact on our consolidated sales for 2019 and 2018 ) . gross profit . the following table sets forth our gross profit and gross profit as a percentage of net sales for the years ended december 31 , 2019 , 2018 , and 2017 along with the percentage changes in gross profit for the corresponding periods . we continue to focus on cost control and cost reduction measures throughout our manufacturing cycle . replace_table_token_8_th the slight decreases in our gross profit and gross profit as a percentage of sales during the year ended december 31 , 2019 can be attributed to changes in product mix and foreign currency exchange rates . during the years ended december 31 , 2019 and 2018 , the change in exchange rates had the effect of decreasing our cost of sales by $ 3.3 million and increasing our cost of sales $ 3.2 million , respectively . to help protect against changes in our cost of sales caused by a fluctuation in foreign currency exchange rates of forecasted foreign currency cash flows , we hedge portions of our forecasted costs of sales denominated in foreign currencies with average rate forward contracts . during the years ended december 31 , 2019 and 2018 , these hedges had the effect of increasing our cost of sales by $ 0.5 million and decreasing our cost of sales by $ 0.7 million , respectively . ( see note 5 - derivative instruments and hedging activities of notes to consolidated financial statements for further discussion regarding our cash flow hedging program and its related impacted on our results of operations ) . 29 operating expenses . the following table sets forth our operating expenses for the years ended december 31 , 2019 , 2018 , and 2017 along with the percentage changes between the corresponding periods and the line item as a percentage of total net sales . replace_table_token_9_th on august 29 , 2019 , we sold an office building and recognized a gain on the sale of $ 26.8 million , which is presented as `` gain on sale of assets '' on the consolidated statements of income , in accordance with asc 360 - property , plant and equipment ( see note 1 - operations and summary of significant accounting policies of notes to consolidated financial statements for further discussion on our gain on sales of assets ) . the $ 16 million increase in our operating expenses , excluding the gain on sale of assets , during 2019 compared to 2018 was primarily related to the following : a $ 14 million increase due to additional stock-based compensation expense , primarily attributable to comparatively higher stock prices on the grant date of unvested rsu awards and a shorter average service period for our awards ; a $ 13 million decrease related to the year over year impact of changes in foreign currency exchange rates ; a $ 7 million increase due to a charitable contribution to a donor-advised fund using a portion of the proceeds from the sale of an office building ; a $ 5 million increase related to a decrease in software development costs eligible for capitalization , as described in more detail below ; a $ 6 million increase due to restructuring costs during the year ; and a $ 3 million decrease in personnel costs , primarily driven by a $ 12 million decrease in variable pay related to not attaining the performance targets under our company performance bonus for 2019 , partially offset by increases in salaries and other variable pay plans intended to remain competitive with market levels ; the increase in research and development costs during 2019 was primarily related to a $ 5 million decrease in software development costs eligible for capitalization and an increase in stock-based compensation expense . in the second quarter of 2018 , we began moving toward more frequent releases for many of our software products . specifically , for many of our software development projects we started applying agile development methodologies which are characterized by a more dynamic development process with more frequent and iterative revisions to a product 's features and functions as the software is being developed .
| quarterly results of operations the following quarterly results have been derived from our unaudited consolidated financial statements that , in the opinion of management , reflect all adjustments ( consisting only of normal recurring adjustments ) necessary for a fair presentation of such quarterly information . the operating results for any quarter are not necessarily indicative of the results to be expected for any future period . the following tables presenting our quarterly results of operations should be read in conjunction with the consolidated financial statements and related notes contained elsewhere in this annual report on form 10-k. the unaudited quarterly financial data for each of the eight quarters in the two years ended december 31 , 2019 and december 31 , 2018 are as follows : replace_table_token_10_th replace_table_token_11_th 33 other operational information we believe that the following additional unaudited operational metrics assist investors in assessing our operational performance relative to others in our industry and to our historical results . the following tables providedetails with respect to the amount of gaap charges related to stock-based compensation , amortization of acquisition intangibles , acquisition-related transaction costs , disposal gains on buildings and related charitable contributions , tax effects on businesses held-for-sale , capitalization and amortization of internally developed software costs , and restructuring charges that were recorded in the line items indicated below ( in thousands ) .
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overview we are a clinical-stage biopharmaceutical company focused on pioneering the development of exosome-based therapeutics , a new class of medicines with the potential to transform the treatment of a wide spectrum of diseases with high unmet medical need . exosomes have evolved as intercellular transfer mechanisms for complex , biologically active macromolecules and have emerged in recent years as a compelling potential drug delivery vehicle . by leveraging our deep understanding of exosome biology , we have developed our engineering and manufacturing platform , or engex platform , to expand upon the innate properties of exosomes to design , engineer and manufacture novel exosome therapeutics . we have utilized our engex platform to generate a deep pipeline of engineered exosomes , or engex exosomes , aimed at treating a broad range of diseases , including oncology , neuro-oncology , neurology , neuromuscular disease and infectious disease . in september 2020 , we initiated clinical trials for our lead engex product candidates , exosting and exoil-12 , which are being developed to address solid tumors . to our knowledge , exosting and exoil-12 are the first engineered exosomes to enter clinical development . in december 2020 and february 2021 , we reported positive results from part a of our phase 1 clinical trial of exoil-12 in healthy human volunteers . in this randomized , placebo controlled , double-blind study , exoil-12 demonstrated a favorable safety and tolerability profile , with no local or systemic treatment-related adverse events and no detectable systemic exposure of il-12 . results also confirmed retention of il-12 at the injection site and prolonged pharmacodynamic effects . these results in healthy volunteers , which are consistent with our preclinical observations , provide validation of our engex platform and one of the founding principles of codiak—that engineered exosomes can offer the opportunity to tailor therapeutic payloads to provide an active biological response while at the same time limiting unwanted side effects . we also have multiple preclinical and discovery programs of our engex exosomes that we are advancing either independently or through our strategic collaborations with jazz pharmaceuticals ireland limited , or jazz , and sarepta therapeutics , inc. , or sarepta . we were incorporated and commenced operations in 2015. since inception , we have devoted substantially all of our resources to developing our engex platform , our engex product candidates and engex exosomes , clinical and preclinical candidates ; building our intellectual property portfolio , process development and manufacturing function ; business planning ; raising capital and providing general and administrative support for these operations . to date , we have financed our operations primarily with proceeds from sales of our common stock and redeemable convertible preferred stock , and our term loan facility with hercules capital , inc. , or hercules , and our collaborations with jazz and sarepta . as of december 31 , 2020 , we raised an aggregate of $ 168.2 million through the issuance of our redeemable convertible preferred stock , net of issuance costs , $ 24.6 million from our term loan facility with hercules , net of issuance costs , and received $ 66.0 million in payments from our collaborations with jazz and sarepta . on october 16 , 2020 , we completed our initial public offering , or ipo , pursuant to which we issued and sold 5,500,000 shares of our common stock at a public offering price of $ 15.00 per share , resulting in net proceeds of $ 74.4 million , after deducting underwriting discounts and commissions and other offering expenses . on february 17 , 2021 , we completed a follow-on public offering , pursuant to which we issued and sold 3,162,500 shares of our common stock ( inclusive of the exercise of the underwriter 's option to purchase 412,500 additional shares of common stock ) at a public offering price of $ 21.00 per share , resulting in aggregate net proceeds of $ 62.0 million , after deducting underwriting discounts and commissions and other offering expenses . we have not generated any revenue from product sales and do not expect to do so for several years , and may never do so . we advanced our first two engex product candidates , exosting and exoil-12 , into clinical 140 trials in september 2020. all of our other engex exosomes are still in preclinical development . our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our engex product candidates . since our inception , we have incurred significant losses , including net losses of $ 91 . 7 million and $ 7 8 . 0 million for the years ended december 31 , 20 20 and 2019 , respectively . as of december 3 1 , 2020 , we had an accumulated deficit of $ 2 88 . 1 million . we expect to incur substantial additional losses in the future as we expand our research and development activities . we anticipate that our expenses will increase significantly in connection with our ongoing activities , as we : initiate and conduct clinical trials for exosting , exoil-12 and any other engex product candidates we identify and choose to develop ; continue our current research programs and preclinical development of exoaso-stat6 and our potential engex product candidates ; seek to identify additional research programs and additional engex product candidates ; further develop and expand the capabilities of our engex platform ; establish , operate and maintain in-house manufacturing capabilities , including of our own phase 1/2 clinical manufacturing facility , and secure supply chain capacity sufficient to support our planned preclinical studies and early-stage clinical trials ; maintain , expand and protect our intellectual property portfolio ; hire additional clinical , scientific , manufacturing and business development personnel ; acquire or in-license other biologically active molecules , potential engex product candidates or technologies ; seek regulatory approvals for any engex product candidates that successfully complete clinical trials ; establish a sales , marketing and distribution infrastructure to commercialize any engex products for story_separator_special_tag the costs above comprise the following categories : personnel-related expenses , including salaries , benefits and stock-based compensation expense ; expenses incurred under agreements with third parties , such as contract research organizations , or cros , that conduct our preclinical studies ; licensing costs ; 142 costs of acquiring , developing and manufacturing materials for preclinical studies , including both internal manufacturing and third-party contract manufacturing organizations , or cmos ; costs of outside consultants and advisors , including their fees , stock-based compensation and related travel expenses ; expenses incurred for the procurement of materials , laboratory supplies and non-capital equipment used in the research and development process ; and facilities , depreciation , amortization and other direct and allocated expenses incurred as a result of research and development activities . our primary focus of research and development since inception has been the development of our engex platform and our pipeline of engex product candidates , including our initial product candidates , exosting and exoil-12 , and discovery programs . our research and development costs consist of personnel costs , external costs , such as fees paid to cmos , cros , and consultants in connection with our clinical and preclinical studies and experiments , and other internal costs , including rent , depreciation , and other miscellaneous costs . we do not allocate employee-related costs and other internal costs to specific research and development programs because these costs are used across all programs under development . we present external research and development costs for any individual engex product candidate when we advance that product candidate into clinical trials . as exosting and exoil-12 entered clinical trials in september 2020 , we have presented our research and development costs for exosting and exoil-12 below . the following table reflects our research and development expenses for each period presented : replace_table_token_1_th research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect that our research and development expenses will continue to increase in the foreseeable future as we conduct clinical trials for our lead engex product candidates , exosting and exoil-12 , continue to discover and develop additional engex product candidates , continue to build manufacturing capabilities , enhance our engex platform , expand into additional therapeutic areas and incur expenses associated with hiring additional personnel to support our research and development efforts . 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 , and obtain regulatory approval for , any of our engex product candidates . we are also unable to predict when , if ever , material net cash inflows will commence from sales or licensing of our engex product candidates . this is due to the numerous risks and uncertainties associated with drug development , including the uncertainty of : our ability to successfully develop , obtain regulatory approval for , and then successfully commercialize , our engex product candidates ; our successful enrollment in and completion of clinical trials , including our ability to generate positive data from any such clinical trials ; the costs associated with the development of any additional development programs we identify in-house or acquire through collaborations ; our ability to add and retain key research and development personnel ; 143 our ability to establish an appropriate safety profile with ind-enabling toxicology and other preclinical studies ; our ability to discover , develop and utilize biomarkers to demonstrate target engagement , pathway engagement and the impact on disease progression , as applicable , of our engex product candidates ; our ability to establish and maintain agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing , if our engex product candidates are approved ; our ability to maintain our collaborative arrangements with jazz and sarepta and earn milestone payments thereunder ; the terms and timing of any additional collaboration , license or other arrangement , including the terms and timing of any milestone payments thereunder ; our ability to obtain and maintain patent , trade secret and other intellectual property protection and regulatory exclusivity for our engex product candidates if and when approved ; our receipt of marketing approvals from applicable regulatory authorities ; and the continued acceptable safety profiles of any engex product following approval . a change in any of these variables with respect to the development of any of our engex product candidates would significantly change the costs , timing and viability associated with the development of that engex product candidate . general and administrative expense general and administrative expenses consist primarily of salaries and other related costs , including stock-based compensation , for personnel in our executive , finance , business development and administrative functions . general and administrative expenses also include legal fees relating to patent and corporate matters ; professional fees for accounting , auditing , tax and administrative consulting services ; insurance costs ; administrative travel expenses ; and facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs . these costs relate to the operation of the business unrelated to the research and development function or any individual program . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support the expected growth in our research and development activities and the potential commercialization of our engex product candidates , if approved . we also expect to incur increased expenses associated with being a public company , including increased costs of accounting , audit , legal , regulatory and tax-related services associated with maintaining compliance with exchange listing and sec requirements , director and officer insurance costs and investor and public relations costs .
| results of operations the following table summarizes our consolidated statements of operations for the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_2_th collaboration revenue collaboration revenue increased by approximately $ 2.5 million from $ 0.4 million for the year ended december 31 , 2019 to $ 2.9 million for the year ended december 31 , 2020. this increase was primarily driven by activities in connection with our collaboration agreement with sarepta . the agreement with sarepta was executed in june 2020 . 145 research and development expense the following table summarizes our research and development expenses for years ended december 31 , 2020 and 2019 , along with the changes in those items ( in thousands ) : replace_table_token_3_th research and development expenses increased $ 14.5 million from $ 59.5 million for the year ended december 31 , 2019 to $ 74.0 million for the year ended december 31 , 2020. the increase in research and development expenses was primarily attributable to the following : $ 7.9 million increase in expenses incurred to advance exosting , driven primarily by a milestone payment of $ 17.7 million triggered under our license agreement with kayla therapeutics in september 2020 , partially offset by a decrease of $ 9.8m in exosting manufacturing costs in connection with the gmp manufacturing run completed in 2019 ; $ 3.1 million increase in personnel-related costs primarily driven by an increase in headcount to support increased research and development activities ; $ 2.4 million increase in other research and development costs , including rent , depreciation , and other miscellaneous costs , primarily due to occupying our new facilties ; $ 2.2 million increase in costs related to our engex platform , driven primarily by a $ 4.9 million increase in manufacturing costs related to our preclinical and discovery programs , and a $ 0.5 million increase in consultant and professional service expenses , partially offset
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organization main street capital corporation ( `` mscc '' ) is a principal investment firm primarily focused on providing customized debt and equity financing to lower middle market ( `` lmm '' ) companies and debt capital to middle market ( `` middle market '' ) companies . the portfolio investments of mscc and its consolidated subsidiaries are typically made to support management buyouts , recapitalizations , growth financings , refinancings and acquisitions of companies that operate in a variety of industry sectors . mscc seeks to partner with entrepreneurs , business owners and management teams and generally provides `` one stop '' financing alternatives within its lmm portfolio . mscc and its consolidated subsidiaries invest primarily in secured debt investments , equity investments , warrants and other securities of lmm companies based in the united states and in secured debt investments of middle market companies generally headquartered in the united states . mscc was formed in march 2007 to operate as an internally managed business development company ( `` bdc '' ) under the investment company act of 1940 , as amended ( the `` 1940 act '' ) . mscc wholly owns several investment funds , including main street mezzanine fund , lp ( `` msmf '' ) , main street capital ii , lp ( `` msc ii '' ) and main street capital iii , lp ( `` msc iii '' and , collectively with msmf and msc ii , the `` funds '' ) , and each of their general partners . the funds are each licensed as a small business investment company ( `` sbic '' ) by the united states small business administration ( `` sba '' ) . because mscc is internally managed , all of the executive officers and other employees are employed by mscc . therefore , mscc does not pay any external investment advisory fees , but instead directly incurs the operating costs associated with employing investment and portfolio management professionals . msc adviser i , llc ( the `` external investment manager '' ) was formed in november 2013 as a wholly owned subsidiary of mscc to provide investment management and other services to parties other than mscc and its subsidiaries or their portfolio companies ( `` external parties '' ) and receives fee income for such services . mscc has been granted no-action relief by the securities and exchange commission ( `` sec '' ) to allow the external investment manager to register as a registered investment adviser under the investment advisers act of 1940 , as amended . since the external investment manager conducts all of its investment management activities for external parties , it is accounted for as a portfolio investment of mscc and is not included as a consolidated subsidiary of mscc in mscc 's consolidated financial statements . mscc has elected to be treated for u.s. federal income tax purposes as a regulated investment company ( `` ric '' ) under subchapter m of the internal revenue code of 1986 , as amended ( the `` code '' ) . as a result , mscc generally will not pay corporate-level u.s. federal income taxes on any net ordinary taxable income or capital gains that it distributes to its stockholders . mscc has certain direct and indirect wholly owned subsidiaries that have elected to be taxable entities ( the `` taxable subsidiaries '' ) . the primary purpose of the taxable subsidiaries is to permit mscc to hold equity investments in portfolio companies which are `` pass-through '' entities for tax purposes . unless otherwise noted or the context otherwise indicates , the terms `` we , '' `` us , '' `` our , '' the `` company '' and `` main street '' refer to mscc and its consolidated subsidiaries , which include the funds and the taxable subsidiaries . 54 overview our principal investment objective is to maximize our portfolio 's total return by generating current income from our debt investments and capital appreciation from our equity and equity-related investments , including warrants , convertible securities and other rights to acquire equity securities in a portfolio company . our lmm companies generally have annual revenues between $ 10 million and $ 150 million , and our lmm portfolio investments generally range in size from $ 5 million to $ 50 million . our middle market investments are made in businesses that are generally larger in size than our lmm portfolio companies , with annual revenues typically between $ 150 million and $ 1.5 billion , and our middle market investments generally range in size from $ 3 million to $ 20 million . our private loan ( `` private loan '' ) portfolio investments are primarily debt securities in privately held companies which have been originated through strategic relationships with other investment funds on a collaborative basis . private loan investments are typically similar in size , structure , terms and conditions to investments we hold in our lmm portfolio and middle market portfolio . we seek to fill the financing gap for lmm businesses , which , historically , have had limited access to financing from commercial banks and other traditional sources . the underserved nature of the lmm creates the opportunity for us to meet the financing needs of lmm companies while also negotiating favorable transaction terms and equity participations . our ability to invest across a company 's capital structure , from secured loans to equity securities , allows us to offer portfolio companies a comprehensive suite of financing options , or a `` one stop '' financing solution . providing customized , `` one stop '' financing solutions is important to lmm portfolio companies . we generally seek to partner directly with entrepreneurs , management teams and business owners in making our investments . our lmm portfolio debt investments are generally secured by a first lien on the assets of the portfolio company and typically have a term of between five and seven years from the original investment date . story_separator_special_tag as of december 31 , 2018 , there was no cost basis in this investment and the investment had a fair value of approximately $ 65.7 million , which comprised approximately 2.7 % of our investment portfolio at fair value . as of december 31 , 2017 , there was no cost basis in this investment and the investment had a fair value of approximately $ 41.8 million , which comprised approximately 1.9 % of our investment portfolio at fair value . our portfolio investments are generally made through mscc and the funds . mscc and the funds share the same investment strategies and criteria , although they are subject to different regulatory regimes . an investor 's return in mscc will depend , in part , on the funds ' investment returns as they are wholly owned subsidiaries of mscc . the level of new portfolio investment activity will fluctuate from period to period based upon our view of the current economic fundamentals , our ability to identify new investment opportunities that meet our investment criteria , and our ability to consummate the identified opportunities . the level of new investment activity , and associated interest and fee income , will directly impact future investment income . in addition , the level of dividends paid by portfolio companies and the portion of our portfolio debt investments on non-accrual status will directly impact future investment income . while we intend to grow our portfolio and our investment income over the long term , our growth and our operating results may be more limited during depressed economic periods . however , we intend to appropriately manage our cost structure and liquidity position based on applicable economic conditions and our investment outlook . the level of realized gains or losses and unrealized appreciation or depreciation on our investments will also fluctuate depending upon portfolio activity , economic conditions and the performance of our individual portfolio companies . the changes in realized gains and losses and unrealized appreciation or depreciation could have a material impact on our operating results . because we are internally managed , we do not pay any external investment advisory fees , but instead directly incur the operating costs associated with employing investment and portfolio management professionals . we believe that our internally managed structure provides us with a beneficial operating expense structure when compared to other publicly traded and privately held investment firms which are externally managed , and our internally managed structure allows us the opportunity to leverage our non-interest operating expenses as we grow our investment portfolio . for the years ended december 31 , 2018 and 2017 , the ratio of our total operating expenses , excluding interest expense , as a percentage of our quarterly average total assets was 1.4 % and 1.6 % , respectively . during may 2012 , we entered into an investment sub-advisory agreement with hms adviser , lp ( `` hms adviser '' ) , which is the investment advisor to hms income , a non-listed bdc , to provide certain investment 57 advisory services to hms adviser . in december 2013 , after obtaining required no-action relief from the sec to allow us to own a registered investment adviser , we assigned the sub-advisory agreement to the external investment manager since the fees received from such arrangement could otherwise have negative consequences on our ability to meet the source-of-income requirement necessary for us to maintain our ric tax treatment . under the investment sub-advisory agreement , the external investment manager is entitled to 50 % of the base management fee and the incentive fees earned by hms adviser under its advisory agreement with hms income . the external investment manager has conditionally agreed to waive the historical incentive fees otherwise earned . during the years ended december 31 , 2018 , 2017 and 2016 , the external investment manager earned $ 11.6 million , $ 10.9 million and $ 9.5 million , respectively , of management fees ( net of fees waived , if any ) under the sub-advisory agreement with hms adviser . during april 2014 , we received an exemptive order from the sec permitting co-investments by us and hms income in certain negotiated transactions where co-investing would otherwise be prohibited under the 1940 act . we have made , and in the future intend to continue to make , such co-investments with hms income in accordance with the conditions of the order . the order requires , among other things , that we and the external investment manager consider whether each such investment opportunity is appropriate for hms income and , if it is appropriate , to propose an allocation of the investment opportunity between us and hms income . because the external investment manager may receive performance-based fee compensation from hms income , this may provide it an incentive to allocate opportunities to hms income instead of us . however , both we and the external investment manager have policies and procedures in place to manage this conflict . critical accounting policies basis of presentation our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the united states of america ( `` u.s. gaap '' ) . for each of the periods presented herein , our consolidated financial statements include the accounts of mscc and its consolidated subsidiaries . the investment portfolio , as used herein , refers to all of our investments in lmm portfolio companies , investments in middle market portfolio companies , private loan portfolio investments , other portfolio investments , and the investment in the external investment manager . our results of operations and cash flows for the years ended december 31 , 2018 , 2017 and 2016 and financial position as of december 31 , 2018 and 2017 , are presented on a consolidated basis . the effects of all intercompany transactions between us and our consolidated subsidiaries have been eliminated in consolidation . certain reclassifications have been made to prior period balances to conform with the current presentation .
| discussion and analysis of results of operations comparison of the years ended december 31 , 2018 and 2017 replace_table_token_10_th replace_table_token_11_th ( a ) distributable net investment income is net investment income as determined in accordance with u.s. gaap , excluding the impact of share-based compensation expense which is non-cash in nature . we believe presenting distributable net investment income and related per share amounts is useful and appropriate supplemental disclosure of information for analyzing our financial performance since share-based compensation does not require settlement in cash . however , distributable net investment income is a non-u.s. gaap measure and should not be considered as a replacement to net investment income and other earnings measures presented in accordance with u.s. gaap . instead , distributable net investment income should be reviewed only in connection with such u.s. gaap measures in analyzing our financial performance . a reconciliation of net investment income in accordance with u.s. gaap to distributable net investment income is presented in the table above . investment income for the year ended december 31 , 2018 , total investment income was $ 233.4 million , a 13 % increase over the $ 205.7 million of total investment income for the corresponding period of 2017. this comparable period increase was principally attributable to ( i ) a $ 15.2 million net increase in interest income primarily related to higher average levels of investment portfolio debt investments and an increase in their average effective 64 yields , partially offset by decreases in interest income associated with activity from portfolio companies that is considered to be less consistent on a recurring basis or non-recurring and prepayment , repricing and other activities involving existing investment portfolio debt investments , ( ii ) a $ 11.8 million increase in dividend income from investment portfolio equity investments and ( iii ) a $ 0.7 million increase in fee income .
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estimated useful lives range generally from 35 years to a maximum of 50 years on buildings and major improvements . minor improvements , furniture and equipment are capitalized and depreciated over useful lives ranging from 2 to 20 years . maintenance and repairs that do not improve or extend the useful lives of the related assets are charged to operations as incurred . tenant improvements are capitalized and depreciated over the life of the related lease or their estimated useful life , whichever is shorter . if a tenant vacates its space prior to contractual termination of its lease , the undepreciated balance of any tenant improvements are written off if they are replaced or have no future value . in 2018 , 2017 and 2016 , real estate depreciation expense was $ 216.0 million , $ 193.3 million and $ 173.2 million , respectively , including amounts from real estate sold and assets under capital lease obligations . effective january 1 , 2018 , ( upon the adoption of asu 2014-09 , `` revenue from contracts with customers , `` as amended and interpreted ) sales of real estate are recognized generally upon the transfer of control , which usually occurs when the real estate is legally sold . prior to january 1 , 2018 , sales of real estate were recognized only when sufficient down payments had been obtained , possession and other attributes of ownership had been transferred to the buyer and we had no significant continuing involvement . the application of these story_separator_special_tag forward-looking statements certain statements in this section or elsewhere in this report may be deemed “ forward-looking statements ” . see “ item 1a . risk factors ” in this report for important information regarding these forward-looking statements and certain risk and uncertainties that may affect us . the following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing in “ item 8. financial statements and supplementary data ” of this report . overview we are an equity real estate investment trust ( “ reit ” ) specializing in the ownership , management , and redevelopment of high quality retail and mixed-use properties located primarily in densely populated and affluent communities in strategically selected metropolitan markets in the northeast and mid-atlantic regions of the united states , california , and south florida . as of december 31 , 2018 , we owned or had a majority interest in community and neighborhood shopping centers and mixed-use properties which are operated as 104 predominantly retail real estate projects comprising approximately 24.1 million square feet . in total , the real estate projects were 94.6 % leased and 93.6 % occupied at december 31 , 2018 . we have paid quarterly dividends to our shareholders continuously since our founding in 1962 and have increased our dividends per common share for 51 consecutive years . critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america , referred to as “ gaap ” , requires management to make estimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities , and revenues and expenses . these estimates are prepared using management 's best judgment , after considering past and current events and economic conditions . in addition , 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 results of operations or financial condition . our significant accounting policies are more fully described in note 2 to the consolidated financial statements ; 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 : 30 revenue recognition and accounts receivable our leases with tenants are classified as operating leases . substantially all such leases contain fixed escalations which occur at specified times during the term of the lease . base rents are recognized on a straight-line basis from when the tenant controls the space through the term of the related lease , net of valuation adjustments , based on management 's assessment of credit , collection and other business risk . percentage rents , which represent additional rents based upon the level of sales achieved by certain tenants , are recognized at the end of the lease year or earlier if we have determined the required sales level is achieved and the percentage rents are collectible . real estate tax and other cost reimbursements are recognized on an accrual basis over the periods in which the related expenditures are incurred . for a tenant to terminate its lease agreement prior to the end of the agreed term , we may require that they pay a fee to cancel the lease agreement . lease termination fees for which the tenant has relinquished control of the space are generally recognized on the termination date . when a lease is terminated early but the tenant continues to control the space under a modified lease agreement , the lease termination fee is generally recognized evenly over the remaining term of the modified lease agreement . current accounts receivable from tenants primarily relate to contractual minimum rent and percentage rent as well as real estate tax and other cost reimbursements . accounts receivable from straight-line rent is typically longer term in nature and relates to the cumulative amount by which straight-line rental income recorded to date exceeds cash rents billed to date under the contractual lease agreement . story_separator_special_tag we calculate depreciation using the straight-line method with useful lives ranging generally from 35 years to a maximum of 50 years on buildings and major improvements . maintenance and repair costs are charged to operations as incurred . tenant work and other major improvements , which improve or extend the life of the asset , are capitalized and depreciated over the life of the lease or the estimated useful life of the improvements , whichever is shorter . minor improvements , furniture and equipment are capitalized and depreciated over useful lives ranging from 2 to 20 years . capitalized costs associated with leases are depreciated or amortized over the base term of the lease . unamortized leasing costs are charged to expense if the applicable tenant vacates before the expiration of its lease . undepreciated tenant work is written-off if the applicable tenant vacates and the tenant work is replaced or has no future value . additionally , we make estimates as to the probability of certain development and redevelopment projects being completed . if we determine the redevelopment is no longer probable of completion , we immediately expense all capitalized costs which are not recoverable . interest costs on developments and major redevelopments are capitalized as part of developments and redevelopments not yet placed in service . capitalization of interest commences when development activities and expenditures begin and end upon completion , which is when the asset is ready for its intended use . generally , rental property is considered substantially complete 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 . if the time period for capitalizing interest is extended , more interest is capitalized , thereby decreasing interest expense and increasing net income during that period . certain external and internal costs directly related to the development , redevelopment and leasing of real estate , including pre-construction costs , real estate taxes , insurance , construction costs and salaries and related costs of personnel directly involved , are capitalized . we capitalized external and internal costs related to both development and redevelopment activities of $ 274 million and $ 8 million , respectively , for 2018 and $ 410 million and $ 8 million , respectively , for 2017 . we capitalized external and internal costs related to other property improvements of $ 62 million and $ 3 million , respectively , for 2018 and $ 74 million and $ 3 million , respectively , for 2017 . we capitalized external and internal costs related to leasing activities of $ 20 million and $ 6 million , respectively , for 2018 and $ 11 million and $ 6 million , respectively , for 2017 . the amount of capitalized internal costs for salaries and related benefits for development and redevelopment activities , other property improvements , and leasing activities were $ 7 million , $ 3 million , and $ 6 million , for both 2018 and 2017 . total capitalized costs were $ 373 million and $ 512 million for 2018 and 2017 , respectively . when applicable , as lessee , we classify our leases of land and building as operating or capital leases . we are required to use judgment and make estimates in determining the lease term , the estimated economic life of the property and the interest rate to be used in determining whether or not the lease meets the qualification of a capital lease and is recorded as an asset . real estate acquisitions upon acquisition of operating real estate properties , we estimate the fair value of assets and liabilities acquired including land , building , improvements , leasing costs , intangibles such as in-place leases , assumed debt , and current assets and liabilities , if any . based on these estimates , we allocate the purchase price to the applicable assets and liabilities . we utilize methods similar to those used by independent appraisers in estimating the fair value of acquired assets and liabilities . the value allocated to in-place leases is amortized over the related lease term and reflected as rental income in the statement of operations . we consider qualitative and quantitative factors in evaluating the likelihood of a tenant exercising a below market renewal option and 32 include such renewal options in the calculation of in-place lease value when we consider these to be bargain renewal options . if the value of below market lease intangibles includes renewal option periods , we include such renewal periods in the amortization period utilized . if a tenant vacates its space prior to contractual termination of its lease , the unamortized balance of any in-place lease value is written off to rental income . long-lived assets and impairment there are estimates and assumptions made by management in preparing the consolidated financial statements for which the actual results will be determined over long periods of time . this includes the recoverability of long-lived assets , including our properties that have been acquired or redeveloped and our investment in certain joint ventures . management 's evaluation of impairment includes review for possible indicators of impairment as well as , in certain circumstances , undiscounted and discounted cash flow analysis . since most of our investments in real estate are wholly-owned or controlled assets which are held for use , a property with impairment indicators is first tested for impairment by comparing the undiscounted cash flows , including residual value , to the current net book value of the property . if the undiscounted cash flows are less than the net book value , the property is written down to expected fair value .
| summary of cash flows replace_table_token_17_th net cash provided by operating activities increased $ 57.9 million to $ 516.7 million during 2018 from $ 458.8 million during 2017 . the increase was primarily attributable to higher net income before certain non-cash items , $ 12.4 million in net proceeds from the jordan downs plaza new market tax credit transaction ( see note 3 to the consolidated financial statements for further discussion ) and timing of cash receipts , partially offset by timing of interest payments on our senior notes . net cash used in investing activities decreased $ 645.7 million to $ 192.2 million during 2018 from $ 837.9 million during 2017 . the decrease was primarily attributable to : a $ 424.3 million decrease in acquisitions of real estate , primarily due to the 2017 acquisitions of six shopping centers in los angeles county , california and our riverpoint center , hastings ranch , and fourth street properties , an $ 141.9 million decrease in capital expenditures and leasing costs primarily due to the completion of portions of phase ii of both our assembly row and pike & rose projects , a $ 41.7 million increase in proceeds from sale of real estate primarily due to the sale of condominiums at our assembly row and pike & rose properties in 2018 , and $ 38.0 million in proceeds from our assembly row hotel joint venture formation ( see note 3 to the consolidated financial statements for further discussion ) . net cash used in financing activities increased $ 610.8 million to $ 241.3 million during 2018 from $ 369.4 million provided by financing activities during 2017 .
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the aggregate purchase price for the picometrix assets has been allocated to the tangible and identifiable intangible assets acquired based on their estimated fair value at the date of acquisition . the excess of the purchase price over the fair value of the acquired assets represents cost and revenue synergies specific to the company , as well as non-capitalizable intangible 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 annual report . in addition to historical information , the following discussion contains forward-looking statements that are subject to risks and uncertainties . actual results may differ substantially and adversely from those referred to herein due to a number of factors , including but not limited to those described below and in `` item 1a - risk factors ” and elsewhere in this annual report . overview see `` item 1 - business '' for additional information . we are a leading provider of high-performance analog semiconductor solutions that enable next-generation internet applications , the cloud connected apps economy and the modern , networked battlefield across the radio frequency ( rf ) , microwave , millimeterwave and lightwave spectrum . our technology enables next-generation radars for global and homeland defense , air traffic control and weather forecasting . we help our customers , including some of the world 's leading communications infrastructure and aerospace and defense companies , solve complex challenges in areas including network capacity , signal coverage , energy efficiency and field reliability , utilizing our best-in-class team and broad portfolio of analog rf , microwave , millimeterwave and lightwave semiconductor solutions . we design , develop , manufacture and have manufactured differentiated , high-value products for customers who demand high-performance , quality and reliability . we offer a broad portfolio of over 5,000 standard and custom devices , which include integrated circuits ( ic ) , multi-chip modules ( mcm ) , power pallets and transistors , diodes , amplifiers , switches and switch limiters , passive and active components and complete subsystems , across more than 60 product lines serving over 7,000 end customers in three primary markets . our semiconductor products are electronic components that our customers incorporate into their larger electronic systems , such as , wireless basestations , high density networks , active antenna arrays , radar , magnetic resonance imaging systems ( mri ) and test and measurement . our primary markets are : 1 ) telecom , which includes carrier infrastructure like long-haul/metro , 5g and fttx/pon ; 2 ) data centers , enabled by our broad portfolio of photonic solutions and fiber optic applications ; and 3 ) i & d , which includes military and commercial radar , rf jammers , electronic countermeasures , communication data links and multi-market applications , which include industrial , medical , test and measurement and scientific applications . basis of presentation we have one reportable operating segment . all intercompany balances have been eliminated in consolidation . certain prior period financial statement amounts , such as deferred revenue and cash flow line item presentation have been adjusted to conform to currently reported presentations . we have a 52 or 53-week fiscal year ending on the friday closest to the last day of september . the fiscal years 2018 , 2017 and 2016 included 52 weeks . to offset the effect of holidays , for fiscal years in which there are 53 weeks , we typically include the extra week in the first quarter of our fiscal year . description of our revenue revenue . substantially all of our revenue is derived from sales of high-performance rf , microwave , millimeterwave and lightwave semiconductor solutions . we design , integrate , manufacture and package differentiated product solutions that we sell to customers through our direct sales organization , our network of independent sales representatives and our distributors . we believe the primary drivers of our future revenue growth will include : engaging early with our lead customers to develop custom and standard products and solutions that can be driven across multiple growth markets ; leveraging our core strength and leadership position in standard , catalog products that service all of our end applications ; increasing content of our semiconductor solutions in our customers ' systems through cross-selling of our more than 60 product lines ; introducing new products through internal development and acquisitions with market reception that command higher prices based on the application of advanced technologies , added features , higher levels of integration and improved performance ; and continued growth in the demand for high-performance analog and optical semiconductors in our three primary markets in particular . our core strategy is to develop and innovate high-performance products that address our customers ' most difficult technical challenges in our primary markets : telecom , data center and i & d . while sales in any or all of our primary markets may slow or decline from period to period , over the long-term we generally expect to benefit from our strength in these markets . 37 we expect our revenue in the telecom market to be primarily driven by continued upgrades and expansion of communications equipment to support the proliferation of mobile computing devices such as smartphones and tablets , increasing adoption of bandwidth rich services such as video on demand and cloud computing . we expect our data center market to be driven by the rapid adoption of cloud-based services and the migration to an application centric architecture , which we expect will drive adoption of higher speed , 100g and higher speed optical and photonic wireless links . we expect our revenue in the i & d market to be driven by the upgrading of radar systems and modern battlefield communications equipment and networks designed to improve situational awareness . growth in this market is subject to changes in governmental programs and budget funding , which is difficult to predict . story_separator_special_tag research and development expense increased in the 2018 period primarily as a result of higher appliedmicro-related compensation costs , share-based compensation and depreciation expense , as well as increased spending for data center-related initiatives . selling , general and administrative . in fiscal year 2018 , selling , general and administrative expenses decreased by $ 26.2 million , or 14.0 % to $ 161.7 million , or 28.3 % of revenue , compared with $ 187.9 million , or 26.9 % of revenue , for fiscal year 2017 . selling , general and administrative expenses decreased in the fiscal year 2018 period primarily due to no fiscal year 2018 appliedmicro change in control payments , lower acquisition-related transaction expenses , lower integration costs and lower share-based compensation costs , partially offset by higher intangible amortization and acquisition-related compensation . impairment charges . we recorded impairment charges of $ 6.6 million , or 1.2 % of revenue , in fiscal year 2018 , related to property and equipment and other assets designated for future use with zte as a result of the april 15 , 2018 denial order issued by the u.s. department of commerce 's bureau of industry and security 's list of denied persons . during fiscal year 2017 , we recorded impairment charges of $ 4.4 million related to an in process research and development technology asset that was placed in service , at which time we determined that the intangible asset value was impaired due to lower than expected cash flow projections . restructuring charges . in fiscal year 2018 , restructuring charges were $ 6.3 million , or 1.1 % of our revenue , compared with $ 2.7 million , or 0.4 % of our revenue , for fiscal year 2017 . the increase in restructuring charges during fiscal year 2018 was primarily related to the completion of our exit of facilities in long beach , california , belfast , the united kingdom and sydney , australia . we expect to incur additional restructuring costs associated with additional restructuring actions associated with the exit of certain production and product lines of approximately $ 5.3 million and $ 6.7 million during fiscal 2019 as we complete these restructuring actions . refer to note 14 - restructurings in this annual report on form 10-k for additional information . warrant liability gain . in fiscal year 2018 , we recorded a warrant gain of $ 27.6 million , or 4.8 % of revenue , compared to an expense of $ 2.5 million , or 0.4 % of revenue , for fiscal year 2017 . the difference between periods were driven by a decrease in the estimated fair value of common stock warrants we issued in december 2010 , which we carry as a liability at fair value . provision f or income taxes . in fiscal year 2018 , the provision for income taxes was a benefit of $ 21.5 million , or 3.8 % of revenue , compared to an expense of $ 100.9 million , or 14.4 % of revenue , for fiscal year 2017 . the provision decreased primarily due to changes in the valuation allowance against our u.s. deferred tax assets , partially offset by the impact of the 2017 tax cuts and jobs act ( “ tax act ” ) which was enacted during our fiscal year 2018. for the fiscal year ended september 28 , 2018 , the blended u.s. federal income tax rate was 24.5 % . the difference between the blended u.s. federal income tax rate of 24.5 % and our effective income tax rate for fiscal year 2018 was primarily impacted by the tax act , partially offset by the valuation allowance against our u.s. deferred tax assets . for fiscal year 41 2017 , our effective income tax rate was primarily impacted by an establishment of a full valuation allowance against our u.s. deferred tax assets as well as income taxed in foreign jurisdictions at tax rates generally lower than the u.s. rate . during fiscal year 2018 , the company 's unrecognized tax benefits decreased by $ 1.4 million to $ 0.3 million due to the audit settlement of our fiscal year 2014 u.s. tax filings . the remaining unrecognized tax benefits of $ 0.3 million primarily relates to transfer pricing positions taken on foreign tax filings in tax years 2010 - 2013. comparison of fiscal year ended september 29 , 2017 to fiscal year ended september 30 , 2016 we acquired appliedmicro on january 26 , 2017 and certain assets of picometrix on august 9 , 2017. for additional information related to the appliedmicro acquisition refer to note 3 - acquisitions in this annual report . our annual statements of operations includes activity since the dates of acquisition for appliedmicro and picometrix , representing less than twelve months of activity for appliedmicro and picometrix for the fiscal year ended september 29 , 2017. we acquired fibest and metelics during december 2015. for additional information related to the fibest acquisition and metelics acquisition refer to note 3 - acquisitions . our annual statements of operations includes activity since the dates of acquisition , representing less than twelve months of activity for fibest and metelics for the fiscal year ended september 29 , 2017. revenue . in fiscal year 2017 , our revenue increased by $ 154.4 million , or 28.4 % , to $ 698.8 million from $ 544.3 million for fiscal year 2016 . revenue from our primary markets , the percentage of change between the years and revenue by primary markets expressed as a percentage of total revenue were ( in thousands , except percentages ) : replace_table_token_7_th in fiscal year 2017 , our telecom market revenue decreased by $ 1.7 million , or 0.5 % , compared to fiscal year 2016 . the decrease was primarily related to weakness in our products targeting fiber to the home and carrier-based optical revenue .
| results of operations as discussed in note 21 - divested businesses and discontinued operations to our consolidated financial statements included in this annual report , we have adjusted certain amounts associated with discontinued operations in our results of operations , cash flows and assets and liabilities for all periods presented . the following table sets forth , for the periods indicated , our statement of operations data ( in thousands ) : replace_table_token_3_th ( 1 ) includes ( a ) amortization expense related to intangible assets arising from acquisitions and ( b ) share-based compensation expense included in our consolidated statements of operations as set forth below ( in thousands ) : replace_table_token_4_th ( 2 ) represents changes in the fair value of common stock warrants recorded as liabilities and adjusted each reporting period to fair value . ( 3 ) includes specific litigation costs of $ 3.5 million , $ 2.3 million and $ 2.2 million incurred in fiscal years 2018 , 2017 and 2016 , respectively , primarily related to the gan lawsuit . see note 13 - commitments and contingencies to the consolidated financial statements included in this annual report for additional information . ( 4 ) in fiscal years 2018 , 2017 and 2016 , includes approximately $ 0.2 million , $ 43.2 million and $ 2.1 million , respectively , of costs for step-up in valuation of acquired business inventories to fair value . ( 5 ) includes change in control payments associated with the appliedmicro acquisition of $ 21.3 million for fiscal year 2017 , of which $ 12.0 million was recorded as selling , general and administrative expenses and $ 9.3 million was recorded as discontinued operations . ( 6 ) see note 21 - divested business and discontinued operations to the consolidated financial statements included in this annual report for additional information .
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in addition , the amended and restated credit agreement allows for increases in the principal amount of the revolver and the new us and ca term loans not to exceed a $ story_separator_special_tag this management 's discussion and analysis of financial condition and results of operation is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition , results of operations , liquidity , and certain other factors that may affect our future results . you should read the following discussion and analysis of our financial condition and results of operations in conjunction with the accompanying consolidated financial statements and the related notes to consolidated financial statements for the fifty-two weeks ended december 29 , 2019 , december 30 , 2018 , and december 31 , 2017 included in this annual report on form 10-k. some of the information contained in this discussion and analysis include forward-looking statements . our actual results and the timing of events could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to these differences include those discussed below as well as in other sections of this annual report on form 10-k , particularly in “ business , ” “ risk factors ” and “ special note regarding forward-looking statements. ” we make no guarantees regarding outcomes and assume no obligation to update the forward-looking statements herein , except as may be required by law . basis of presentation the company 's policy has been that fiscal years end on the sunday closest to the end of the calendar year end . our 2019 story_separator_special_tag injection molding ( rim ) and fusion molding . we believe unique fabricating has a broader array of processes and materials utilized than any of its direct competitors . by sealing out air noise and water intrusion , and by providing sound absorption and blocking , unique fabricating 's products improve the interior comfort of a vehicle , increasing perceived vehicle quality and the overall experience of its passengers . unique fabricating 's products perform similar functions for appliances , water heaters and hvac systems , improving thermal characteristics , reducing noise and prolonging equipment life . we primarily operate within the highly competitive and cyclical automotive parts industry . recent developments fourth quarter fourth quarter of 2019 results saw the positive impacts from the wide ranging operational and cost improvement activities that accelerated in the fourth quarter and for which we will see additional benefit in the first quarter of 2020. these benefits reduced the impact of lower year over year sales from the loss of business due to our ft. smith , arkansas and evansville , indiana plant closures , the end of life of specific programs that were not adequately replaced , and other commercial challenges . we were not impacted in any meaningful way from the gm strike which occurred during the fourth quarter of 2019. coronavirus due to the ongoing covid-19 outbreak with its uncertain near , mid , and longer-term impacts on the company , our customers , our suppliers , and the industries we serve , we are executing a comprehensive set of actions to prudently manage our resources while keeping our customers supplied with the products they continue to require . while demand in the automotive segment has been reduced for an indeterminate period , we continue to have customer orders across our various markets and in all our plants . currently , we are operating our facilities . we are following the guidelines provided by the various governmental entities in the jurisdictions where we operate and are taking additional measures to protect our employees . considering the current decline in demand , we are modifying our shift schedules and plant employee counts , limiting our raw material ordering , and restricting all discretionary spending . as our supply base is almost exclusively north american , we have not yet seen disruptions in our supply chain . due to the inherent uncertainty of the unprecedented and rapidly evolving situation including the duration of the actions taken by the various customers and governments , we are unable to determine the full impact of the covid-19 situation on our future operations . 23 organizational changes during january 2020 , we hired new directors of hr and purchasing as we continue to strengthen our management team to enable the achievement of our growth and operational targets . on september 17 , 2019 , the company named a new president and ceo of the company , who began employment with the company on september 30 , 2019. the company did not incur any restructuring costs in connection with this appointment . on september 30 , 2019 , our chief financial officer ( cfo ) announced his resignation , effective october 11 , 2019. the company 's new president and chief executive officer ( ceo ) will serve as the interim cfo until such a time that a permanent cfo is named . the company did not incur restructuring costs in connection with this resignation . our permanent cfo search activities continue . on july 30 , 2019 , our former president and chief executive officer of the company ( ceo ) , resigned as a member of the board of directors . the company did not incur any additional restructuring costs in connection with his resignation from the board of directors . on may 6 , 2019 , our former president and ceo resigned by mutual agreement of both parties . the company incurred one-time restructuring costs of $ 0.7 million during the 52 weeks ended december 29 , 2019 in connection with his resignation . salaried restructuring on may 15 , 2019 and february 1 , 2019 , the company announced that in order to reduce fixed costs it would be eliminating several salaried positions . the company provided the affected employees severance pay , health benefits continuation and job search assistance . story_separator_special_tag on october 18 , 2018 , the company sold the building it owned in fort smith , which had a net book value of $ 0.73 million , for cash proceeds of $ 0.88 million resulting in a gain on the sale of $ 0.14 million . through the date of the sale the building qualified as being held for sale , and therefore was presented as such in the consolidated balance sheet in our historical financial statements . 25 port huron facility closure on february 1 , 2018 , the company made the decision to close its manufacturing facility in port huron , michigan . the company ceased operations at the port huron facility in june of 2018 and seven positions were eliminated as a result of the closure . the company 's decision resulted from its desire to streamline operations and to utilize some of the available excess capacity in other of its facilities . as such , the company moved existing port huron production to our manufacturing facilities in london , ontario , auburn hills , michigan , and louisville , kentucky . the company provided the affected employees severance pay , health benefits continuation and job search assistance . the company evaluated whether or not this closing met the criteria for discontinued operations and concluded that the closing did not meet the definition as it did not represent a strategic shift in the company 's operations and the company will have continuing cash flows from the production being moved to other facilities within the company . the company incurred one-time severance costs as a result of this plant closure of $ 0.1 million in the 52 weeks ended december 30 , 2018 . the amount of other costs incurred associated with this plant closure , which primarily consisted of preparing and moving existing production equipment and inventory at port huron to other facilities was $ 0.3 million in the 52 weeks ended december 30 , 2018 . all these costs were recorded to the restructuring expense line in continuing operations in the company 's consolidated statement of operations . impairment of goodwill during the second quarter of 2019 , the company experienced a decline in market capitalization , which under applicable accounting standards , is a potential indicator of impairment . as a result , the company performed an interim quantitative assessment as of june 30 , 2019 , utilizing a combination of the income and market approaches , which were weighted evenly . the results of the quantitative analysis performed indicated the carrying value of the company exceeded the fair value of the company by $ 6.8 million and , accordingly , an impairment was recorded during the second quarter of 2019. key assumptions used in the analysis were a discount rate of 12.5 % , ebitda margin of 5.7 % for the last seven months of 2019 , 9.25 % ebitda margin for 2020 increasing to10.0 % for 2023 , and a terminal growth rate of 2.0 % . future events and changing market conditions may , however , lead us to reevaluate the assumptions we have used to test for goodwill impairment , including key assumptions used in our expected ebitda margins and cash flows , as well as other key assumptions with respect to matters out of our control , such as discount rates and market multiple comparables . based on the results of the quantitative test , we performed sensitivity analysis around the key assumptions used in the analysis , the results of which were a 50 basis point decline in ebitda margin used to determine expected future cash flows would have resulted in an additional impairment of approximately $ 12.3 million . no such further indicators of impairment were identified during the remaining two quarters of the year ended december 29 , 2019 . credit agreement ( amendments ) on april 29 , 2016 , unique fabricating na , inc. ( the “ us borrower ” ) and unique-intasco canada , inc. ( the “ ca borrower ” ) and citizens bank , national association ( “ citizens ” ) , acting as lender and administrative agent and the other lenders , entered into a credit agreement ( the “ credit agreement ” ) providing for borrowings of up to the aggregate principal amount of $ 62.0 million . the credit agreement was a senior secured credit facility and consisted of a revolving line of credit of up to $ 30.0 million ( the “ revolver ” ) to the us borrower , a $ 17.0 million principal amount term loan ( the “ us term loan ” ) to the us borrower , and a $ 15.0 million principal amount term loan ( the “ ca term loan ” ) to the ca borrower . on august 18 , 2017 , the us borrower and the ca borrower entered into the second amendment ( the “ amendment ” ) to the credit agreement , with citizens , acting as syndication agent , and the other lenders . the amendment converted $ 4.0 million of outstanding borrowings under the revolver into an additional $ 4.0 million term loan to the us borrower ( the “ us term loan ii ” ) . the conversion of a portion of the outstanding borrowings under the revolver into the us term loan ii did not reduce the aggregate amount available to be borrowed under it . on august 8 , 2018 , the us borrower and the ca borrower entered into the fourth amendment ( the “ fourth amendment ” ) to the credit agreement . the fourth amendment required the company to use the net proceeds from the sale of the ft. smith , arkansas building to reduce the outstanding borrowings under the revolver . the application of the net proceeds did not permanently reduce the amounts that could be borrowed under the revolver . the fourth amendment also eased , for the fiscal quarter ended september 30 , 2018 , the financial covenant ratio which determines the company 's ability to pay dividends .
| fiscal year ended on december 29 , 2019 , the 2018 fiscal year ended on december 30 , 2018 , and our 2017 fiscal year ended on december 31 , 2017. beginning with 2020 , the company will begin to report on a calendar quarter end and calendar year end basis meaning that march 31 , 2020 will be the next quarter end and december 31 , 2020 will be the next fiscal year end . results for december 30 and december 31 , 2019 will be included in the 2020 fiscal year results . this change is contingent upon receiving bank approval . the company 's operations are classified in one reportable business segment . although we have expanded the products that we manufacture and sell to include components used in the appliance , hvac and water heater industries , products for these industries are manufactured at facilities that also manufacture or are capable of manufacturing products for the automotive industries . our manufacturing locations have capabilities to produce diverse products utilizing multiple processes to serve various markets . the manufacturing operations for our automotive , appliance , hvac and water heater products share management and labor forces and use common personnel and strategies for new product development , marketing and the sourcing of raw materials . we qualify as an “ emerging growth company ” under the jobs act . as a result , we are permitted to , and intend to , rely on exemptions from certain disclosure requirements . for so long as we are an emerging growth company , we will not be required to : have an auditor report on our internal controls over financial reporting pursuant to section 404 ( b ) of the sarbanes-oxley act ; comply with any requirement that may be adopted by the public company accounting oversight board regarding a supplement to the auditor 's report providing additional information about the audit and the financial statements ( i.e.
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reporting persons were required by sec regulations to furnish the company with copies of all section 16 ( a ) forms they filed . based solely on review of reports received by the company or written representations from the reporting persons , the company believes that with respect to the fiscal year ended december 31 , 2013 , all of the reporting persons complied with all applicable section 16 ( a ) filing requirements . item 11. executive compensation the particulars of the compensation paid to the following persons : · our principal executive and financial officer ; president , and chief operating officer , and ; · who we will collectively refer to as the named executive officers of our company , are set out in the following summary compensation table , except that no disclosure is provided for any named executive officer , other than our principal executive officers , whose total compensation did not exceed $ 100,000 for the last completed fiscal year : 26 summary compensation table name and principal position year salary ( $ ) bonus ( $ ) stock awards ( $ ) option awards ( $ ) ( 1 ) non-equity incentive plan compensation ( $ ) change in pension value and nonqualified deferred compensation earnings ( $ ) all other compensation ( $ ) ( 2 ) total ( $ ) glenn sanford ceo , cfo , director and chairman of the board 2013 2012 60,513 55,000 nil nil 3,000 nil nil nil nil nil nil nil 142,060 ( 3 ) 112,921 ( 3 ) 205,573 167,921 jason gesing , president and director 2013 2012 59,582 4,250 nil nil 3,000 nil nil nil nil nil nil nil 30,466 ( 3 ) 57,574 ( 3 ) 93,048 61,824 steve alamin chief operating officer and director 2013 2012 46,583 nil nil nil 54,537 nil nil nil nil nil nil nil nil nil 101,120 nil ( 1 ) the amount reported herein is based on the aggregate grant date fair value . the company accounts for stock option compensation based on the intrinsic value . the awards granted to the named executives in the fiscal years ended december 31 , 2013 and 2012 had an intrinsic value of $ nil on the grant date . ( 2 ) the value of privileges and other personal benefits , securities and property for the officers that do not exceed the lesser of $ 10,000 or 10 % of the total of the annual salary and bonus and is not reported herein . ( 3 ) consists of revenue sharing and commissions earned . compensation of executive officers as of december 31 , 2013 , we had no formal compensation plans in place for our named executives with regards to expected remuneration including both salary or potential bonus programs . except as disclosed below , exp realty international corporation and its subsidiaries have not entered into any employment agreement or consulting agreement with their directors or executive officers . glenn sanford exp realty international corporation and its subsidiaries have not entered into any written employment agreement or consulting agreement with glenn sanford . in consideration for his services in 2013 and 2012 , we paid mr. sanford an annual base salary of $ 60,513 and $ 55,000 , respectively . in addition , he was paid revenue share , commissions , and incentives for growth initiatives totaling $ 142,060 and $ 112,921 in 2013 and 2012 , respectively . 27 jason gesing exp realty international corporation and its subsidiaries have not entered into any written employment agreement or consulting agreement with jason gesing . . in consideration for his services in 2013 and 2012 , we paid mr. gesing an annual base salary of $ 59,582 and $ 4,250 , respectively . in addition , he was paid revenue share , commissions , and incentives for growth initiatives totaling $ 30,466 and $ 57,574 in 2013 and 2012 , respectively . steve alamin on march 26 , 2013 , with retroactive effect to february 11 , 2013 , steve alamin entered into an executive employment agreement . pursuant to the executive employment agreement , mr. alamin agreed to commit a minimum of 20 hours per week to the performance of services as chief operating officer or such other services as may from time to time be story_separator_special_tag the following discussion should be read together with our financial statements and related notes appearing elsewhere in this report . this discussion contains forward-looking statements based upon current expectations that involve numerous risks , uncertainties and assumptions . our actual results could differ materially from those anticipated in these forward-looking statements for many reasons . those reasons include , without limitation , those described at the beginning of this report under “ statement regarding forward-looking statements , ” as well as those that may be set forth elsewhere in this report . except as otherwise required by law , we do not intend to update any information contained in these forward-looking statements . the following discussion also addresses matters we consider important for an understanding of our financial condition and results of operations as of december 31 , 2013 , and 2012 , as well as our future results . story_separator_special_tag our cloud office has enabled brokerage owners to shed enormous overhead expenses and staffing costs while still retaining a percentage of commissions generated by their agents . brokers through the use of our technology can now add additional agents and leverage their professional reputation and credibility both within and outside of their local or regional markets at little to no expense . the cloud office provides a scalable solution and a return to profitability for these existing small to medium sized brokerage owners . story_separator_special_tag 18 the united states housing market was adversely impacted beginning in 2006 by the combination of a number of factors , including but not limited to more stringent lending guidelines , increased unemployment , and an overall macroeconomic decline . overall u.s. sales volume declined as did the market value of homes which in turn created a swell in foreclosures and mortgage defaults . data relative to the amount of time a property takes to sell , units available for resale , and pricing suggests that throughout much of the united states , markets have recovered even as borrowing costs for mortgages increased from historic lows , as tightened lending standards remain in place and as new qualified mortgage rules , introduced in january 2014 , take effect . market conditions prospectively are susceptible to impact from , among other factors , employment growth or decline , population trends , the re-entry into the market of former homeowners who suffered delinquencies , foreclosures , short-sales , or bankruptcies during the downturn , and changes in federal reserve monetary policy and federal fiscal policy . based on these among other factors we expect to see continued growth in sales within the real estate industry in the upcoming fiscal year . comparative financial information from our results of operations twelve months ended december 31 , 2013 revenues during the year ended december 31 , 2013 net revenues increased $ 3.99 million to $ 10.70 million as compared to the year ended december 31 , 2012 when we generated $ 6.71 million . the increase as compared to the prior period is a direct result of the increased sales agent base and higher sales volume realized . operating expenses replace_table_token_0_th cost of revenues includes costs related to sales agent commissions and revenue sharing . these costs are highly correlated with recognized net revenues . as such , the increase of $ 3.25 million in the current year ended december 31 , 2013 as compared to the year ended december 31 , 2012 was driven by the substantially higher amount of net revenues . general and administrative includes costs related to wages , stock compensation , dues , operating leases , utilities , travel , and other general overhead expenses . the merger transaction entailed an exchange of option awards thus triggering a modification to the outstanding awards and an additional $ 512 thousand of cost recognized in the year ended december 31 , 2013. also , an additional $ 891 thousand of vested options cost was recognized in the same period . no stock compensation cost was recognized in the year ended december 31 , 2012. the remaining additional increase in 2013 as compared to 2012 was primarily associated with increased salaries and wages as a result of increased executive compensation associated with the addition of our president and our chief operating officer . professional fees include costs related to legal , accounting , and other consultants . costs were up $ 233 thousand in the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 due to legal and audit fees associated with the merger transaction recently completed in september of 2013 . 19 sales and marketing include costs related to lead capture , digital and print media , trade shows , in addition to other promotional materials . the company spent approximately $ 42 thousand less primarily due to less trade shows attended and less promotional material created in the year ended december 31 , 2013 as compared to the year ended december 31 , 2012. liquidity and capital resources replace_table_token_1_th the company 's net working capital increased $ 185 thousand during the current year ending december 31 , 2013 as compared to december 31 , 2012. the increase is primarily attributable to the increase in cash as well as the decrease in due to related parties . the following table presents our cash flows for the years ended december 31 , 2013 and 2012 : replace_table_token_2_th net cash provided by operating activities for the year ended december 31 , 2013 was approximately $ 16 thousand as compared to a use of $ 1 thousand for the year ended december 31 , 2012. our cash provided in the year ended december 31 , 2013 was primarily from an increase in sales and collections . cash used by operating activities for the year ended 2012 was less than $ 1 thousand and was virtually break even . net cash used in investing activities for the acquisition of fixed assets was $ 40 thousand and $ 387 for the year ended december 31 , 2013 and december 31 , 2012 respectively . in 2013 we started building a new transactional processing software system we expect to be operational by the end of march 2014. net cash provided by financing activities for year ended december 31 , 2013 comprised of $ 90 thousand of net proceeds from the issuance of 419,955 shares of common stock at prices ranging from $ 0.15 to $ 0.30 per share , which was partially offset from principal payments of $ 15 thousand on an outstanding notes payable obligation and repurchase of $ 10,000 of ownership interest in exp realty , llc . net cash used by financing activities for the year ended december 31 , 2012 comprised of $ 15 thousand of payments on outstanding notes payable obligations . as our operating cash flows have been only slightly positive , if not at a break-even point , we may need to raise additional cash in order to fund capital expenditures , operations , and our current obligations in the next twelve months . our future capital requirements will depend on many factors , including our level of investment in technology and our rate of growth into new markets . our capital requirements may be affected by factors which we can not control such as the residential real estate market , interest rates
| overview we were incorporated as a delaware company on july 30 , 2008 and recently completed a merger transaction and now have five subsidiaries ; exp acquisition corp. , exp realty , llc , exp realty of connecticut , llc , exp realty washington , inc. , and exp realty of canada , inc. we are a cloud-based real estate brokerage organization operating in 29 states . as a cloud-based real estate brokerage for the residential real estate market has embraced and adopted a number of cloud-based technologies in order to grow into an international brokerage without the burden of physical bricks and mortar or redundant staffing costs . following the closing of the merger agreement with exp realty international , inc. , the business of exp realty , llc became our principal operating business . recent business developments the company has continued its geographic expansion into new us states ( and into sub-markets within those states ) . the company added approximately 70 new agents during the year ended 2013. the company has also entered the international market for the first time with the launch of operations in the canadian province of ontario . exp 's cloud office is the company office for brokers , agents , management and staff . this cloud office is where the company 's community meets to transact business , collaborate , train , exchange , and socialize . additionally , the cloud office is where professional relationships and friendships are initiated and strengthened . to that end , the company has upgraded its cloud office to an enhanced platform in october 2013. our cloud office now has improved audio , visual and presentation capabilities , and an increased capacity that will accommodate our existing and continual growing agent base . in 2014 , the company expects to introduce and execute on a number of initiatives aimed at accelerating expansion and looks fully to integrate a number of systems that will support our scalable growth .
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such statements include , without limitation , all statements as to expectation or belief and statements as to our future results of operations ; the progress of our research , product development and clinical programs ; the need for , and timing of , additional capital and capital expenditures ; partnering prospects ; costs of manufacture of products ; the protection of , and the need for , additional intellectual property rights ; effects of regulations ; the need for additional facilities ; and potential market opportunities . our actual results may vary materially from those contained in such forward-looking statements because of risks to which we are subject , including the fact that additional trials will be required to confirm the safety and demonstrate the efficacy of our hucns-sc cells for the treatment of any disease or disorder ; uncertainty as to whether the u.s. food and drug administration ( fda ) , swissmedic , health canada or other regulatory authorities will permit us to proceed with clinical testing of proposed products despite the novel and unproven nature of our technologies ; the risk that our clinical trials or studies could be substantially delayed beyond their expected dates or cause us to incur substantial unanticipated costs ; uncertainties in our ability to obtain the capital resources needed to continue our current research and development operations and to conduct the research , preclinical development and clinical trials necessary for regulatory approvals ; the uncertainty regarding our ability to obtain a corporate partner or partners , if needed , to support the development and commercialization of our potential cell-based therapeutics products ; the uncertainty regarding the outcome of our clinical trials or studies we may conduct in the future ; the uncertainty regarding the validity and enforceability of our issued patents ; the risk that we may not be able to manufacture additional master and working cell banks when needed ; the uncertainty whether any products that may be generated in our cell-based therapeutics programs will prove clinically safe and effective ; the uncertainty whether we will achieve significant revenue from product sales or become profitable ; obsolescence of our technologies ; competition from third parties ; intellectual property rights of third parties ; litigation risks ; and other risks to which we are subject . forward-looking statements speak only as of the date of this report . we do not undertake any obligation to publicly update any forward-looking statements . all forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements and risk factors set forth in risk factors in part i , item 1a of this form 10-k. overview the company we are engaged in researching , developing , and commercializing cell-based therapeutics and enabling tools and technologies for stem cell-based research and drug discovery and development . our research and development ( r & d ) programs are primarily focused on identifying and developing potential cell-based therapeutics which can either restore or support organ function . in particular , since we relocated our operations to california in 1999 , our r & d efforts have been directed at refining our methods for identifying , isolating , culturing , and purifying the human neural stem cell and developing this cell as potential cell-based therapeutics for the central nervous system ( cns ) . our hucns-sc ® cells ( purified human neural stem cells ) are currently in clinical development for several indications chronic spinal cord injury , dry age-related macular degeneration ( amd ) and pelizeaus-merzbacher disease ( pmd ) , which is a myelination disorder in the brain . we are also conducting preclinical research to evaluate hucns-sc cells in alzheimer 's disease . in october 2012 , we published in science translational medicine , a peer-reviewed journal , the data from our four-patient phase i clinical trial in pmd , which showed preliminary evidence of durable and progressive donor-derived myelination in all four patients . in addition , there were measurable gains in neurological function in three of the four patients , with the fourth patient clinically stable . we are conducting a phase i/ii clinical trial for the treatment of chronic spinal cord injury , which represents the first time that neural stem cells have been transplanted as a potential therapeutic agent for spinal cord injury . to accelerate patient enrollment , we have expanded this trial from a single-site , single-country study to a multi-site , multi-country program . this trial is being conducted in switzerland , canada , and the united states . data from the first three patients demonstrated a 43 favorable safety profile and multi-segment gains in sensory function in two of the three patients 12 months after transplantation of hucns-sc cells compared to pre-transplant baselines ; the third patient remained stable . as of february 2014 , a total of eleven patients have been dosed with our hucns-sc cells in this trial and we expect to complete enrollment of the final patient in the first quarter of 2014. we plan to initiate by the middle of 2014 , a controlled phase ii efficacy study to further investigate our hucns-sc cells as a treatment for spinal cord injury . we are also conducting a phase i/ii clinical trial in dry amd at three trial sites in the united states , and as of february 2014 , have completed enrollment of the first of two planned patient cohorts with our hucns-sc cells . this cohort consisted of eight subjects . we expect to complete enrollment of the second cohort consisting of eight patients by the end of the second quarter of 2014. we previously completed a phase i clinical trial in infantile and late infantile neuronal ceroid lipofuscinosis ( ncl ) , which showed that our hucns-sc cells were well tolerated and non-tumorigenic , and that there was evidence of engraftment and long-term survival of the transplanted hucns-sc cells . story_separator_special_tag technological advances and scientific discoveries have accelerated the pace of change in biological research , and stem cell technologies have been evolving particularly fast . we compete mainly by focusing on specialty media and antibody reagent products and human cell lines where we believe our expertise , intellectual property and reputation give us competitive advantage . we believe that , in this particular market niche , our products and technologies offer customers specific advantages over those offered by our competitors . we compete by offering innovative , quality-controlled products , consistently made and designed to produce reproducible results . for the year ended december 31 , 2013 , we generated revenues from the sale of specialty cell culture products of approximately $ 998,000. we can give no assurances that we will be able to continue to generate such revenues in the future . significant events therapeutic product development in february 2013 , the first patient cohort in our phase i/ii clinical trial of our proprietary hucns-sc cells for chronic spinal cord injury completed the trial . the data from this first cohort continued to demonstrate a favorable safety profile , and showed that the considerable gains in sensory function observed at the six month assessment in two of the three patients had persisted to the 12 month assessment . the third patient remained stable . in april 2013 , we added the byers eye institute at stanford , located in palo alto , california , as a second site for our phase i/ii clinical trial of our proprietary hucns-sc cells in dry amd . in april 2013 , we entered into an agreement with cirm under which cirm will provide up to approximately $ 19.3 million to help fund preclinical development and ind-enabling activities of our hucns-sc cells for alzheimer 's disease . the funding , which will be in the form of a forgivable loan , was awarded under cirm 's disease team therapy development award program ( rfa 10-05 ) in september 2012. the goal of the research will be to file an investigational new drug application with the u.s. food and drug administration within four years . 45 in june 2013 , health canada authorized us to expand our phase i/ii clinical trial for chronic spinal cord injury into canada . the phase i/ii trial is designed to evaluate the safety and preliminary efficacy of our proprietary hucns-sc cells as a treatment for chronic spinal cord injury . in july 2013 , we formally launched our alzheimer 's disease program , which is being supported by cirm . the goal of the project is to file , within four years , an investigational new drug ( ind ) application with the u.s. food and drug administration to evaluate our hucns-sc cells as a potential therapeutic for alzheimer 's disease . cirm has agreed to provide approximately $ 19.3 million in the form of a forgivable loan to help fund our preclinical development and ind-enabling activities , and in july we received an initial disbursement of $ 3.8 million from cirm . the funding was awarded under cirm 's disease team therapy development award program ( rfa 10-05 ) in september 2012. in january 2014 , we received a second disbursement of $ 3.8 million . in august 2013 , we presented data which show that , two years after transplantation of our hucns-sc cells into patients with pmd , the evidence of myelination , by magnetic resonance imaging ( mri ) , is more pronounced compared to one year post-transplantation , the gains in neurological function reported after one year were maintained , and there were no safety concerns . the neurological and mri changes suggest a departure from the natural history of the disease and may represent signals of a clinical effect . in september 2013 , we published a comprehensive overview of the therapeutic potential and results from early clinical trials of our hucns-sc cells . the paper was published in stem cell research & therapy , an international peer-reviewed journal considered to be the major forum for translational research into stem cell therapies . in september 2013 , we dosed the first high-dose patient in our phase i/ii clinical trial in dry amd . the patient , the fifth overall in the 16-patient trial , was transplanted with one million of our hucns-sc cells . the first four patients each received a dose of 200,000 cells . an independent data safety monitoring committee conducted a review of the trial data related to the first four patients , and found no safety issues to preclude the trial from proceeding to the high dose . in september 2013 , we published preclinical data confirming that our hucns-sc cells preserve photoreceptor cells and visual function in a widely used model of retinal degeneration . the data show not only that hucns-sc cells preserve the number of photoreceptors that would otherwise be lost , but also that the surviving photoreceptors appear healthy and normal , and maintain their synaptic connection to other important cells necessary for visual function . the study was published in investigative ophthalmology and visual science ( ivos ) , the peer-reviewed journal of the association for research in vision and ophthalmology . in october 2013 , the fda authorized our ind application for clinical testing of our hucns-sc cells as a treatment for spinal cord injury . in october 2013 , we presented the results of a four-year observation study in patients with ncl , who had been transplanted with our hucns-sc cells in our initial phase i study . key results include long-term evidence of safety , up to five years post transplantation , for the surgical transplantation of the hucns-sc cells into multiple sites in the brain and at doses of up to one billion cells . the study results represent the first , and thus far only , multi-year data set following transplantation of neural stem cells into human subjects , and support the feasibility of our approach in multiple neurological disorders .
| results of operations our results of operations have varied significantly from year to year and quarter to quarter and may vary significantly in the future due to the occurrence of material recurring and nonrecurring events , including without limitation the receipt and payment of recurring and nonrecurring licensing payments , the initiation or termination of clinical studies , research collaborations and development programs for both cell-based therapeutic products and research tools , unpredictable or unanticipated manufacturing and supply costs , unanticipated capital expenditures necessary to support our business , developments in on-going patent prosecution and litigation , the on-going expenses to maintain our rhode island facilities , and the costs associated with operating our california and cambridge , u.k. facilities . revenue revenue totaled approximately $ 1,203,000 in 2013 , $ 1,368,000 in 2012 , and $ 1,221,000 in 2011. replace_table_token_4_th total revenue in 2013 was approximately $ 1,203,000 , which was 12 % lower than total revenue in 2012. in 2013 , revenue from product sales increased 17 % , or approximately $ 142,000 , compared to 2012. this increase was primarily attributable to increased unit volumes in our sc proven line of media and reagents . in 2013 , approximately 42 % of our product sales were in europe , 39 % were in asia , 15 % were in north america , and 4 % were in other geographies . aggregate licensing , grant and other revenue in 2013 were approximately $ 205,000 which was 60 % or approximately $ 306,000 lower than aggregate licensing , grant and other revenue in 2012. the decrease was primarily attributable to lower licensing revenue in 2013. the 2012 licensing revenue includes a one-time fee from a license agreement with genoway , under which we granted genoway a worldwide , exclusive license to our ires technology for use in the development and commercialization of genetically engineered mice . grant revenue in 2013 and 2012 were not significant .
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in november 2013 , we completed a $ 100.0 million add-on to the existing 7.50 % senior notes due 2020. the add-on was issued at 106.699 % of par value to yield 5.875 % . in september 2012 , we issued $ 126.5 million aggregate principal amount of 1.875 % convertible senior notes due 2032 ( the “ convertible notes ” ) . the convertible notes are convertible into shares of our common stock at an initial conversion rate of 17.1985 shares of our common stock per $ 1,000 principal amount of convertible notes . this corresponds to an initial conversion price of $ 58.14 per share and represents a 47.5 % conversion premium based on the closing price story_separator_special_tag overview and outlook industry conditions continued housing affordability and decreased inventory home levels in most markets resulted in solid financial and operational performance for the overall homebuilding sector during 2015. we believe that recent job growth , increased household formations and improved confidence among potential homebuyers support generally steady , if tempered , growth for our sector over the next several years . we are committed to our plan of strategically positioning ourselves in many of the top housing markets in the country and continue to actively source land in well-located communities within those locations . we offer our buyers energy efficient features coupled with the ability to personalize their homes and we provide a home warranty , successfully setting us apart from the competition we face with resale homes . story_separator_special_tag promoting a positive environment for our employees in order to minimize turnover and retain our employees . to assist in meeting and maintain our company goals , we are pleased to report the following 2015 successes : increased the capacity and extended the maturity of our revolving credit facility ; strengthened our balance sheet through a senior note debt issuance ; providing us with capital to actively acquire and develop lots in desirable locations ; increased our count of actively selling communities from 229 at december 31 , 2014 to a company high 254 at december 31 , 2015 ; and secured land across the country specifically targeted for our updated lineup of homes appealing to the growing number of millennial first-time buyers looking for affordable home ownership beyond the typical entry-level home . we believe that the investments in our new communities , new markets and industry leading energy efficient product offerings create a differentiated strategy that has aided us in our growth . throughout 2015 , we opened 81 new communities while closing out 56 communities . the growth in our community count is the result of our successful land acquisition efforts to support expansion in existing and newer markets . critical accounting policies we have established various accounting policies that govern the application of united states generally accepted accounting principles ( “ gaap ” ) in the preparation and presentation of our consolidated financial statements . our significant accounting policies are described in note 1 of the consolidated financial statements included in this form 10-k. certain of these policies involve significant judgments , assumptions and estimates by management that may have a material impact on the carrying value of certain assets and liabilities , and revenue and costs . we are subject to uncertainties such as the impact of future events , economic , environmental and political factors and changes in our business environment ; therefore , actual results could differ from these estimates . accordingly , the accounting estimates used in the preparation of our financial statements will change as new events occur , as more experience is acquired , as additional information is obtained and as our operating environment changes . changes in estimates are revised when circumstances warrant . such changes in estimates and refinements in methodologies are reflected in our reported results of operations and , if material , the effects of changes in estimates are disclosed in the notes to our consolidated financial statements . the judgments , assumptions and estimates we use and believe to be critical to our business are based on historical experience , knowledge of the accounts , industry practices , and other factors , which we believe to be reasonable under the circumstances . because of the nature of the judgments and assumptions we have made , actual results may differ from these judgments and estimates and could have a material impact on the carrying values of assets and liabilities and the results of our operations . the accounting policies that we deem most critical to us and involve the most difficult , subjective or complex judgments are as follows : revenue recognition we recognize revenue from a home sale when title passes to the homeowner , the homeowner 's initial and continuing investment is adequate to demonstrate a commitment to pay for the home , the receivable , if any , from the homeowner is not subject to future subordination and we do not have a substantial continuing involvement with the sold home . these conditions are typically achieved when a home closes . revenue from land sales is recognized when a significant down payment is received , the earnings process is relatively complete , title passes and collectability of the receivable is reasonably assured . although there is limited subjectivity in this accounting policy , we have designated revenue recognition as a critical accounting policy due to the significance of this balance in our statements of operations . 27 real estate real estate is stated at cost unless the community or land is determined to be impaired , at which point the inventory is written down to fair value as required by financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 360-10 , property , plant and equipment . inventory includes the costs of land acquisition , land development and home construction , capitalized interest , real estate taxes , direct overhead costs incurred during development and home construction that benefit the entire community , less impairments , if any . story_separator_special_tag reserves are reviewed on a regular basis and , with the assistance of an actuary for the structural warranty , we determine their sufficiency based on our and industry-wide historical data and trends . these reserves are subject to variability due to uncertainties regarding structural defect claims for the products we build , the markets in which we build , claim settlement history , insurance and legal interpretations and expected recoveries , among other factors . at december 31 , 2015 , our warranty reserve was $ 21.6 million , reflecting an accrual of 0.1 % to 0.6 % of a home 's sale price depending on our loss history in the geographic area in which the home was built . a 10 % increase in our warranty reserve rate would have increased our accrual and corresponding cost of sales by approximately $ 1.3 million in 2015. we recorded $ 1.1 million and $ 0.5 million in unfavorable adjustments to our reserve in 2015 and 2014 , respectively , based on historical trends of actual claims paid and our success in recovery of expended amounts . while we believe that the warranty reserve is sufficient to cover our projected costs , there can be no assurances that historical data and trends will accurately predict our actual warranty costs . furthermore , there can be no assurances that future economic or financial developments might not lead to a significant change in the reserve . valuation of deferred tax assets we account for income taxes using the asset and liability method , which requires that deferred tax assets and liabilities be recognized based on future tax consequences of both temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which the temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the changes are enacted . in accordance with asc 740-10 , income taxes , we evaluate our deferred tax assets by tax jurisdiction , including the benefit from nols by tax jurisdiction , to determine if a valuation allowance is required . companies must assess , using significant judgments , whether a valuation allowance should be established based on the consideration of all available evidence using a “ more likely than not ” standard with significant weight being given to evidence that can be objectively verified . this assessment considers , among other matters , the nature , frequency and severity of current and cumulative losses , forecasts of future profitability , the length of statutory carryforward periods , experience with operating losses and experience of utilizing tax credit carryforwards and tax planning alternatives . we have no valuation allowance on our deferred tax assets and nol carryovers at december 31 , 2015 . share-based payments we have both time-based restricted stock awards and units ( `` time-based awards '' ) and performance-based restricted stock awards ( `` performance awards '' ) outstanding under our stock compensation plan . compensation cost related to time-based restricted stock awards is measured as of the closing price on the date of grant and is expensed on a straight-line basis over the vesting period of the award . compensation cost related to the performance awards is also measured as of the closing price on the date of grant but is expensed in accordance with asc 718-10-25-20 , compensation – stock compensation , which requires an assessment of probability of attainment of the performance target . as our performance targets are dependent on performance over a specified measurement period , once we determine that the performance target outcome is probable , the cumulative expense is recorded immediately with the remaining expense and recorded on a straight-line basis through the end of the vesting periods of the awards . within our performance-based restricted stock awards , we have grants that contain market conditions as defined by asc 718. in accordance with asc 718 , compensation cost related to these market awards is based on a derived fair value analysis and is expensed straight line over the service period of the awards . our time based awards generally vest on a pro-rata basis over either three or five years , and our performance awards cliff vest in the third year . 29 home closing revenue , home orders and order backlog - segment analysis the composition of our closings , home orders and backlog is constantly changing and is based on a dissimilar mix of communities between periods as new projects open and existing projects wind down . further , individual homes within a community can range significantly in price due to differing square footage , option selections , lot sizes and quality and location of lots ( e.g . cul-de-sac , view lots , greenbelt lots ) . these variations result in a lack of meaningful comparability between our home orders , closings and backlog due to the changing mix between periods . the tables on the following pages present operating and financial data that we consider most critical to managing our operations ( dollars in thousands ) : replace_table_token_6_th 30 replace_table_token_7_th n/a – not applicable n/m - not meaningful 31 replace_table_token_8_th ( 1 ) home orders for any period represent the aggregate sales price of all homes ordered , net of cancellations . we do not include orders contingent upon the sale of a customer 's existing home as a sales contract until the contingency is removed . 32 replace_table_token_9_th ( 1 ) home orders for any period represent the aggregate sales price of all homes ordered , net of cancellations . we do not include orders contingent upon the sale of a customer 's existing home as a sales contract until the contingency is removed .
| summary company results total home closing revenue was $ 2.5 billion for the year ended december 31 , 2015 , increasing 18.2 % from $ 2.1 billion for 2014. total home closing revenue for the year ended december 31 , 2014 was 20.1 % higher than the $ 1.8 billion recorded for the year ended december 31 , 2013. severe weather disruptions in some areas , tight labor supplies and rising costs impacted margins and our bottom line despite our strong revenue growth , resulting in net income of $ 128.7 million in 2015 as compared to $ 142.2 million in 2014 and $ 124.5 million in 2013. lower gross margins in 2015 of 19.0 % versus 21.2 % in 2014 largely drove the decline in net income , the result of increased land costs as we have experienced rising land purchase prices in most markets as well as increased labor costs in certain markets . a $ 4.1 million litigation-related charge in 2015 as compared to several favorable legal settlements in 2014 , as well as $ 10.8 million in incremental interest charges resulting from higher debt balances in 2015 also impacted the year-over-year comparison in net income . our 2015 results include $ 60.7 million of taxes , representing a 32.1 % effective tax rate as compared to 2014 results including a 31.8 % effective tax rate resulting in $ 66.2 million of taxes . 2013 net income as compared to 2014 benefited from a lower effective tax rate of 29.9 % , largely the result of the reversal of the remainder of our deferred tax valuation allowance . 2013 also included a $ 3.8 million loss from the early extinguishment of debt , with no comparable 2014 charges . companywide , both units and average sales prices in closings , orders and backlog results experienced year-over-year increases in 2015. at december 31 , 2015 , our backlog of $ 1.1 billion was up 34.4
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the company adopted sfas 144 for the fiscal year ended february 28 , 2003 , and the adoption of the statement had no material impact on the company 's financial position or results of operations . in april 2002 , the fasb issued sfas no . 145 , rescission of fasb statement no . 4 , 44 , and 64 , amendments of fasb statement no . 13 and technical corrections . this statement eliminates the requirement under sfas 4 to aggregate and classify all gains and losses from extinguishment of debt as an extraordinary item , net of related income tax effect . this statement also amends sfas 13 to require certain lease modifications with economic effects similar to sale-leaseback transactions to be accounted for in the same manner as sale-leaseback transactions . in addition , sfas 145 requires reclassification of gains and losses in all prior periods presented in comparative financial statements related to debt extinguishment that do not meet the criteria for extraordinary item in apb 30. the statement is effective for fiscal years beginning after may 15 , 2002 with early adoption encouraged . the company will adopt sfas 145 effective march 1 , 2003 , and it does not expect that the adoption of the statement will have a significant impact on the company 's financial position or results of operations . in july 2002 , the fasb issued sfas no . 146 , obligations associated with disposal activities , which is effective for disposal activities initiated after december 31 , 2002. sfas 146 addresses the accounting and reporting of costs associated with exit or disposal activities and nullifies emerging issues task force ( eitf ) issue no . 94-13 , liability recognition for certain employee termination benefits and other costs to exit an activity ( including certain costs in a restructuring ) . under this statement , a liability for a cost associated with an exit or disposal activity would be recognized and measured at its fair value when it is incurred rather than at the date of commitment to an exit plan . also , severance pay would be recognized over time rather than at the date of commitment to an exit plan . also , severance pay would be recognized over time rather than up front provided the benefit arrangement requires employees to render service beyond a minimum retention period , which would be based on the legal notification period , or if there is no such requirement , 60 days , thereby allowing a liability to be recorded over the employees ' future service period . the company will adopt sfas 146 effective with disposal activities initiated after december 31 , 2002 , and it does not expect that the adoption of the statement will have a significant impact on the company 's financial position or results of operations . in november 2002 , the fasb issued interpretation no . 45 , guarantor 's accounting and disclosure requirements for guarantees , including indirect guarantees of indebtedness of others . the interpretation requires certain guarantees to be recorded at fair value and also requires a guarantor to make certain disclosures regarding guarantees . the interpretation 's initial recognition and initial -17- measurement provisions are applicable on a prospective basis to guarantees issued or modified after december 31 , 2002. the disclosure requirements are effective for the company 's first quarter of fiscal 2004. the company does not expect the adoption of the statement to have a significant impact on the company 's financial position or results of operations . in december 2002 , the fasb issued sfas no . 148 , accounting for stock-based compensationtransition and disclosure , which is effective for fiscal years ended after december 15 , 2002. sfas no . 148 amends sfas no . 123 , accounting for stock-based compensation to permit two additional transitional methods for a voluntary change to the fair value method of accounting for stock-based employee compensation from the intrinsic method under apb 25 , accounting for stock issued to employees , and does not permit the prospective method of transition under sfas 123. in addition , sfas no . 148 amends the disclosure requirements of sfas 123 to require prominent disclosure in both annual and interim financial statements concerning the method of accounting used for stock-based employee compensation and the effects of that method on reported results of operations . under sfas 148 , pro-forma disclosure will be required in a specific tabular format in the summary of significant accounting policies . the company has adopted the disclosure requirements of this statement effective december 16 , 2002. the adoption had no effect on the company 's financial position or results of operations . the company continues to account for its stock-based compensation plans under apb 25. in january 2003 , the emerging issues task force ( eitf ) reached a final consensus on eitf issue no . 02-16 , accounting by a customer ( including a reseller ) for certain consideration received from a vendor . eitf 02-16 clarifies certain aspects for accounting and recording of consideration received from vendors . certain provisions of the eitf are effective for fiscal years beginning after december 15 , 2002 and other provisions of the eitf is effective for arrangements entered into after november 21 , 2003. the company 's historical accounting for consideration received from vendors is consistent with the provisions of eitf 02-16. therefore , the adoption of this standard will not have a material impact on the company 's financial statements . safe harbor statement this annual report on form 10-k includes 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. forward-looking statements include statements concerning plans , objectives , goals , strategies , future events or performance and underlying assumptions and other statements , which are other than statements of historical facts . forward-looking statements involve story_separator_special_tag the company adopted sfas 144 for the fiscal year ended february 28 , 2003 , and the adoption of the statement had no material impact on the company 's financial position or results of operations . in april 2002 , the fasb issued sfas no . 145 , rescission of fasb statement no . 4 , 44 , and 64 , amendments of fasb statement no . 13 and technical corrections . this statement eliminates the requirement under sfas 4 to aggregate and classify all gains and losses from extinguishment of debt as an extraordinary item , net of related income tax effect . this statement also amends sfas 13 to require certain lease modifications with economic effects similar to sale-leaseback transactions to be accounted for in the same manner as sale-leaseback transactions . in addition , sfas 145 requires reclassification of gains and losses in all prior periods presented in comparative financial statements related to debt extinguishment that do not meet the criteria for extraordinary item in apb 30. the statement is effective for fiscal years beginning after may 15 , 2002 with early adoption encouraged . the company will adopt sfas 145 effective march 1 , 2003 , and it does not expect that the adoption of the statement will have a significant impact on the company 's financial position or results of operations . in july 2002 , the fasb issued sfas no . 146 , obligations associated with disposal activities , which is effective for disposal activities initiated after december 31 , 2002. sfas 146 addresses the accounting and reporting of costs associated with exit or disposal activities and nullifies emerging issues task force ( eitf ) issue no . 94-13 , liability recognition for certain employee termination benefits and other costs to exit an activity ( including certain costs in a restructuring ) . under this statement , a liability for a cost associated with an exit or disposal activity would be recognized and measured at its fair value when it is incurred rather than at the date of commitment to an exit plan . also , severance pay would be recognized over time rather than at the date of commitment to an exit plan . also , severance pay would be recognized over time rather than up front provided the benefit arrangement requires employees to render service beyond a minimum retention period , which would be based on the legal notification period , or if there is no such requirement , 60 days , thereby allowing a liability to be recorded over the employees ' future service period . the company will adopt sfas 146 effective with disposal activities initiated after december 31 , 2002 , and it does not expect that the adoption of the statement will have a significant impact on the company 's financial position or results of operations . in november 2002 , the fasb issued interpretation no . 45 , guarantor 's accounting and disclosure requirements for guarantees , including indirect guarantees of indebtedness of others . the interpretation requires certain guarantees to be recorded at fair value and also requires a guarantor to make certain disclosures regarding guarantees . the interpretation 's initial recognition and initial -17- measurement provisions are applicable on a prospective basis to guarantees issued or modified after december 31 , 2002. the disclosure requirements are effective for the company 's first quarter of fiscal 2004. the company does not expect the adoption of the statement to have a significant impact on the company 's financial position or results of operations . in december 2002 , the fasb issued sfas no . 148 , accounting for stock-based compensationtransition and disclosure , which is effective for fiscal years ended after december 15 , 2002. sfas no . 148 amends sfas no . 123 , accounting for stock-based compensation to permit two additional transitional methods for a voluntary change to the fair value method of accounting for stock-based employee compensation from the intrinsic method under apb 25 , accounting for stock issued to employees , and does not permit the prospective method of transition under sfas 123. in addition , sfas no . 148 amends the disclosure requirements of sfas 123 to require prominent disclosure in both annual and interim financial statements concerning the method of accounting used for stock-based employee compensation and the effects of that method on reported results of operations . under sfas 148 , pro-forma disclosure will be required in a specific tabular format in the summary of significant accounting policies . the company has adopted the disclosure requirements of this statement effective december 16 , 2002. the adoption had no effect on the company 's financial position or results of operations . the company continues to account for its stock-based compensation plans under apb 25. in january 2003 , the emerging issues task force ( eitf ) reached a final consensus on eitf issue no . 02-16 , accounting by a customer ( including a reseller ) for certain consideration received from a vendor . eitf 02-16 clarifies certain aspects for accounting and recording of consideration received from vendors . certain provisions of the eitf are effective for fiscal years beginning after december 15 , 2002 and other provisions of the eitf is effective for arrangements entered into after november 21 , 2003. the company 's historical accounting for consideration received from vendors is consistent with the provisions of eitf 02-16. therefore , the adoption of this standard will not have a material impact on the company 's financial statements . safe harbor statement this annual report on form 10-k includes 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. forward-looking statements include statements concerning plans , objectives , goals , strategies , future events or performance and underlying assumptions and other statements , which are other than statements of historical facts . forward-looking statements involve
| results of operations net income ( loss ) was $ 620,000 ( $ .06 per share ) , $ 419,000 ( $ .04 per share ) , and $ ( 1,478,000 ) ( $ ( .14 ) per share ) in fiscal 2003 , 2002 and 2001 , respectively . an accounting change and a provision for deferred income taxes , both of which are discussed below , affect comparability of results of operations in fiscal 2003 to prior years . income ( loss ) before taxes and cumulative effect of accounting change was $ 1,433,000 , $ 542,000 and $ ( 1,342,000 ) in fiscal 2003 , 2002 and 2001 , respectively . results of operations in fiscal 2001 were significantly affected by the costs associated with the opening of ten branch operations in that year . the costs associated with new branch operations were largely anticipated , although delays in obtaining local regulatory approval for certain new facilities caused pre-opening expenses to exceed expectations . operating losses associated with the new branch operations were $ 1.4 million in fiscal 2001 and $ 800,000 in fiscal 2002. of the ten new branch operations , one was closed in the fourth quarter of fiscal 2002 , and another was closed in the fourth quarter of fiscal 2003. the remaining eight of the new branch operations were slightly profitable , in the aggregate , in fiscal 2003. generally , new branches are not expected to become profitable until 12-18 months after opening . the company believes that the relatively poor performance of the hvacr industry in 2000 and 2001 extended the period of time required for some of the branches opened in fiscal 2001 to achieve breakeven sales levels . the two branch closings occurred after management determined that it was unlikely that such branches would eventually achieve levels of sales and profitability consistent with the company 's target benchmarks .
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( b ) security ownership of certain beneficial owners there is no person or group of persons known to the management of ccc to be the beneficial owner of more than five percent of the outstanding units of limited partnership interests of the partnership . ( c ) security ownership of management the partnership has no directors or officers . it is managed by ccc . ccc owns 6,791 units , representing 0.34 % of the total amount of units outstanding . ( d ) changes in control inapplicable . item 13. certain relationships and related transactions ( a ) transactions with management and others the partnership 's only transactions with management and other related parties during 2005 were limited to those fees paid or amounts committed to be paid ( on an annual basis ) to ccc , the general partner , and its affiliates . see item 11 , executive compensation , herein . ( b ) certain business relationships inapplicable . ( c ) indebtedness of management inapplicable . ( d ) transactions with promoters inapplicable . 41 item 14. principal accountant fees and services ccc , on behalf of the partnership has appointed deloitte & touche llp as the partnership 's independent auditor for the fiscal year ending december 31 , 2005. ccc 's board of directors has the authority to pre-approve audit related and non-audit services on behalf of the partnership , that are not prohibited by law , to be performed by the partnership 's independent auditors . audit fees audit fees represent fees for professional services provided in connection with the audit of the partnership 's financial statements and review of its quarterly financial statements and audit services provided in connection with its statutory or regulatory filings . the partnership incurred fees of $ 14,742 and $ 14,960 during the fiscal years ending december 31 , 2005 and 2004 , respectively , for these audit services . audit-related fees the partnership did not incur audit-related fees during the fiscal years ending december 31 , 2005 and 2004. typically , audit-related fees , if incurred , would consist of fees for accounting consultations and other attestation services . tax fees the partnership did not incur tax fees during the fiscal years ending december 31 , 2005 and 2004. typically , tax fees , if incurred , would consist of fees for compliance services , tax advice and tax planning . all other fees the partnership did not incur any other fees for services provided by its independent auditor during the fiscal years ending december 31 , 2005 and 2004 . 42 part iv item 15. exhibits and financial statement schedules replace_table_token_18_th all schedules are omitted as the information is not required or the information is included in the financial statements or notes thereto . ( 3 ) exhibits exhibit no description method of filing 3 ( a ) limited partnership agreement of the partnership , amended and restated as of december 14 , 1990 * 3 ( b ) certificate of limited partnership * * 10 ( a ) form of leasing agent agreement with lpi leasing partners international n.v. * * * 10 ( b ) assignment of leasing agent agreement dated january story_separator_special_tag the following discussion of the partnership 's historical financial condition and results of operations should be read in conjunction with the historical consolidated financial statements and the notes thereto and the other financial information appearing elsewhere in this report . the information in this annual report on form 10-k ( the report ) contains certain forward-looking statements within the meaning of the securities law . these forward-looking statements reflect the current view of the partnership and ccc , with respect to future events and financial performance and are subject to a number of risks and uncertainties , many of which are beyond the control of the partnership and ccc . all statements other than statements of historical facts included in this report , including statements under management 's discussion and analysis of financial condition and results of operations , regarding the partnership 's strategy , future operations , financial position , estimated revenues , projected costs , prospects , plans and objectives of the partnership are forward-looking statements . all forward-looking statements speak only as of the date of this report . the partnership does not undertake any obligation to update or revise publicly any forward-looking statements , whether as a result of new information , future events or otherwise . although the partnership and ccc believe that their plans , intentions and expectations reflected in or suggested by the forward-looking statements made in this report are reasonable , the partnership and ccc can give no assurance that these plans , intentions or expectations will be achieved . future economic , political and industry trends that could potentially impact revenues and profitability are difficult to predict , as well as the risks and uncertainties including , but not limited to , changes in demand for leased containers , changes in global business conditions and their effect on world trade , changes within the global shipping industry , the financial strength of the shipping lines and other sub-lessees of the partnership 's containers , fluctuations in new container prices , changes in the costs of maintaining and repairing used containers , changes in competition , changes in the ability of the leasing company to maintain insurance on behalf of the partnership 's container fleet , as well as other risks detailed herein and from time to time in the partnership 's filings with the securities and exchange commission . 16 liquidity and capital resources during the partnership 's first 10 years of operations , the partnership 's primary objective was to generate cash flow from operations for distribution to its limited partners . story_separator_special_tag the first liquidating distribution , representing the net proceeds from the sale of its operating lease containers of approximately $ 1,030,173 , or $ 0.52 per limited partnership unit , was distributed on february 28 , 2006 to limited partners of record on february 1 , 2006. the second and final liquidating distribution , representing the net proceeds generated from the sale of the partnership 's remaining assets , after the payment or discharge of its remaining liabilities , is expected to be made on or before may 31 , 2006. ccc is unable to estimate the amount of the final 17 liquidating distribution . ccc anticipates that the partnership will complete its liquidation by mid-year 2006 and de-register the partnership 's outstanding limited partnership units under the securities exchange act of 1934 , as amended , thereby terminating the partnership 's obligation to file periodic reports under the exchange act with the sec . inclusive of the first liquidating distribution , the partnership has distributed $ 38,047,714 in cash from operations and $ 8,416,648 in cash from container sales proceeds to its limited partners from inception through february 28 , 2006 this represents total distributions of $ 46,464,362 or approximately 116 % of the limited partners ' original invested capital . at december 31 , 2005 , the partnership had $ 652,774 in cash and cash equivalents , a decrease of $ 122,465 and $ 137,556 , respectively , from the cash balances at december 31 , 2004 and december 31 , 2003. the partnership invests its working capital , as well as cash flows from operations and the sale of containers that have not yet been distributed to ccc or its limited partners in money market funds . at december 31 , 2005 , the partnership had an additional $ 45,000 as part of its working capital for expenses related to its final liquidation and subsequent dissolution . cash from operating activities : net cash provided by operating activities primarily generated from the billing and collection of net lease revenue was $ 350,275 during 2005 , compared to $ 578,644 and $ 575,184 during 2004 and 2003 , respectively . cash from investing activities : net cash provided by investing activities was $ 744,402 during 2005 , compared to $ 597,455 and $ 735,742 in 2004 and 2003 , respectively . these amounts represent sales proceeds generated from the sale of container equipment and proceeds received from sales-type lease receivables . cash from financing activities : net cash used in financing activities was $ 1,217,142 during 2005 compared to $ 1,191,190 and $ 1,344,808 during 2004 and 2003 , respectively . these amounts represent distributions to the partnership 's general and limited partners . off-balance sheet arrangements as part of the partnership 's ongoing business , the partnership does not participate in transactions that generate relationships with unconsolidated entities or financial partnerships , such as entities often referred to as structured finance or special purpose entities ( spes ) , which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes . as of december 31 , 2004 , the partnership was not involved in any material unconsolidated spe transactions . contractual obligations as of december 31 , 2005 , the partnership did not have any contractual obligations or commercial commitments . story_separator_special_tag contributed to the partnership 's results of operations , influencing the level of lease per-diems for existing older containers , as well as container sale prices realized upon their eventual disposal . the sale of the partnership 's off-hire containers , in accordance with one of its aforementioned original investment objectives , also positively affected the partnership 's results from operations , contributing to the partnership 's high utilization levels , minimizing storage and other inventory-related costs incurred for its off-hire containers , as well as realizing favorable sale proceeds from the sale of its containers . during 2005 , buyers continued to demand existing , older containers . in many geographical markets , sales prices for used containers increased as inventories of off-hire containers at non-factory locations declined , reducing the available supply of containers eligible for sale . a significant increase in inventory levels in future periods , as well as significant declines in new container prices , could adversely impact sales proceeds realized on the sale of the partnership 's remaining containers . year ended december 31 , 2005 compared to the year ended december 31 , 2004 net lease revenue was $ 413,946 for the year ended december 31 , 2005 compared to $ 668,599 for the prior year . the decrease was primarily due to a $ 319,135 decline in gross rental revenue ( a component of net lease revenue ) from the year ended december 31 , 2004. gross rental revenue was impacted by the partnership 's smaller fleet size . other components of net lease revenue , including rental equipment operating expenses , management fees , and reimbursed administrative expenses , were lower by a combined $ 64,482 when compared to 2004 , and partially offset the decline in 20 gross lease revenue . the decrease in direct operating expense was attributable to the partnership 's higher fleet utilization rates during 2005 and its impact on inventory-based expenses such as storage and repositioning . the decline in inventory-based expenses were partially offset by an increase in activity-related expenses such as repair and maintenance costs . the partnership also experienced a reduction in the provision for doubtful accounts . depreciation expense of $ 323,699 in 2005 declined by $ 323,506 when compared to 2004 , a direct result of the partnership 's aging and declining fleet size .
| results of operations market overview pursuant to the limited partnership agreement of the partnership , all authority to administer the business of the partnership is vested in ccc . a leasing agent agreement ( agreement ) exists between ccc and the leasing company , whereby the leasing company has the responsibility to manage the leasing operations of all equipment owned by the partnership . pursuant to the agreement , the leasing company is responsible for leasing , managing and re-leasing the partnership 's containers to ocean carriers , and has full discretion over which ocean carriers and suppliers of goods and services it may deal with . the leasing agent agreement permits the leasing company to use the containers owned by the partnership , together with other containers owned or managed by the leasing company and its affiliates , as part of a single fleet operated without regard to ownership . 18 the primary component of the partnership 's results of operations is net lease revenue . net lease revenue is determined by deducting direct operating expenses , management fees and reimbursed administrative expenses from gross lease revenues billed by the leasing company from the leasing of the partnership 's containers . net lease revenue is directly related to the size , utilization and per-diem rental rates of the partnership 's fleet . direct operating expenses are direct costs associated with the partnership 's containers . direct operating expenses may be categorized as follows : activity-related expenses including agent and depot costs , such as repairs , maintenance and handling . inventory-related expenses for off-hire containers , comprising of storage and repositioning costs . these costs are sensitive to the quantity of off-hire containers as well as the frequency at which containers are re-delivered . legal and other expenses , including legal costs related to the recovery of containers and doubtful accounts , insurance and provisions for doubtful accounts .
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the following should be read in conjunction with the consolidated financial statements and notes thereto , and with part i , item 1a , “ risk factors. ” general new residential is a publicly traded reit primarily focused on opportunistically investing in , and actively managing , investments related to residential real estate . we primarily target investments in mortgage servicing related assets and related opportunistic investments . we are externally managed by an affiliate of fortress pursuant to the management agreement . our goal is to drive strong risk-adjusted returns primarily through our investments , and our investment guidelines are purposefully broad to enable us to make investments in a wide array of assets in diverse markets , including non-real estate related assets such as consumer loans . we generally target assets that generate significant current cash flows and or have the potential for meaningful capital appreciation . our portfolio is currently composed of mortgage servicing related assets , residential securities ( and associated call rights ) , and loans and other opportunistic investments . our asset allocation and target assets may change over time , depending on our investment decisions in light of prevailing market conditions . the assets in our portfolio are described in more detail below under “ —our portfolio. ” market considerations developments in the u.s. housing market in response to the changing landscape of the mortgage industry and bank capital requirements , banks have sold msrs totaling more than $ 3.5 trillion since 2010. as of the third quarter of 2018 , the top 100 mortgage servicers serviced over 99 % out of the $ 10.8 trillion one-to-four family mortgage debt outstanding , according to inside mortgage finance . furthermore , according to inside mortgage finance , approximately 66 % of such outstanding mortgage debt was serviced by the top 25 mortgage servicers as of the third quarter of 2018. given current market dynamics and an overall challenging servicing environment , we may expect additional market consolidation among non-bank servicers . in addition , we believe that non-bank servicers who are constrained by capital limitations will continue to sell msrs , excess msrs and other servicing assets . as a result , we believe additional msr sales will be likely for some period of time . these factors have resulted in increased opportunities for us to acquire interests in msrs and to provide capital to non-bank servicers . in addition , approximately $ 1.6 trillion of new loans were originated in 2018 and another $ 1.6 trillion are forecasted for 2019 , according to the mortgage bankers association . we believe this creates an opportunity to enter into “ flow arrangements , ” whereby loan originators or servicers agree to sell msrs or excess msrs on newly originated loans on a recurring basis ( often monthly or quarterly ) . recently , strong demand for mortgage assets in general has led to tighter spreads and lower required rates of return . this , in turn , creates a reach for yield and increased difficulty in sourcing accretive investments in the current investment landscape . these market conditions have driven prices higher , thereby also increasing the value of certain of our existing investments . there can be no assurance that we will make additional investments in msrs or excess msrs or that any future investment in msrs or excess msrs will generate returns similar to the returns on our original investments in msrs or excess msrs . the timing , size and potential returns of our future investments in msrs and excess msrs may be less attractive than our prior investments in this sector due to a number of factors , most of which are beyond our control . such factors include , but are not limited to , changes in interest rates and recent increased competition for more recently originated msrs . in addition , the acquisition of agency msrs requires gse and , in certain cases , other regulatory approval . the process to obtain such approvals is extensive and will extend transaction settlement times when compared to our experience with the acquisition of excess msrs . in general , regulatory and gse approval processes have been more extensive and taken longer than the processes and timelines we experienced in prior periods , which has increased the amount of time and effort required to complete transactions . interest rates and prepayment rates as further described in “ quantitative and qualitative disclosures about market risk , ” increasing interest rates are generally associated with declining prepayment rates for residential mortgage loans since they increase the cost of borrowing for homeowners . declining prepayment rates , in turn , would generally be expected to increase the value of our interests in excess msrs , msrs and servicer advance investments , which include the right to a portion of the related msrs , because the duration of the cash flows we are entitled to receive becomes extended with no reduction in current cash flows . changes in interest rates will also directly impact our costs of borrowing either immediately ( floating rate debt ) or upon refinancing ( fixed rate debt ) and may also 63 be associated with changes in credit spreads and or the discount rates used in valuing investments . declining prepayment rates have a negative impact on the value of investments purchased at a significant discount since the recovery of that discount is delayed . in the fourth quarter of 2018 , both current interest rates and expected future interest rates generally decreased . with respect to our non-agency rmbs , which were generally purchased at a significant discount , market interest rates decreased and market credit spreads increased , with the net result being a decrease in value of these investments during the quarter . the value of our msrs and excess msrs is subject to a variety of factors , as described in “ quantitative and qualitative disclosures about market risk ” and in “ risk factors. story_separator_special_tag 65 nrm is , generally , obligated to fund all future servicer advances related to the underlying pools of mortgages on its msrs and mortgage servicing rights financing receivables . generally , nrm will advance funds when the borrower fails to meet contractual payments ( e.g. , principal , interest , property taxes , insurance ) . nrm will also advance funds to maintain and report foreclosed real estate properties on behalf of investors . advances are recovered through claims to the related investor and subservicers . per the servicing agreements , nrm is obligated to make certain advances on mortgages to be in compliance with applicable requirements . in certain instances , the subservicer is required to reimburse nrm for any advances that were deemed nonrecoverable or advances that were not made in accordance with the related servicing contract . see note 5 to our consolidated financial statements for further information regarding our investments in mortgage servicing rights financing receivables . the table below summarizes our investments in msrs and mortgage servicing rights financing receivables as of december 31 , 2018 . replace_table_token_8_th ( a ) represents fannie mae and freddie mac msrs . the following table summarizes the collateral characteristics of the loans underlying our investments in msrs and mortgage servicing rights financing receivables as of december 31 , 2018 ( dollars in thousands ) : collateral characteristics current carrying amount current principal balance number of loans wa fico score ( a ) wa coupon wa maturity ( months ) average loan age ( months ) adjustable rate mortgage % ( b ) three month average cpr ( c ) three month average crr ( d ) three month average cdr ( e ) three month average recapture rate mortgage servicing rights agency ( f ) $ 2,506,676 $ 226,295,778 1,441,093 751 4.3 % 266 62 2.8 % 9.2 % 9.0 % 0.2 % 18.6 % non-agency 22,438 2,143,212 4,910 758 3.9 % 305 40 6.0 % 8.4 % 0.5 % 7.8 % — % ginnie mae 354,986 30,023,713 141,905 683 3.8 % 324 31 7.3 % 12.0 % 11.7 % 0.2 % 15.3 % mortgage servicing rights financing receivables agency 434,110 42,265,547 317,696 745 4.2 % 238 84 6.6 % 10.1 % 9.6 % 0.4 % 7.8 % non-agency 1,210,394 88,251,018 633,281 647 4.5 % 308 157 15.5 % 10.5 % 7.3 % 3.3 % — % total $ 4,528,604 $ 388,979,268 2,538,885 721 4.3 % 277 83 6.5 % 9.8 % 8.8 % 1.0 % 12.8 % 66 replace_table_token_9_th ( a ) the wa fico score is based on the weighted average of information provided by the loan servicer on a monthly basis . the loan servicer generally updates the fico score when loans are refinanced or become delinquent . ( b ) adjustable rate mortgage % represents the percentage of the total principal balance of the pool that corresponds to adjustable rate mortgages . ( c ) three month average cpr , or the constant prepayment rate , represents the annualized rate of the prepayments during the quarter as a percentage of the total principal balance of the pool . ( d ) three month average crr , or the voluntary prepayment rate , represents the annualized rate of the voluntary prepayments during the quarter as a percentage of the total principal balance of the pool . ( e ) three month average cdr , or the involuntary prepayment rate , represents the annualized rate of the involuntary prepayments ( defaults ) during the quarter as a percentage of the total principal balance of the pool . ( f ) represents fannie mae and freddie mac msrs . ( g ) delinquency 30 days , delinquency 60 days and delinquency 90+ days represent the percentage of the total principal balance of the pool that corresponds to loans that are delinquent by 30–59 days , 60–89 days or 90 or more days , respectively . excess msrs the tables below summarize the terms of our investments in excess msrs completed as of december 31 , 2018 . summary of direct excess msr investments as of december 31 , 2018 replace_table_token_10_th ( a ) the msr is a weighted average as of december 31 , 2018 , and the excess msr represents the difference between the weighted average msr and the basic fee ( which fee remains constant ) . ( b ) we also invested in related servicer advance investments , including the basic fee component of the related msr ( note 6 to our consolidated financial statements ) on $ 40.1 billion upb underlying these excess msrs . 67 summary of excess msr investments through equity method investees as of december 31 , 2018 replace_table_token_11_th ( a ) the msr is a weighted average as of december 31 , 2018 , and the excess msr represents the difference between the weighted average msr and the basic fee ( which fee remains constant ) . the following table summarizes the collateral characteristics of the loans underlying our direct excess msr investments as of december 31 , 2018 ( dollars in thousands ) : collateral characteristics current carrying amount current principal balance number of loans wa fico score ( a ) wa coupon wa maturity ( months ) average loan age ( months ) adjustable rate mortgage % ( b ) three month average cpr ( c ) three month average crr ( d ) three month average cdr ( e ) three month average recapture rate agency original pools $ 160,516 $ 39,599,428 277,692 718 4.6 % 258 108 7.9 % 12.1 % 11.5 % 0.8 % 21.8 % recaptured loans 65,936 12,768,862 75,569 724 4.3 % 284 36 0.6 % 8.8 % 8.6 % 0.3 % 29.8 % recapture agreement 30,935 — — — — % — — — % — % — % — % — % $ 257,387 $ 52,368,290 353,261 719 4.6 % 265 89 6.1 % 11.3 % 10.7 % 0.6 % 23.5 % non-agency ( f ) nationstar and sls serviced : original pools $ 152,649 $ 50,202,703 278,228 673 4.7 % 284 153 33.5 % 14.2
| results of operations the following tables summarize the changes in our results of operations from year-to-year ( dollars in thousands ) . our results of operations are not necessarily indicative of our future performance . comparison of results of operations for the years ended december 31 , 2018 and 2017 replace_table_token_19_th 82 interest income interest income increased by $ 144.5 million primarily attributable to incremental interest income of ( i ) $ 141.8 million increase from an increase in the size of the real estate securities portfolio and accelerated accretion on real estate securities owned in non-agency rmbs trusts that were terminated upon the execution of calls , ( ii ) $ 48.8 million from the residential mortgage loans portfolio due to the acquisition of loans through the execution of calls , and ( iii ) an increase of $ 10.6 million from the msrs portfolio net of a decrease due to the transfer of hlss servicer advance investments and excess msr investment to mortgage servicing rights financing receivables and related servicer advance receivables as a result of the ocwen transaction ( note 5 to our consolidated financial statements ) . the increase was partially offset by ( iv ) a $ 57.5 million decrease from consumer loans attributable to lower unpaid principal balance .
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item 12 security ownership of certain beneficial owners and management and related stockholder matters information required by this item is set forth in the company 's 2015 proxy statement in the section entitled security ownership of management and others , and is incorporated herein by reference . the following table provides information about the company 's equity compensation plans as of december 31 , 2014 : plan category ( a ) number of securities to be issued upon exercise of outstanding options , warrants and rights ( b ) weighted-average exercise price of outstanding options , warrants and rights ( c ) number of securities remaining available for future issuance under equity compensation plans ( excluding securities reflected in column ( a ) ) equity compensation plans approved by shareholders 1,355,416 $ 25.36 643,400 equity compensation plans not approved by shareholders total 1,355,416 $ 25.36 643,400 item 13 certain relationships and related transactions , and director independence information required by this item is set forth in the company 's 2015 proxy statement in sections entitled transactions with related persons and director independence , and is incorporated herein by reference . item 14 principal accounting fees and services information required by this item is set forth in the company 's 2015 proxy statement in the section entitled audit and non-audit fees , and is incorporated herein by reference . 57 part iv item 15 exhibits , financial statement schedules ( a ) documents filed as part of this annual report on form 10-k : ( 1 ) financial statements see the consolidated financial statements included in part ii , item 8 financial statements and supplementary data in this 2014 annual report on form 10-k. ( 2 ) financial statement story_separator_special_tag general the company designs and markets quality and innovative footwear for men , women and children under a portfolio of well-recognized brand names , including : florsheim , nunn bush , stacy adams , bogs , rafters , and umi. inventory is purchased from third-party overseas manufacturers . the majority of foreign-sourced purchases are denominated in u.s. dollars . the company has two reportable segments , north american wholesale operations ( wholesale ) and north american retail operations ( retail ) . in the wholesale segment , the company 's products are sold to leading footwear , department and specialty stores , primarily in the united states and canada . the company also has licensing agreements with third parties who sell its branded apparel , accessories and specialty footwear in the united states , as well as its footwear in mexico and certain markets overseas . licensing revenues are included in the company 's wholesale segment . the company 's retail segment consisted of 16 company-owned retail stores and an internet business in the united states as of december 31 , 2014. sales in retail outlets are made directly to consumers by company employees . the company 's other operations include the company 's wholesale and retail businesses in australia , south africa and asia pacific ( collectively , florsheim australia ) and europe . the majority of the company 's operations are in the united states , and its results are primarily affected by the economic conditions and the retail environment in the united states . 12 this discussion summarizes the significant factors affecting the consolidated operating results , financial position and liquidity of the company for the three-year period ended december 31 , 2014. this discussion should be read in conjunction with item 8 , financial statements and supplementary data below . executive overview story_separator_special_tag sales were negatively impacted by the weaker australian dollar relative to the u.s. dollar in 2014. earnings from operations of these businesses were $ 4.8 million in 2014 , up 21 % as compared to $ 4.0 million last year . this increase was primarily due to higher operating earnings at florsheim australia . 15 2013 vs. 2012 segment analysis net sales and earnings from operations for the company 's segments , as well as its other operations , in the years ended december 31 , 2013 and 2012 , were as follows : replace_table_token_8_th north american wholesale segment net sales net sales in the company 's north american wholesale segment for the years ended december 31 , 2013 and 2012 , were as follows : replace_table_token_9_th the stacy adams brand was down slightly with off-price retailers due to lower levels of closeout inventory in 2013. the nunn bush brand was up due to higher sales volumes at department stores and national shoe chains , driven by increased sales of new casual products . florsheim net sales were up in 2013 due to increased sales across several trade channels . net sales of the bogs and rafters brands increased approximately $ 3.3 million in 2013 due to higher sales volumes in both the u.s. and canada . bogs net sales in canada included $ 1.1 million of additional volume in 2013 due to the takeover of bogs canadian distribution in june 2012. licensing revenues consist of royalties earned on sales of branded apparel , accessories and specialty footwear in the united states and on branded footwear in mexico and certain overseas markets . 16 earnings from operations earnings from operations in the north american wholesale segment were $ 20.7 million in 2013 , down 7 % as compared to $ 22.2 million in 2012. wholesale gross earnings as a percent of net sales were 32.6 % in 2013 and 32.2 % in 2012. earnings from operations in 2012 included approximately $ 3.5 million of income resulting from a decrease in the contingent consideration liability related to the bogs acquisition . without these adjustments , earnings from operations for the wholesale segment would have been up 11 % in 2013 as compared to 2012 , primarily due to the increase in sales and gross margins . the company 's cost of sales does not include distribution costs ( e.g. story_separator_special_tag in 2014 , the company generated $ 17.8 million in cash from operating activities , compared with $ 29.8 million in 2013 and $ 18.0 million in 2012. fluctuations in net cash from operating activities have mainly resulted from changes in net earnings and operating assets and liabilities , and most significantly the year-end inventory and accounts receivable balances . the company 's capital expenditures were $ 2.9 million , $ 2.7 million and $ 9.5 million in 2014 , 2013 and 2012 , respectively . in addition , in 2013 the company purchased a 50 % interest in a building in montreal , canada for $ 3.2 million . in 2012 , capital expenditures included a project to connect a neighboring building , acquired in 2011 , to the company 's existing office and distribution center in glendale , wisconsin . the company expects capital expenditures to be approximately $ 2 million to $ 3 million in 2015. the company paid cash dividends of $ 8.2 million , $ 4.1 million and $ 11.1 million in 2014 , 2013 and 2012 , respectively . on december 31 , 2012 , the company paid two quarterly cash dividends , each for $ 0.17 per share , which typically would have been paid in the first half of 2013. both dividends were accelerated into 2012 in anticipation of potential tax law changes effective january 1 , 2013. the company resumed its regular quarterly dividend payment schedule in the second quarter of 2013 . 18 the company continues to repurchase its common stock under its share repurchase program when the company believes market conditions are favorable . in 2014 , the company repurchased 297,576 shares for a total cost of $ 8.0 million . in 2013 , the company repurchased 195,050 shares for a total cost of $ 4.6 million . in 2012 , the company repurchased 285,422 shares for a total cost of $ 6.6 million . at december 31 , 2014 , the remaining total shares available to purchase under the program was approximately 331,000 shares . at december 31 , 2014 , the company had a $ 60 million unsecured revolving line of credit with a bank expiring november 5 , 2015. the line of credit bears interest at libor plus 0.75 % . at december 31 , 2014 , outstanding borrowings were approximately $ 5.4 million at an interest rate of 0.92 % . the highest balance during the year was $ 24.3 million . at december 31 , 2013 , outstanding borrowings were $ 12.0 million at an interest rate of 0.90 % . in march 2014 , the company began sweeping excess cash against its revolving line of credit on a daily basis . proceeds and repayments from bank borrowings increased in 2014 as a result of this daily activity . in connection with the bogs acquisition , the company had two contingent payments due to the former shareholders of bogs . the company made the first contingent consideration payment of approximately $ 1,270,000 in the first quarter of 2013. the second contingent consideration payment is due in march 2016. for additional information , see note 10 in the notes to consolidated financial statements . as of december 31 , 2014 , $ 3.1 million of cash and cash equivalents was held by the company 's foreign subsidiaries . if these funds are needed for operations in the u.s. , the company would be required to accrue and pay u.s. taxes to repatriate these funds . management believes that under the current tax law , the related tax impact of any such repatriation would not be material to the company 's financial statements . the company will continue to evaluate the best uses for its available liquidity , including , among other uses , capital expenditures , continued stock repurchases and additional acquisitions . the company believes that available cash and marketable securities , cash provided by operations , and available borrowing facilities will provide adequate support for the cash needs of the business in 2015 , although there can be no assurances . off-balance sheet arrangements the company does not utilize any special purpose entities or other off-balance sheet arrangements . commitments the company 's significant contractual obligations are its supplemental pension plan , its operating leases , and the contingent consideration that is expected to be paid from the bogs acquisition . these obligations are discussed further in the notes to consolidated financial statements . the company also has significant obligations to purchase inventory . future obligations under operating leases are disclosed in note 13 of the notes to consolidated financial statements . the table below provides summary information about these obligations as of december 31 , 2014. replace_table_token_10_th * purchase obligations relate entirely to commitments to purchase inventory . 19 other critical accounting policies the company 's accounting policies are more fully described in note 2 of the notes to consolidated financial statements . as disclosed in note 2 , the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and accompanying notes . future events and their effects can not be determined with absolute certainty . therefore , the determination of estimates requires the exercise of judgment . actual results inevitably will differ from those estimates , and such differences may be material to the consolidated financial statements . the following policies are considered by management to be the most critical in understanding the significant accounting estimates inherent in the preparation of the company 's consolidated financial statements and the uncertainties that could impact the company 's results of operations , financial position and cash flows .
| sales and earnings highlights consolidated net sales for 2014 were $ 320.5 million , up 7 % over last year 's net sales of $ 300.3 million . earnings from operations were $ 30.7 million this year , up 11 % as compared to $ 27.8 million in 2013. consolidated net earnings attributable to weyco group , inc. increased 8 % to $ 19.0 million in 2014 , as compared to $ 17.6 million last year . diluted earnings per share for the year ended december 31 , 2014 , increased to $ 1.75 , from $ 1.62 per share in 2013. earnings for 2014 included $ 611,000 ( 373,000 after tax , or $ 0.03 per diluted share ) of expense resulting from an increase in the contingent consideration liability that resulted from the 2011 acquisition of the combs company ( bogs ) . see note 10 of the notes to consolidated financial statements . the majority of the increase in consolidated net sales for 2014 came from the company 's wholesale segment . wholesale net sales increased by approximately $ 17.8 million this year , compared to 2013. this increase was primarily due to higher sales of the bogs brand . without the $ 611,000 bogs contingent consideration adjustment described above , consolidated earnings from operations would have been up $ 3.4 million , or 12 % , for the year . this increase was driven by higher net sales in the company 's wholesale segment and in the company 's other businesses . financial position highlights at december 31 , 2014 , cash and marketable securities totaled $ 43.0 million and outstanding debt totaled $ 5.4 million . at december 31 , 2013 , cash and marketable securities totaled $ 46.2 million and outstanding debt totaled $ 12.0 million . the company 's main sources of cash in 2014 were from operations and proceeds from stock options exercised .
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we empower innovators to achieve the new possible - enabling them to discover first-in-kind solutions to complex design challenges , deliver tangible outcomes in record time , and make data-powered decisions for sustainable outcomes . our strategy is to build enduring relationships with customers , delivering innovative technology that provides valuable automation and insight into their design and make process . to drive execution of our strategy , we are focused on three strategic priorities : delivering on the promise of subscription , digitizing the company , and reimagining construction , manufacturing , and production . we equip and inspire our users with the tailored tools , services , and access they need for success today and tomorrow . at every step , we help users harness the power of data to build upon their ideas and explore new ways of imagining , collaborating , and creating to achieve better outcomes for their customers , for society , and for the world . and because creativity ca n't flourish in silos , we connect what matters - from steps in a project to collaborators on a unified platform . autodesk was founded during the platform transition from mainframe computers and engineering workstations to personal computers . we have developed and sustained a compelling value proposition based upon desktop software for the personal computer . just as the transition from mainframes to personal computers transformed the industry over 30 years ago , the software industry has undergone a transition from developing and selling perpetual licenses and on-premises products to subscriptions and cloud-enabled technologies . product evolution we offer subscriptions for individual products and industry collections , enterprise business arrangements ( “ ebas ” ) , and cloud service offerings ( collectively referred to as “ subscription plan ” ) . subscription plans are designed to give our customers more flexibility with how they use our offerings and to attract a broader range of customers , such as project-based users and small businesses . our subscription plans currently represent a hybrid of desktop software and cloud functionality , which provides a device-independent , collaborative design workflow for designers and their stakeholders . our cloud offerings , for example , bim 360 , shotgun , autocad web app , and autocad mobile app , provide tools , including mobile and collaboration capabilities , to streamline design , collaboration , building and manufacturing , and data management processes . we believe that customer adoption of these latest offerings will continue to grow as customers across a range of industries begin to take advantage of the scalable computing power and flexibility provided through these services . industry collections provide our customers with access to a broader selection of autodesk solutions and services , simplifying the customers ' ability to benefit from a complete set of tools for their industry . we discontinued the sale of new commercial licenses of most individual software products in fiscal 2016. additionally , in fiscal 2018 , we commenced a program to incentivize maintenance plan customers to move to subscription plan offerings , maintenance-to-subscription ( “ m2s ” ) , while at the same time increasing maintenance plan pricing over time for customers that remain on maintenance plans . since launching the program , a substantial majority of maintenance plan customers have converted to subscription plan offerings . we will be retiring maintenance plan offerings as of may 7 , 2021 and will allow customers to convert their remaining maintenance seats to subscription plan offerings prior to this date . 37 to support our strategic priority of re-imagining aec , we are strengthening the foundation of our aec solutions with both organic and inorganic investments . in fiscal 2021 , we acquired spacemaker which uses cloud-based , artificial intelligence ( ai ) , and generative design to help architects , urban designers , and real estate developers make faster and more informed early-stage design decisions which can help maximize the long-term sustainability and return from property investments . other acquisitions in fiscal 2021 included solutions that use artificial intelligence and machine learning to extract and process data from project plans and specifications allowing general contractors , subcontractors , and owners to automate workflows such as submittals and project closeout , as well as a leading provider of post-processing and machine simulation solutions in manufacturing . as part of our strategy in manufacturing , we continue to attract both global manufacturing leaders and disruptive startups with our generative design and cloud-based fusion 360 technology enhancements . our strategy includes improving our product functionality and expanding our product offerings through internal development as well as through the acquisition of products , technology , and businesses . acquisitions often increase the speed at which we can deliver product functionality to our customers ; however , they entail cost and integration challenges and may , in certain instances , negatively impact our operating margins . we continually review these factors in making decisions regarding acquisitions . we currently anticipate that we will continue to acquire products , technology , and businesses as compelling opportunities become available . global reach we sell our products and services globally , through a combination of indirect and direct channels . our indirect channels include value added resellers , direct market resellers , distributors , computer manufacturers , and other software developers . our direct channels include internal sales resources dedicated to selling in our largest accounts , our highly specialized solutions , and business transacted through our online autodesk branded store . see note 2 , `` revenue recognition '' in the notes to the consolidated financial statements for further detail on the results of our indirect and direct channel sales for the fiscal years ended january 31 , 2021 , 2020 , and 2019. we anticipate that our channel mix will continue to change as we scale our online autodesk branded store business and our largest accounts shift towards direct-only business models . however , we expect our indirect channel will continue to transact and support the majority of our customers and revenue . story_separator_special_tag determining whether products and services are distinct performance obligations that should be accounted for separately or combined as a single performance obligation may require significant judgment that requires us to assess the nature of the promise and value delivered to the customer and the interaction of the desktop applications and cloud functionalities . for our product subscriptions , cloud service offerings , and flexible enterprise business arrangements , the functional nature of the promise , as well as the customers ' value expectations , led us to conclude desktop applications and cloud functionalities are not distinct in the context of the contract and should be accounted for as a single performance obligation . there is a high degree of interaction of the desktop applications and cloud functionalities , which is not available with the desktop applications alone or in conjunction with third-party cloud service providers . furthermore , customers are not able to use the desktop applications for its intended purpose without our cloud functionalities . for contracts with more than one performance obligation , the transaction price is allocated among the performance obligations in an amount that depicts the relative standalone selling price ( “ ssp ” ) of each obligation . judgment is required to determine the ssp for each distinct performance obligation . we use a range of amounts to estimate ssp when we sell each of the products and services separately and need to determine whether there is a discount that should be allocated based on the relative ssp of the various products and services . 39 in instances where ssp is not directly observable , such as when we do not sell the product or service separately , we determine the ssp using information that includes market conditions and other observable inputs . we typically have more than one ssp for individual products and services due to the stratification of those products and services by customer and circumstance . in these instances , we use relevant information such as the sales channel to determine the ssp . strategic investments . strategic investment debt and equity securities are valued using significant unobservable inputs or data in an inactive market and the valuation requires our judgment due to the absence of market prices and inherent lack of liquidity . the carrying value is adjusted for our strategic investment equity securities if there are observable price changes in a same or similar security from the same issuer or if there are identified events or changes in circumstances that may indicate impairment , as discussed below . the determination of whether an orderly transaction is for a same or similar investment requires significant management judgment including the nature of rights and obligations of the investments , the extent to which differences in those rights and obligations would affect the fair values of those investments , and the impact of any differences based on the stage of operational development of the investee . these assumptions are inherently subjective and involve significant management judgment . whenever possible , we use observable market data and rely on unobservable inputs only when observable market data is not available when determining fair value . we assess our strategic investment debt and equity securities portfolio quarterly for impairment . strategic investment equity securities are assessed based on available information such as current cash positions , earnings and cash flow forecasts , recent operational performance , and any other readily available market data . for any available-for-sale debt securities , if autodesk does not intend to sell and it is not more likely than not that autodesk will be required to sell the available-for-sale debt security prior to recovery of its amortized cost basis , autodesk will determine whether a decline in fair value below the amortized cost basis is due to credit-related factors . the credit loss is measured as the amount by which the debt security 's amortized cost basis exceeds the estimate of the present value of cash flows expected to be collected , up to the difference between the amortized cost basis and the fair value . impairment will be assessed at the individual security level . credit-related impairment is recognized as an allowance on the consolidated balance sheets with a corresponding adjustment to “ interest and other expense , net ” on the company 's consolidated statements of operations . any impairment that is not credit-related is recognized in “ accumulated other comprehensive loss ” on the consolidated balance sheets . for our quarterly impairment assessment of privately held debt and equity securities , the analysis encompasses an assessment of the severity and duration of the impairment and qualitative and quantitative analysis of other key factors including : the investee 's financial metrics , the investee 's products and technologies meeting or exceeding predefined milestones , market acceptance of the product or technology , other competitive products or technology in the market , general market conditions , management and governance structure of the investee , the investee 's liquidity , debt ratios , and the rate at which the investee is using its cash . business combinations . the assets acquired and liabilities assumed in a business combination are recorded based on their estimated fair values at the acquisition date . any residual purchase price is recorded as goodwill . accounting for business combinations requires us to make significant estimates and assumptions , especially at the acquisition date with respect to intangible assets and deferred revenue obligations . although we believe the assumptions and estimates we have made are reasonable , they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain and unpredictable . unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions , estimates , or actual results .
| results of operations impacts of covid-19 to autodesk 's business we are continuing to conduct business during the covid-19 pandemic with substantial modifications to employee travel , employee work locations , and virtualization , postponement or cancellation of certain sales and marketing events , among other modifications . we have observed other companies , as well as many governments continuing to take precautionary measures to address covid-19 , and they may take further actions that alter their normal business operations . we continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal , state , or local authorities , or that we determine are in the best interests of our employees , customers , partners , suppliers , and stockholders . in the fiscal quarter ended january 31 , 2021 , we experienced usage levels above pre-covid-19 levels in most of asia pacific and continental europe . usage rates in the united states and the united kingdom remain below pre-covid-19 levels . contributing to our revenue growth in the fourth fiscal quarter ended january 31 , 2021 , was record ebas , strong subscription renewal rates , accelerating digital sales , and continued sequential growth in new business . in our target markets , both architecture , engineering , and construction ( “ aec ” ) and manufacturing ( “ mfg ” ) experienced growth as compared to the fourth fiscal quarter in the prior year . we also took action to support our customers during the fiscal year ended january 31 , 2021 , and extended payment terms to 60 days through august 7 , 2020 , offering free commercial use of our cloud collaboration products through june 2020 , and delayed the transition from multi-user licenses to named-user licenses from may 2020 to august 2020 to minimize customer disruption . further , we deferred a 20 % maintenance price increase from may 2020 to august 2020 to give customers additional time to consider a subscription agreement .
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this segment operates from locations near bristol , united kingdom , brisbane , australia , salem , new hampshire and in singapore . during fiscal 2019 we have established a new facility in malaysia for the manufacture and repair of the newly-introduced sealink product line discussed in more detail below . this facility is in close proximity to our singapore facility . as of january 31 , 2019 , sap , our australian subsidiary , has been classified as held for sale . see note 21 - `` assets held for sale '' of our consolidated financial statements for additional details . the operations of our equipment leasing segment include all leasing activity , sales of lease pool equipment and certain other equipment sales and services related to those operations . this business is conducted from our huntsville , texas headquarters and from our locations in calgary , canada ; bogota , colombia ; budapest , hungary and singapore . this includes the operations of our subsidiaries mcl , mel , mml and our branch in colombia . prior to august 2018 we conducted leasing operations through mse , our subsidiary located in ufa , russia . management believes that the performance of our marine technology products segment is indicated by revenues from equipment sales and by gross profit from those sales . management further believes that the performance of our equipment leasing segment is indicated by revenues from equipment leasing and by the level of our investment in lease pool equipment . management monitors ebitda and adjusted ebitda , both as defined in the following table , as key indicators of our overall performance and liquidity . the following table presents certain operating information by operating segment : 21 index to financial statements replace_table_token_5_th 22 index to financial statements replace_table_token_6_th _ ( 1 ) e bitda is defined as net income before ( a ) interest income and interest expense , ( b ) provision for ( or benefit from ) income taxes and ( c ) depreciation and amortization . adjusted ebitda excludes non-cash foreign exchange gains and losses , non-cash costs of lease pool equipment sales , stock-based compensation and other non-cash tax related items . we consider ebitda and adjusted ebitda to be important indicators for the performance of our business , but not measures of performance or liquidity calculated in accordance with gaap . we have included these non-gaap financial measures because management utilizes this information for assessing our performance and liquidity , and as indicators of our ability to make capital expenditures , service debt and finance working capital requirements and we believe that ebitda and adjusted ebitda are measurements that are commonly used by analysts and some investors in evaluating the performance and liquidity of companies such as us . in particular , we believe that it is useful to our analysts and investors to understand this relationship because it excludes transactions not related to our core cash operating activities . we believe that excluding these transactions allows investors to meaningfully trend and analyze the performance of our core cash operations . ebitda and adjusted ebitda are not measures of financial performance or liquidity under gaap and should not be considered in isolation or as alternatives to cash flow from operating activities or as alternatives to net income as indicators of operating performance or any other measures of performance derived in accordance with gaap . in evaluating our performance as measured by ebitda , management recognizes and considers the limitations of this measurement . ebitda and adjusted ebitda do not reflect our obligations for the payment of income taxes , interest expense or other obligations such as capital expenditures . accordingly , ebitda and adjusted ebitda are only two of the measurements that management utilizes . other companies in our industry may calculate ebitda or adjusted ebitda differently than we do and ebitda and adjusted ebitda may not be comparable with similarly titled measures reported by other companies . 23 index to financial statements within our marine technology products segment , we design , manufacture and sell a variety of products used primarily in oceanographic , hydrographic , defense , seismic and maritime security industries . seamap 's primary products include the ( i ) gunlink and digishot seismic source acquisition and control systems , which provide marine operators more precise control of exploration tools ; and ( ii ) the buoylink rgps tracking system used to provide precise positioning of seismic sources and streamers ( marine recording channels that are towed behind a vessel ) and ( iii ) beginning in fiscal 2019 sealink marine sensors and solid streamer systems ( collectively the “ sealink ” product line or the “ towed streamer products ” ) . these towed streamer products are primarily designed for three-dimensional , high-resolution marine surveys in hydrographic industry applications . klein designs , manufactures and sells side scan sonar and water-side security systems to commercial , governmental and military customers throughout the world . sap sells equipment , consumable supplies , systems integration , engineering hardware and software maintenance support services to the seismic , hydrographic , oceanographic , environmental and defense industries throughout southeast asia and australia . in our equipment leasing segment , we lease seismic data acquisition equipment primarily to seismic data acquisition companies conducting land , transition zone and marine seismic surveys worldwide . we provide short-term leasing of seismic equipment to meet a customer 's requirements . all active leases at january 31 , 2019 were for a term of less than one year . seismic equipment held for lease is carried at cost , net of accumulated depreciation . we acquire some marine lease pool equipment from our marine technology products segment . these amounts are carried in our lease pool at the cost to our marine technology products segment , less accumulated depreciation . from time to time , we sell lease pool equipment . story_separator_special_tag while seamap is not solely dependent on activity related to oil and gas exploration activity , a recovery of activity in marine exploration activity in the petroleum industry could have a materially beneficial effect on our results of operations . customers for klein 's products primarily consist of domestic and foreign governmental and military organizations and commercial entities involved in the hydrographic and oceanographic industries . revenue from the sale of klein products in fiscal 2019 , 2018 and 2017 was significantly below our expectations due primarily , we believe , to ( i ) an industry wide decline in the purchase of sonar products , ( ii ) delays in the introduction of new products in fiscal 2017 , ( iii ) competitive pressures , and ( iv ) delays in project awards by domestic and foreign governmental agencies as result of budget constraints and complex contracting processes . despite the disappointing results in recent periods , klein 's revenue increased 62 % in the twelve months ended fiscal 2019 as compared to the same period of fiscal 2018 , and we remain optimistic that revenue from our sonar products will return to historical and anticipated levels based on our current inventory of project pursuits , pending orders and independent projections of increased world-wide demand for sonar products . we have had certain enhancements to our sonar technology under development during fiscal 2018 and 2019 that we expect to introduce shortly . we believe these enhancements can have a positive effect on the demand for our sonar products and result in new products . during the twelve months ended january 31 , 2019 our marine technologies products segment has experienced an increase in both inquiries and order activity . as of january 31 , 2019 our backlog of firm orders for this segment was approximately $ 8.7 million , as compared to approximately $ 2.7 million as of january 31 , 2018. we expect substantially all of these orders to be completed within fiscal 2020. the level of backlog at a particular point in time may not necessarily be indicative of results in subsequent periods as the size and delivery period of individual orders can vary significantly . in the fourth quarter of fiscal 2019 we determined to eliminate our legal and physical presence in australia and dispose of sap . see “ item 1- business - business and operations - marine technology products segment ” and see note 21 - `` assets held for sale '' of our consolidated financial statements for additional details regarding the accounting for this determination . accordingly , subsequent to fiscal 2019 , the sale of equipment from other oem 's as a re-seller or distributor will not be a part of our business . these sales have historically had a lower gross margin than the sale of seamap and klein products . accordingly , this should have a positive effect on the overall gross profit margin from our marine technology products segment . demand for the rental of land seismic exploration equipment varies by geographic region and has been very sporadic in recent periods . we expect continuing demand in europe , australia and north america and improving demand in south america during fiscal 2020. we do anticipate opportunities for projects in other parts of the world . however , competition for such projects is generally intense and there is no assurance that we will have the opportunity to provide equipment for such projects . land leasing activity is expected to remain well below historical levels in fiscal 2020. we believe one of our key competitive advantages is our broad geographic footprint and ability to operate in a number of areas . we have accomplished this over the past several years by establishing subsidiaries and branch operations such that we now operate in a number of countries . in response to a decline in activity in some regions we have taken steps to reduce costs , such as by reducing personnel , down-sizing facilities and relocating certain inventory and lease pool assets to more active locations . specifically , we have significantly reduced our presence in colombia and canada and , as of august 31 , 2018 , eliminated our operations in russia . subsequent to january 31 , 2019 , we expect to eliminate our legal and physical presence in australia . a significant portion of our revenues are generated from foreign sources . for fiscal 2019 , 2018 and 2017 , revenues from international customers totaled approximately $ 36.6 million , $ 36.9 million and $ 34.7 million , respectively . these amounts represent 85 % , 76 % and 85 % of consolidated revenues in those fiscal years , respectively . the majority of our transactions with foreign customers are denominated in united states dollars . we have not entered , nor do we intend to enter , into derivative financial instruments for hedging or speculative purposes . our revenues and results of operations have not been materially impacted by inflation or changing prices in the past three fiscal years , except as described above . 25 index to financial statements story_separator_special_tag $ 578,000 in fiscal 2019 , $ 1.2 million in fiscal 2018 , and $ 1.1 million in fiscal 2017 , representing gross profit margins of 18 % , 20 % and 23 % , respectively . the changes in gross profit margins between the years reflect changes in product mix from year to year . the effect of sales from klein to sap is eliminated in consolidation and in the table above as “ intra-segment sales ” . as of january 31 , 2019 , sap has been classified as held for sale and we have recorded a $ 500,000 estimated loss on sale as a component of loss before income taxes . see note 21 - `` assets held for sale '' for additional details .
| results of operations for fiscal 2019 , 2018 and 2017 , we recorded operating losses of approximately $ 13.0 million , $ 19.7 million and $ 31.3 million , respectively . the improvement in fiscal 2019 from fiscal 2018 was due primarily to reduced lease pool depreciation expense , non-recurring impairment charges in fiscal 2018 , and lower provision for doubtful accounts year over year . the lower operating loss in fiscal 2018 as compared to fiscal 2017 was due primarily to higher sales of lease pool equipment . revenues and cost of sales marine technology products revenues and cost of sales for our marine technology products segment were as follows : replace_table_token_7_th a significant portion of seamap 's sales consist of large discrete orders , the timing of which is dictated by our customers . this timing generally relates to the availability of a vessel in port so that our products can be installed . accordingly , there can be significant variation in sales from one period to another which does not necessarily indicate a fundamental change in demand for these products . although recently there has been a softening of demand within the marine seismic industry in general , we believe that we have continued to experience demand for seamap 's products because operators of marine seismic vessels have been upgrading technology on remaining vessels in order to improve operating efficiency . in addition , some hydrographic survey operators have continued to increase their capacity and upgrade technology . the gross profit generated by sales of seamap products for fiscal 2019 and 2018 was approximately $ 7.4 million and $ 8.5 million , respectively . the gross profit margin from the sales of seamap products in fiscal 2019 and 2018 was consistent at 46 % . the decrease in both revenue and gross profit in fiscal 2019 compared to fiscal 2018 was due to timing of customer deliveries .
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executive overview national health investors , inc. , is a self-managed real estate investment trust ( `` reit '' ) specializing in sale-leaseback , joint-venture , mortgage and mezzanine financing of need-driven and discretionary senior housing and medical investments . our portfolio consists of real estate investments in independent living facilities , assisted living facilities , entrance-fee communities , senior living campuses , skilled nursing facilities , specialty hospitals and medical office buildings . other investments include mortgages and other notes , marketable securities , and a joint venture structured to comply with the provisions of the reit investment diversification empowerment act of 2007 ( “ ridea ” ) . through a ridea joint venture , we invest in facility operations managed by independent third-parties . we fund our real estate investments primarily through : ( 1 ) operating cash flow , ( 2 ) debt offerings , including bank lines of credit and term debt , both unsecured and secured , and ( 3 ) the sale of equity securities . portfolio at december 31 , 2015 , we had investments in real estate and mortgage and other notes receivable involving 189 facilities located in 31 states . these investments involve 116 senior housing properties , 68 skilled nursing facilities , 3 hospitals , 2 medical office buildings and other notes receivable . these investments ( excluding pre-development costs of $ 168,000 and our corporate office of $ 920,000 ) consisted of properties with an original cost of approximately $ 2,094,778,000 , rented under triple-net leases to 26 lessees , and $ 135,031,000 aggregate carrying value of mortgage and other notes receivable due from 14 borrowers . we classify the properties in our portfolio as either senior housing or medical properties . we further classify our senior housing properties as either need-driven ( assisted living facilities and senior living campuses ) or discretionary ( independent living facilities and entrance-fee communities . ) medical properties within our portfolio include skilled nursing facilities , medical office buildings and specialty hospitals . 27 the following tables summarize our investments in real estate and mortgage and other notes receivable as of december 31 , 2015 ( dollars in thousands ) : replace_table_token_5_th replace_table_token_6_th 28 for the year ended december 31 , 2015 , operators of facilities which provided more than 3 % of our total revenues were ( in alphabetical order ) : bickford senior living ; fundamental ; health services management ; holiday retirement ; legend healthcare ; national healthcare corporation ; and senior living communities . as of december 31 , 2015 , our average effective annualized rental income was $ 8,022 per bed for snfs , $ 13,817 per unit for alfs , $ 14,495 per unit for ilfs , $ 24,379 per unit for efcs , $ 42,718 per bed for hospitals , and $ 11 per square foot for mobs . we currently invest a portion of our funds in highly liquid marketable securities , including the common shares of other publicly held healthcare reits . at december 31 , 2015 , such investments had a carrying value of $ 72,744,000 . areas of focus on december 16 , 2015 , the federal open market committee of the federal reserve announced an increase in the federal funds rate by 25 basis points . the anticipation of this first increase in the federal funds rate since 2006 has been a primary source of much volatility in reit equity markets . while the impact of the rate hike on the operations of the reit industry has been a modest rise in debt costs , its impending announcement was foreshadowed by a sharp decline in reit market capitalization in 2015 , including nhi 's share price . we are evaluating and will potentially make additional investments during 2016 while we continue to monitor and improve our existing properties . we seek tenants who will become mission-oriented partners in relationships where our business goals are aligned . this approach fuels steady , and thus , enduring growth for those partners and for nhi . within the context of our growth model , we rely on a cost-effective access to debt and equity capital to finance acquisitions that will drive our earnings . however , while our debt costs have risen modestly , and our stock prices have declined sharply over recent months due to the prospect of rising interest rates , large-scale portfolios continue to command premium pricing , due to the continued abundance of private and foreign buyers seeking to invest in healthcare real estate . this combination of circumstances places a premium on our ability to execute those larger transactions that will generate meaningful earnings growth . we expect rising capital costs will continue to be a challenge for us in 2016 , particularly as healthcare real estate prices remain near historically high levels . earnings growth may slow while we fight these headwinds by targeting smaller portfolios and one-off acquisitions . with lower capitalization rates for existing healthcare facilities , there has been increased interest in constructing new facilities in hopes of generating better returns on invested capital . using our relationship-driven model , we continue to look for opportunities to support new and existing tenants and borrowers with the capital needed to expand existing facilities and to initiate ground-up development of new facilities . we concentrate our efforts in those markets where there is both a demonstrated demand for a particular product type and where we perceive our competitive advantage . the projects we agree to finance have attractive upside potential and are expected to provide above-average returns to our shareholders to mitigate the risks inherent with property development and construction . as longer term borrowing rates increase , there will be pressure on the spread between our cost of capital and the returns we earn . we expect that pressure to be partially mitigated by market forces that would tend to result in higher capitalization rates for healthcare assets and higher lease rates indicative of historical levels . story_separator_special_tag according to current projections by the u.s. department of health and human services , the number of americans 65 and older is expected to grow 36 % between 2010 and 2020 , compared to a 9 % growth rate for the general population . an increase in this age demographic is expected to increase demand for senior housing properties of all types in the coming decades . there is increasing demand for private-pay senior housing properties in countries outside the u.s. , as well . we therefore consider real estate and note investments with u.s. entities who seek to expand their senior housing operations into countries where local-market demand is sufficiently demonstrated . strong demographic trends provide the context for continued growth in 2016 and the years ahead . we plan to fund any new real estate and mortgage investments during 2016 using our liquid assets and debt financing . should the weight of additional debt as a result of new acquisitions suggest the need to rebalance our capital structure , we would then expect to access the capital markets through an atm or other equity offerings . our disciplined investment strategy implemented through measured increments of debt and equity sets the stage for annual dividend growth , continued low leverage , a portfolio of diversified , high-quality assets , and business relationships with experienced tenants and borrowers who we make our priority . these continue to be the key drivers of our business plan . 30 critical accounting policies we prepare our consolidated financial statements in conformity with accounting principles generally accepted in the united states of america . these accounting principles require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates and cause our reported net income to vary significantly from period to period . if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements , the resulting changes could have a material adverse effect on our consolidated results of operations , liquidity and or financial condition . we consider an accounting estimate or assumption critical if : 1. the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change ; and 2. the impact of the estimates and assumptions on financial condition or operating performance is material . our significant accounting policies and the associated estimates , judgments and the issues which impact these estimates are as follows : valuations and impairments our tenants and borrowers who operate snfs derive their revenues primarily from medicare , medicaid and other government programs . amounts paid under these government programs are subject to legislative and government budget constraints . from time to time , there may be material changes in government reimbursement . in the past , snfs have experienced material reductions in government reimbursement . the long-term health care industry has experienced significant professional liability claims which has resulted in an increase in the cost of insurance to cover potential claims . in previous years , these factors have combined to cause a number of bankruptcy filings , bankruptcy court rulings and court judgments affecting our lessees and borrowers . in prior years , we have determined that impairment of certain of our investments had occurred as a result of these events . we evaluate the recoverability of the carrying values of our properties on a property-by-property basis . on a quarterly basis , we review our properties for recoverability when events or circumstances , including significant physical changes in the property , significant adverse changes in general economic conditions and significant deteriorations of the underlying cash flows of the property , indicate that the carrying amount of the property may not be recoverable . the need to recognize an impairment charge is based on estimated undiscounted future cash flows from a property compared to the carrying value of that property . if recognition of an impairment charge is necessary , it is measured as the amount by which the carrying amount of the property exceeds the fair value of the property . for our mortgage and other notes receivable , we evaluate the estimated collectibility of contractual loan payments and general economic conditions on an instrument-by-instrument basis . on a quarterly basis , we review our notes receivable for ability to realize on such notes when events or circumstances , including the non-receipt of contractual principal and interest payments , significant deteriorations of the financial condition of the borrower and significant adverse changes in general economic conditions , indicate that the carrying amount of the note receivable may not be recoverable . if necessary , impairment is measured as the amount by which the carrying amount exceeds the fair value as measured by the discounted cash flows expected to be received under the note receivable or , if foreclosure is probable , the fair value of the collateral securing the note receivable . we evaluate our marketable securities for other-than-temporary impairments . an impairment of a marketable security would be considered “ other-than-temporary ” unless we have the ability and intent to hold the investment for a period of time sufficient for a forecasted market price recovery up to ( or beyond ) the cost of the investment and evidence indicates the cost of the investment is recoverable within a reasonable period of time . the initial carrying value of investments in unconsolidated entities is based on the amount paid to purchase the interest or the estimated fair value of the assets prior to our acquisition of interests in the entity . an aggregate basis difference between the cost of our equity method investee and the amount of underlying equity in its net assets is primarily attributable to goodwill , which is not amortized .
| results of operations the significant items affecting revenues and expenses are described below ( in thousands ) : replace_table_token_12_th 38 financial highlights of the year ended december 31 , 2015 , compared to 2014 were as follows : rental income increased $ 48,168,000 due primarily to our slc acquisition in december 2014 and other real estate investments completed during 2015 and 2014. during 2015 we completed $ 155,575,000 of new real estate investments . during 2014 we completed $ 555,453,000 of new real estate investments . the increase in rental income included an $ 8,159,000 increase in straight-line rent adjustments . generally accepted accounting principles require rental income to be recognized on a straight-line basis over the term of the lease to give effect to scheduled rent escalators . future increases in rental income depend on our ability to make new investments which meet our underwriting criteria . interest income from mortgage and other notes increased $ 2,965,000 primarily due to borrowings of $ 83,411,000 on our new loan commitment to the timber ridge entrance fee community as described in investment highlights . we expect total interest income from our loan portfolio to increase as we continue to fund these loans to timber ridge on a monthly basis throughout 2016. we estimate repayment of our construction loan of $ 94,500,000 to timber ridge during 2017. interest income from our loan portfolio is subject to decrease due to normal maturities , scheduled principal amortization and early payoffs of individual loans .
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the increase in global kyprolis ® sales for 2019 was primarily driven by higher unit demand . we are engaged in litigation with two companies that are challenging certain of our patents related to kyprolis ® and that are seeking to market generic carfilzomib products . separately , we have entered into confidential settlement agreements with other companies developing generic carfilzomib products , and the court has entered consent judgments enjoining those companies from infringing certain of our patents , subject to terms of the confidential settlement agreements . see part iv—note 19 , contingencies and commitments , to the consolidated financial statements . the fda reported that it has granted tentative or final approval to abbreviated new drug applications ( andas ) for generic carfilzomib products filed by a number of companies for generic carfilzomib products . the date of approval of those andas for generic carfilzomib products is governed by the hatch-waxman act and any applicable settlement agreements between the parties . 66 repatha ® total repatha ® sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_14_th the increases in global repatha ® sales for 2020 and 2019 were driven by higher unit demand , partially offset by lower net selling price . the decrease to the repatha ® net selling price in 2020 was the result of contracting changes to improve medicare part d patient access . for a discussion of ongoing litigation related to repatha ® , see part iv—note 19 , contingencies and commitments , to the consolidated financial statements . other products other product sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_15_th * change in excess of 100 % . 67 operating expenses operating expenses were as follows ( dollar amounts in millions ) : replace_table_token_16_th * change in excess of 100 % . cost of sales cost of sales increased to 24.2 % of total revenues for 2020 , primarily driven by the amortization of expenses related to our acquisition of otezla ® , and higher royalty expenses and profit share , partially offset by lower manufacturing costs . cost of sales increased to 18.6 % of total revenues for 2019 , primarily driven by unfavorable product mix and amortization of intangible assets as a result of our acquisition of otezla ® , partially offset by lower royalties and lower manufacturing costs . research and development the company groups all of its r & d activities and related expenditures into three categories : ( i ) research and early pipeline , ( ii ) later-stage clinical programs and ( iii ) marketed products . these categories are described below : category description research and early pipeline r & d expenses incurred in activities substantially in support of early research through the completion of phase 1 clinical trials , including drug discovery , toxicology , pharmacokinetics and drug metabolism , and process development later-stage clinical programs r & d expenses incurred in or related to phase 2 and phase 3 clinical programs intended to result in registration of a new product or a new indication for an existing product primarily in the united states or the eu marketed products r & d expenses incurred in support of the company 's marketed products that are authorized to be sold primarily in the united states or the eu . includes clinical trials designed to gather information on product safety ( certain of which may be required by regulatory authorities ) and their product characteristics after regulatory approval has been obtained , as well as the costs of obtaining regulatory approval of a product in a new market after approval in either the united states or the eu has been obtained r & d expense by category was as follows ( in millions ) : replace_table_token_17_th 68 the increase in r & d expense for 2020 was driven by higher spend for later-stage clinical programs , including sotorasib , biosimilar programs and otezla ® , and higher spend for otezla ® included in marketed-product support . these increases were partially offset by recoveries from our collaboration with beigene that reduced expenses in later-stage clinical programs and in research and early pipeline , and lower spend in certain oncology programs included in research and early pipeline . the increase in r & d expense for 2019 was primarily driven by higher spend in research and early pipeline in support of our oncology programs , partially offset by lower marketed-product support . selling , general and administrative the increase in selling , general and administrative ( sg & a ) expense for 2020 was driven by investments in certain marketed products , primarily otezla ® , and preparation for product launches , partially offset by a reduction in conference-related expenses due to the impact of covid-19 . the decrease in sg & a expense for 2019 was primarily driven by lower general and administrative expenses , the end of certain amortization charges in 2018 and lower spend for launched and marketed products , partially offset by spending for otezla ® commercial-related expenses . other other operating expenses for 2020 primarily consisted of legal settlement expenses . other operating expenses for 2019 included $ 47 million in restructuring costs . other operating expenses for 2018 included a $ 330 million impairment charge associated with an ipr & d asset and a $ 42 million favorable net change in the fair values of contingent consideration liabilities . see part iv—note 17 , fair value measurement , to the consolidated financial statements . nonoperating expenses/income and income taxes nonoperating expenses/income and income taxes were as follows ( dollar amounts in millions ) : replace_table_token_18_th interest expense , net the decrease in interest expense , net , for 2020 was primarily due to lower libor rates on debt for which we effectively pay a variable rate of interest , partially offset by net costs associated with the early retirement of story_separator_special_tag the increase in global kyprolis ® sales for 2019 was primarily driven by higher unit demand . we are engaged in litigation with two companies that are challenging certain of our patents related to kyprolis ® and that are seeking to market generic carfilzomib products . separately , we have entered into confidential settlement agreements with other companies developing generic carfilzomib products , and the court has entered consent judgments enjoining those companies from infringing certain of our patents , subject to terms of the confidential settlement agreements . see part iv—note 19 , contingencies and commitments , to the consolidated financial statements . the fda reported that it has granted tentative or final approval to abbreviated new drug applications ( andas ) for generic carfilzomib products filed by a number of companies for generic carfilzomib products . the date of approval of those andas for generic carfilzomib products is governed by the hatch-waxman act and any applicable settlement agreements between the parties . 66 repatha ® total repatha ® sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_14_th the increases in global repatha ® sales for 2020 and 2019 were driven by higher unit demand , partially offset by lower net selling price . the decrease to the repatha ® net selling price in 2020 was the result of contracting changes to improve medicare part d patient access . for a discussion of ongoing litigation related to repatha ® , see part iv—note 19 , contingencies and commitments , to the consolidated financial statements . other products other product sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_15_th * change in excess of 100 % . 67 operating expenses operating expenses were as follows ( dollar amounts in millions ) : replace_table_token_16_th * change in excess of 100 % . cost of sales cost of sales increased to 24.2 % of total revenues for 2020 , primarily driven by the amortization of expenses related to our acquisition of otezla ® , and higher royalty expenses and profit share , partially offset by lower manufacturing costs . cost of sales increased to 18.6 % of total revenues for 2019 , primarily driven by unfavorable product mix and amortization of intangible assets as a result of our acquisition of otezla ® , partially offset by lower royalties and lower manufacturing costs . research and development the company groups all of its r & d activities and related expenditures into three categories : ( i ) research and early pipeline , ( ii ) later-stage clinical programs and ( iii ) marketed products . these categories are described below : category description research and early pipeline r & d expenses incurred in activities substantially in support of early research through the completion of phase 1 clinical trials , including drug discovery , toxicology , pharmacokinetics and drug metabolism , and process development later-stage clinical programs r & d expenses incurred in or related to phase 2 and phase 3 clinical programs intended to result in registration of a new product or a new indication for an existing product primarily in the united states or the eu marketed products r & d expenses incurred in support of the company 's marketed products that are authorized to be sold primarily in the united states or the eu . includes clinical trials designed to gather information on product safety ( certain of which may be required by regulatory authorities ) and their product characteristics after regulatory approval has been obtained , as well as the costs of obtaining regulatory approval of a product in a new market after approval in either the united states or the eu has been obtained r & d expense by category was as follows ( in millions ) : replace_table_token_17_th 68 the increase in r & d expense for 2020 was driven by higher spend for later-stage clinical programs , including sotorasib , biosimilar programs and otezla ® , and higher spend for otezla ® included in marketed-product support . these increases were partially offset by recoveries from our collaboration with beigene that reduced expenses in later-stage clinical programs and in research and early pipeline , and lower spend in certain oncology programs included in research and early pipeline . the increase in r & d expense for 2019 was primarily driven by higher spend in research and early pipeline in support of our oncology programs , partially offset by lower marketed-product support . selling , general and administrative the increase in selling , general and administrative ( sg & a ) expense for 2020 was driven by investments in certain marketed products , primarily otezla ® , and preparation for product launches , partially offset by a reduction in conference-related expenses due to the impact of covid-19 . the decrease in sg & a expense for 2019 was primarily driven by lower general and administrative expenses , the end of certain amortization charges in 2018 and lower spend for launched and marketed products , partially offset by spending for otezla ® commercial-related expenses . other other operating expenses for 2020 primarily consisted of legal settlement expenses . other operating expenses for 2019 included $ 47 million in restructuring costs . other operating expenses for 2018 included a $ 330 million impairment charge associated with an ipr & d asset and a $ 42 million favorable net change in the fair values of contingent consideration liabilities . see part iv—note 17 , fair value measurement , to the consolidated financial statements . nonoperating expenses/income and income taxes nonoperating expenses/income and income taxes were as follows ( dollar amounts in millions ) : replace_table_token_18_th interest expense , net the decrease in interest expense , net , for 2020 was primarily due to lower libor rates on debt for which we effectively pay a variable rate of interest , partially offset by net costs associated with the early retirement of
| results of operations product sales worldwide product sales were as follows ( dollar amounts in millions ) : replace_table_token_6_th * change in excess of 100 % . future sales of our products will depend in part on the factors discussed in the overview , part i , item 1. business—marketing , distribution and selected marketed products—competition , in part i , item 1a . risk factors , and any additional factors discussed in the individual product sections below . in addition , for a list of our products ' significant competitors , see part i , item 1. business—marketing , distribution and selected marketed products—competition . enbrel total enbrel sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_7_th the decrease in enbrel sales for 2020 was driven by lower unit demand and net selling price , partially offset by favorable changes to estimated sales deductions and inventory . consistent with prior periods , enbrel has continued to lose market share , and this decline has been compounded by a reduction in the growth rate of the rheumatology market as a result of covid-19 . for 2021 , we expect enbrel to follow the historic pattern of lower sales in the first quarter relative to subsequent quarters due to the impact of benefit plan changes , insurance reverification and increase co-pay expenses as u.s. patients work through deductibles . in addition , for 2021 , we expect volume and net selling price declines to continue . the increase in enbrel sales for 2019 was primarily driven by favorable changes to estimated sales deductions and an increase in net selling price , partially offset by lower unit demand . in april 2019 , the fda approved a second biosimilar version of enbrel , and we are involved in patent litigations with the two companies seeking to market their fda-approved biosimilar versions of enbrel . see part iv—note 19 , contingencies and commitments , to the consolidated financial statements .
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the exercise price of an incentive stock option may not be less than the fair market value of our common stock on the date of grant if the recipient holds 10 % or less of the combined voting power of our securities , or 110 % of the fair market value of a share of our common stock on the date of grant otherwise . ● stock grants . the plan administrator may grant or sell stock , including restricted stock , to any participant , which purchase price , 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 appearing elsewhere in this annual report . this discussion and analysis contains forward-looking statements based upon current beliefs , plans , expectations , intentions and projections that involve risks , uncertainties and assumptions , such as statements regarding our plans , objectives , expectations , intentions and projections . our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors , including those set forth under “ risk factors ” and elsewhere in this annual report . overview we are a materials company focused on developing , manufacturing and selling silicon nitride ceramics that are used in medical implants and in a variety of industrial devices . at present , we commercialize silicon nitride in the spine implant market . we believe that our facile silicon nitride manufacturing expertise positions us favorably to introduce new and innovative devices in the medical and non-medical fields . we also believe that we are the first and only company to commercialize silicon nitride medical implants . 53 we have received 510 ( k ) regulatory clearance in the united states , a ce mark in europe , and anvisa approval in brazil for a number of our devices that are designed for spinal fusion surgery . to date , more than 28,000 of our silicon nitride devices have been implanted into patients , with an 8-year successful track record . in december 2016 , we re-filed an fda 510 ( k ) submission for clearance in the united states of a modified novel composite spinal fusion device that combines porous and solid silicon nitride and obviates the need for bone grafts that is comparable to our commercially-available valeo®c cervical implants . we believe that silicon nitride has a superb combination of properties that make it ideally suited for human implantation . other biomaterials are based on bone grafts , metal alloys , and polymers ; all of which have practical limitations . in contrast , silicon nitride has a legacy of success in the most demanding and extreme industrial environments . as a human implant material , silicon nitride offers bone ingrowth , resistance to bacterial infection , resistance to corrosion , superior strength and fracture resistance , and ease of diagnostic imaging , among other advantages . we market and sell our valeo brand of silicon nitride implants to surgeons and hospitals in the united states and to selected markets in europe and south america through more than 50 independent sales distributors who are supported by an in-house sales and marketing management team . these implants are designed for use in cervical ( neck ) and thoracolumbar ( lower back ) spine surgery . in 2016 we entered into a 10-year exclusive distribution agreement with shandong weigao orthopaedic device company limited ( “ weigao ” ) to sell amedica-branded silicon nitride spinal fusion devices within the people 's republic of china ( “ china ” ) . weigao , a large orthopedic company , has expertise in acquiring chinese food and drug administration ( “ cfda ” ) approval of medical devices , and will assist us in obtaining regulatory approval . weigao has committed to minimum purchase requirements totaling 225,000 implants in the first six years following cfda clearance . we are also working with other partners in japan to obtain regulatory approval for silicon nitride in that country . china and japan are relevant because historically , ceramic implants are more familiar to , and more readily accepted by surgeons outside the united states , i.e. , in asia and europe . in addition to silicon nitride , we also sell metal-based products in the united states that provide surgeons and hospitals with a complete package for spinal surgery . these metal products are designed to address spinal deformity and degenerative conditions . although these metal products have accounted for approximately 53 % and 48 % of our product revenues for the years ended december 31 , 2017 and 2016 , respectively , we remain focused on developing and promoting silicon nitride , and driving its adoption through a scientifically-intense , data-driven strategy . in addition to direct sales , we have targeted original equipment manufacturer ( “ oem ” ) and private label partnerships in order to accelerate adoption of silicon nitride , both in the spinal space , and also in future markets such as hip and knee replacements , dental , extremities , trauma , and sports medicine . existing biomaterials , based on plastics , metals , and bone grafts have well-recognized limitations that we believe are addressed by silicon nitride , and we are uniquely positioned to convert existing , successful implant designs made by other companies into silicon nitride . we believe oem and private label partnerships will allow us to work with a variety of partners , accelerate the adoption of silicon nitride , and realize incremental revenue at improved operating margins , when compared to the cost-intensive direct sales model . 54 we believe that silicon nitride addresses many of the biomaterial-related limitations in fields such as hip and knee replacements , dental implants , sports medicine , extremities , and trauma surgery . story_separator_special_tag we generally consign our instruments to our distributors or our hospital customers that purchase the device used in spinal fusion surgery . our sales and marketing expenses include depreciation ( and for 2016 , impairment charges ) of the surgical instruments . we expect our commissions to increase in absolute terms over time but remain approximately the same or decrease as a percentage of product revenue . general and administrative expenses general and administrative expenses consist primarily of salaries , benefits and other related costs , including stock-based compensation for certain members of our executive team and other personnel employed in finance , legal , compliance , administrative , information technology , customer service , executive and human resource departments . general and administrative expenses also include other expenses not part of the other cost categories mentioned above , including facility expenses and professional fees for accounting and legal services . in addition , during 2016 we incurred impairment charges relating to leasehold improvements . we expect our general and administrative expenses to remain stable or slightly decline as we continue to manage costs closely and look for opportunities to make improvements . reverse stock split on november 10 , 2017 , the company effected a 1 for 12 reverse stock split of the company 's common stock . the par value and the 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 the accompanying consolidated financial statements prior to november 10 , 2017 have been adjusted retroactively to reflect the reverse stock split . 56 story_separator_special_tag 0pt 0 '' > cash flows the following table summarizes , for the periods indicated , cash flows from operating , investing and financing activities ( in thousands ) : replace_table_token_7_th net cash used in operating activities net cash used in operating activities was $ 4.7 million in 2017 , compared to $ 7.2 million used in 2016 , a decrease of $ 2.5 million . offset by the decrease in the net loss , and related non-cash add backs to the net loss , the decrease in cash used for operating activities during 2017 was primarily due to changes in the movement of working capital items during 2017 as compared to the same period in 2016 as follows : a $ 0.7 million decrease in trade accounts receivable , a $ 0.1 increase in prepaid expenses and other current assets , a $ 0.5 million decrease in inventories and a $ 1.1 million increase in accounts payable and accrued liabilities . net cash provided by investing activities net cash used in investing activities was $ 1.1 million during 2017 , compared to $ 0.6 million used in investing activities during the same period in 2016 , an increase of $ 0.5 million . the increase in cash used in investing activities during 2017 was due to increased purchases of property and equipment . net cash provided by financing activities net cash used in financing activities was $ 0.6 million during 2017 , compared to $ 3.2 million provided during the same period in 2016 , an increase of $ 3.8 million . the $ 3.8 million increase in 2017 was primarily due to a $ 3.0 million decrease in cash generated from the issuance of common and preferred stock , a $ 4.6 million decrease in cash generated from the issuance of derivative warrant liabilities , which was offset by an increase in net debt proceeds of $ 4.0 million . north stadium term loan on july 28 , 2017 , we entered into a $ 2.5 million term loan ( the “ north stadium loan ” ) with north stadium investments , llc ( “ north stadium ” ) , a company owned and controlled by our chief executive officer and chairman of the board . the north stadium loan bears interest at 10 % per annum and requires us to make monthly interest only payments from september 5 , 2017 through july 5 , 2018. all principal and unpaid interest ( if any ) under the north stadium loan is due and payable on july 28 , 2018. the north stadium loan is secured by substantially all of the assets of the company and is junior to security interest in assets encumbered by the hercules term loan ( see below ) . in connection with the north stadium loan we also issued north stadium a warrant to purchase up to 55,000 shares of our common stock at a purchase price of $ 5.04 per share , subject to a 5-year term . the relative estimated value of the warrants on the date of grant approximated $ 0.2 million , which is being amortized as interest expense over the life of the term loan . 60 hercules term loan on june 30 , 2014 , we entered into a loan and security agreement with hercules which provided us with a $ 20.0 million term loan . the hercules term loan matured on january 1 , 2018. the hercules term loan included a $ 0.2 million closing fee , which was paid to hercules on the closing date of the loan . the closing fee was recorded as a debt discount and is being amortized to interest expense over the life of the loan . the hercules term loan also includes a non-refundable final payment fee of $ 1.7 million . the final payment fee is being accrued and recorded to interest expense over the life of the loan . the hercules term loan bears interest at the rate of the greater of either ( i ) the prime rate plus 7.7 % , and ( ii ) 10.95 % , provided however , that during an adjustment period , the term loan interest rate shall mean for any day a per annum rate of interest equal to the grater of either ( i ) the prime rate plus 9.2 % , and ( ii ) 12.45 % .
| results of operations year ended december 31 , 2017 compared to the year ended december 31 , 2016 the following table sets forth , for the periods indicated , our results of operations for the years ended december 31 , 2017 and 2016 ( in thousands ) : replace_table_token_4_th 57 product revenue the following table sets forth our product revenue from sales of the indicated product category for the years ended december 31 , 2017 and 2016 ( in thousands ) : replace_table_token_5_th total product revenue was $ 11.2 million in 2017 as compared to $ 15.2 million in 2016 , a decrease of $ 4.0 million or 26 % . this decline was due to silicon nitride sales decreasing by $ 2.6 million , or 33 % , and non-silicon nitride sales decreasing by $ 1.4 million , or 19 % , as compared to the same period in 2016. this decrease was primarily due to the loss of surgeons and the consequences from our restructuring , both of which occurred during the latter part of 2016. the following table sets forth , for the periods indicated , our product revenue by geographic area ( in thousands ) : replace_table_token_6_th international revenue decreased in 2017 as compared to 2016. this is due to our brazilian distributor moving from building inventory during 2016 to maintaining inventory levels during the same period in 2017. costs of revenue and gross profit our cost of revenue increased $ 2.6 million , or 68 % , as compared to the same period in 2016 even though our sales decreased . the increase was primarily due to an increase in the provision for inventory reserve of $ 3.4 million . gross profit decreased $ 6.6 million , or 57 % , primarily due to the increase in the provision for inventory reserve .
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liggett 's current brand portfolio includes : pyramid — the industry 's first deep discount product with a brand identity re-launched in the second quarter of 2009 , and grand prix — re-launched as a national brand in 2005 , liggett select — a leading brand in the deep discount category , eve — a leading brand of 120 millimeter cigarettes in the branded discount category , and usa and various partner brands and private label brands . in 1999 , liggett introduced liggett select , one of the leading brands in the deep discount category . liggett select 's represented 8.7 % in 2011 , 13.0 % in 2010 and 21.5 % in 2009 of liggett 's unit volume . in september 2005 , liggett repositioned grand prix to distributors and retailers nationwide . grand prix represented 12.7 % in 2011 , 18.5 % in 2010 and 27.9 % in 2009 of liggett 's unit volume . in april 2009 , liggett repositioned pyramid as a box-only brand with a new low price to specifically compete with brands which are priced at the lowest level of the deep discount segment . pyramid is now the largest seller in liggett 's family of brands with 56.4 % of liggett 's unit volume in 2011 , 42.6 % in 2010 and 14.6 % in 2009 . according to management science associates , liggett held a share of approximately 12.8 % of the overall discount market segment for 2011 compared to 11.9 % for 2010 and 9.2 % for 2009 . under the master settlement agreement ( `` msa '' ) reached in november 1998 with 46 states and various territories , the three largest cigarette manufacturers must make settlement payments to the states and territories based on how many cigarettes they sell annually . liggett , however , is not required to make any payments unless its market share exceeds approximately 1.65 % of the u.s. cigarette market . additionally , vector tobacco has no payment obligation unless its market share exceeds approximately 0.28 % of the u.s. market . liggett 's and vector tobacco 's payments under the msa are based on each company 's incremental market share above the minimum threshold applicable to such company . we believe that our tobacco subsidiaries have gained a sustainable cost advantage over their competitors as a result of the settlement . the discount segment is a challenging marketplace , with consumers having less brand loyalty and placing greater emphasis on price . liggett 's competition is now divided into two segments . the first segment is made up of the three largest manufacturers of cigarettes in the united states , philip morris usa inc. , reynolds america inc. , and lorillard tobacco company . the three largest manufacturers , while primarily premium cigarette based companies , also produce and sell discount cigarettes . the second segment of competition is comprised of a group of smaller manufacturers and importers , most of which sell deep discount cigarettes . our largest competitor in this segment is commonwealth brands , inc. ( a wholly owned subsidiary of imperial tobacco plc ) . recent developments senior secured notes . we have outstanding $ 415,000 principal amount of our 11 % senior secured notes due 2015 ( the “ senior secured notes ” ) . the senior secured notes were sold in august 2007 ( $ 165,000 ) , september 2009 ( $ 85,000 ) , april 2010 ( $ 75,000 ) and december 2010 ( $ 90,000 ) in private offerings to qualified institutional investors in accordance with rule 144a of the securities act of 1933 . 29 in may 2008 and june 2010 , we completed offers to exchange the senior secured notes then outstanding for an equal amount of newly issued 11 % senior secured notes due 2015. the new senior secured notes have substantially the same terms as the original notes , except that the new senior secured notes have been registered under the securities act . in may 2011 , we completed an exchange offer to exchange the senior secured notes issued in december 2010 for an equal amount of newly issued 11 % senior secured notes due 2015. the new senior secured notes have substantially the same terms as the original notes , except that the new senior secured notes have been registered under the securities act . 5 % variable interest senior convertible notes due november 2011. between november 2004 and april 2005 , we sold $ 111,864 principal amount of our 5 % variable interest senior convertible notes due november 15 , 2011 ( the “ 5 % notes ” ) . in may 2009 , the holder of $ 11,005 principal amount of the 5 % notes exchanged its 5 % notes for $ 11,775 principal amount of our 6.75 % variable interest senior convertible note due 2014 ( the “ 6.75 % note ” ) as discussed below . in june 2009 , certain holders of $ 99,944 principal amount of the 5 % notes exchanged their 5 % notes for $ 106,940 principal amount of our 6.75 % variable interest senior convertible exchange notes due 2014 ( the “ 6.75 % exchange notes ” ) . in november 2009 , we retired $ 360 of the remaining $ 915 principal amount of the 5 % notes for cash and exchanged approximately $ 555 of the remaining 5 % notes for $ 593 principal amount of the 6.75 % exchange notes . as of december 31 , 2009 , no 5 % notes remained outstanding after these exchanges . we recorded a loss of $ 18,573 associated with the extinguishment of the 5 % notes for the year ended december 31 , 2009 . story_separator_special_tag ” the loan , which was in foreclosure , was purchased for its $ 20,000 face value plus accrued interest and other costs of $ 1,445. the collateral consists of 867 residential lots with site and public infrastructure , an 18-hole golf course , a substantially completed clubhouse , and a seven-acre site approved for a 450-room hotel . we recorded an operating loss of $ 503 , $ 631 and $ 886 for the years ended december 31 , 2011 , 2010 and 2009 , respectively , from escena . new valley oaktree chelsea eleven , llc . as of february 15 , 2012 , 52 of the 54 units in the chelsea eleven llc real estate development had been sold . as of december 31 , 2011 , chelsea eleven llc had approximately $ 17,628 of total assets and $ 1,345 of total liabilities , excluding amounts owed to new valley oaktree chelsea eleven llc . chelsea eleven llc retired its construction loan during the second quarter of 2010 from the proceeds of the sales of units . in addition , on july 1 , 2010 , chelsea eleven llc borrowed $ 47,100 to retire chelsea eleven llc 's then outstanding mezzanine debt ( approximately $ 37,200 ) and for other working capital purposes . the loan was repaid in 2011. as of december 31 , 2011 , we received net distributions of $ 7,638 and $ 1,042 from new valley oaktree chelsea eleven llc for the years ended december 31 , 2011 and 2010 , respectively . we recorded equity income of $ 3,000 , $ 900 and $ 1,500 for the years ended december 31 , 2011 , 2010 and 2009 , respectively , related to new valley chelsea . our maximum exposure to loss as a result of its investment in chelsea is $ 6,320 . aberdeen townhomes llc . in june 2008 , a subsidiary of new valley purchased a preferred equity interest in aberdeen townhomes llc for $ 10,000. aberdeen acquired five townhome residences located in manhattan , new york , which it is in the process of rehabilitating and selling . each of the townhomes has been sold and this project is concluded . we recorded an impairment loss of $ 3,500 in each of 2008 and 2009. we recorded gains of $ 3,843 in 2011 , which was reflected as gain on townhomes , and in 2010 we recognized a gain of $ 760 primarily resulting from the acquisition of mortgage loans and operating income of $ 352 . these amounts were reflected as a reduction of operating , selling , administrative and general . fifty third-five building llc . in september 2010 , new valley , through its nv 955 llc subsidiary , contributed $ 2,500 to a joint venture , fifty third-five building llc ( “ jv ” ) , of which it owns 50 % . the jv was formed for the purposes of acquiring a defaulted real estate loan , collateralized by real estate located in new york city . in october 2010 , new valley contributed an additional $ 15,500 to the jv and the jv acquired the defaulted loan for approximately $ 35,500 . the previous lender had commenced proceedings seeking to foreclose its mortgage . upon acquisition of the loan , the jv succeeded to the rights of the previous lender in the litigation . in april 2011 , the court granted the jv 's motion for summary judgment , dismissing certain substantive defenses raised by the borrower and the other named parties . thereafter , the borrower challenged the validity of the assignment from the previous lender to the jv . in february 2012 , the court affirmed the validity of the assignment and its decision to grant summary judgment . the jv is a variable interest entity ; however , we are not the primary beneficiary . our maximum exposure to loss as a result of its investment in the jv is $ 18,000 . this investment is being accounted for under the equity method . sesto holdings s.r.l . in october 2010 , new valley , through its nv milan llc subsidiary , acquired a 7.2 % interest in sesto holdings s.r.l . for approximately $ 5,000 . sesto holds a 42 % interest in an entity that has purchased approximately 322 acres in milan , italy . sesto intends to develop the land as a multi-parcel , multi-building mixed use urban regeneration project . sesto is a variable interest entity ; however , we are not the primary beneficiary . our maximum exposure to loss as a result of new valley 's investment in sesto is $ 5,037 . new valley accounts for sesto under the equity method of accounting . loft 21 llc . in february 2011 , new valley invested $ 900 for an approximate 12 % interest in lofts 21 llc . lofts 21 llc acquired an existing property in manhattan , ny , which is scheduled to be developed into condominiums . lofts 21 llc is a variable interest entity ; however , new valley is not the primary beneficiary . our maximum exposure to loss as a result of new valley 's investment is $ 900 . new valley accounts for lofts 21 llc under the equity method of accounting . 1107 broadway . during 2011 , new valley invested $ 5,489 for an approximate indirect 5 % interest in ms/wg 1107 broadway holdings llc . in september 2011 , ms/wg 1107 broadway holdings llc acquired the 1107 broadway property in manhattan , ny . the joint venture plans to develop the property , which was formerly part of the international toy center , into luxury residential condominiums with ground floor retail space . ms/wg 1107 broadway holdings llc is a variable interest entity ; however , new valley is not the primary beneficiary . our maximum exposure on new valley 's investment in ms/wg 1107 31 broadway holdings llc is $ 5,489 . new valley accounts for ms/wg 1107 broadway holdings llc under the equity method of accounting . hotel taiwana .
| results of operations the following discussion provides an assessment of our results of operations , capital resources and liquidity and should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report . the consolidated financial statements include the accounts of vgr holding , liggett , vector tobacco , liggett vector brands , new valley and other less significant subsidiaries . our significant business segments for the three years ended december 31 , 2011 were tobacco and real estate . the tobacco segment consists of the manufacture and sale of cigarettes and the research related to reduced risk products . the real estate segment includes the company 's investment in escena , aberdeen and investments in non-consolidated real estate businesses . the accounting policies of the segments are the same as those described in the summary of significant accounting policies and can be found in note 1 to our consolidated financial statements . replace_table_token_4_th _ ( 1 ) operating income includes litigation judgment expense of $ 16,161 and a $ 3,000 settlement charge . ( 2 ) operating income includes a gain of $ 5,000 on the philip morris brand transaction completed february 2009 and restructuring costs of $ 900 . 2011 compared to 2010 revenues . all of our revenues were from the tobacco segment for the years ended december 31 , 2011 and 2010 , respectively .
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accordingly , the corporate governance , nominating and compensation committee believes that this affirms stockholder support for our executive compensation policies and practices , and no material changes were made to story_separator_special_tag special note regarding forward-looking statements the following discussion and analysis should be read together with the audited consolidated financial statements of tucows inc. ( the “ company ” , “ we ” , “ us ” or “ our ” ) for the years ended december 31 , 2015 , 2014 and 2013 and accompanying notes set forth elsewhere in this report . all financial information is presented in u.s. dollars . some of the statements set forth in this section are forward-looking statements relating to our future results of operations . accordingly , reference is made to “ part i. item 1a . risk factors ” and “ cautionary statement regarding forward-looking statements , ” which describe important factors that could cause actual results to differ from expectations and non-historical information contained herein . overview our mission is to provide simple useful services that help people unlock the power of the internet . we accomplish this by reducing the complexity our customers ' experience as they access the internet ( at home or on the go ) or internet services such as domain name registration , email , mobile telephony services and other internet services . we are organized and managed based on two service offerings , network access services and domain services , which are differentiated primarily by their services , the markets they serve and the regulatory environments in which they operate . our principal place of business is located in canada . we manage our business as segments , network access services , which primarily derives revenue from the sale of retail mobile phones and services to individuals and small businesses , and domain services , which derives revenue from three distinct service offerings – wholesale , retail and portfolio . our management regularly reviews our operating results on a consolidated basis , principally to make decisions about how we utilize our resources and to measure our consolidated operating performance . to assist us in forecasting growth and to help us monitor the effectiveness of our operational strategies , our management regularly reviews revenue and cost of revenues for each of our service offerings in order to gain more depth and understanding of the key business metrics driving our business . accordingly , we report network access services and domain services revenue and cost of revenues separately . for the years ended december 31 , 2015 , 2014 and 2013 , we reported revenue of $ 173 million , $ 148 million and $ 130 million , respectively . for the years ended december 31 , 2015 , 2014 and 2013 , our opensrs domain service offering accounted for 49 % , 59 % and 67 % of our total revenue , respectively . network access services network access services derives revenue from the sale of retail mobile phones and services to individuals and small businesses through the ting website , as well as provides high speed internet access , internet hosting and network consulting services to customers in select cities in the united states . ting provides customers with access to our provisioning and management tools to enable them , via the ting.com website , to purchase retail mobile phones and services nationally and fixed internet access in select cities . revenues are generated in the united states and are provided on a monthly basis with no fixed contract term . as of december 31 , 2015 , ting managed mobile telephony services for approximately 128,000 subscribers and had approximately 202,000 devices under management . our primary distribution channel for network access services is through our website , ting.com . we strive to meet or exceed our network access service customers ' needs by providing them with superior services , easy-to-use interfaces and proactive and attentive customer service . domain services domain services include wholesale and retail domain name registration services ; value added services and portfolio services . we earn revenues primarily from the registration fees charged to resellers in connection with new , renewed and transferred domain name registrations . in addition , we earn revenues from the sale of retail internet domain name registration and email services to individuals and small businesses ; and by making our portfolio of domain names available for sale or lease . domain services revenues are attributed to the country in which the contract originates , primarily canada . our primary distribution channel is a global network of more than 13,000 resellers in more than 100 countries who typically provide their customers , the end-users of the internet , with a critical component for establishing and maintaining an online presence . our primary focus is serving the needs of this network of resellers by providing superior services , easy-to-use interfaces , proactive and attentive customer service , reseller-oriented technology and agile design and development processes . we seek to provide superior customer service to our resellers by anticipating their business needs and technical requirements . this includes providing easy-to-use interfaces that enable resellers to quickly and easily integrate our services into their individual business processes , and offering brandable end-user interfaces that emphasize simplicity and visual appeal . we also provide “ second tier ” support to our resellers by email and phone in the event resellers experience issues or problems with our services . in addition , our network operating center provides proactive support to our resellers by monitoring all services and network infrastructure to address deficiencies before customer services are impacted . 36 we believe that the underlying platforms for our services are among the most mature , reliable and functional reseller-oriented provisioning and management platforms in our industry , and we continue to refine , evolve and improve these services for both resellers and end-users . our business model is characterized primarily by non-refundable , up-front payments , which lead to recurring revenue and positive operating cash flow . story_separator_special_tag net deferred revenue for the year ended december 31 , 2013 , includes a loss of $ 0.1 million as a result of the translation of deferred revenue and prepaid domain name registry and other internet services fees to our reporting currency of us dollars . ( 2 ) previously reported amounts have been adjusted by $ 477,000 , $ 287,000 and 139,000 , respectively , to correct immaterial calculation errors . adjusted ebitda for the year ended december 31 , 2015 increased by $ 10.4 million , or 70 % to $ 25.1 million when compared to the year ended december 31 , 2014. adjusted ebitda for the years ended december 31 , 2014 increased by $ 5.2 million , or 54 % to $ 14.8 million when compared to the year ended december 31 , 2013. these year-on-year increases in adjusted ebitda were primarily driven by the growth in ting mobile services . replace_table_token_7_th ( 1 ) for a discussion of these period to period changes in subscribers and devices under management and how they impacted our financial results , see the net revenue discussion below . 38 domain services replace_table_token_8_th ( 1 ) for a discussion of these period to period changes in the domains provisioned and domains under management and how they impacted our financial results see the net revenue discussion below . opportunities , challenges and risks as a mvno our ting service is reliant on our mobile network operators ( `` mnos '' ) providing competitive networks . our mnos each continue to invest in network expansion and modernization to improve their competitive positions . deployment of new and sophisticated technology on a very large scale entails risks . should they fail to implement , maintain and expand their network capacity and coverage , adapt to future changes in technologies and continued access to and deployment of adequate spectrum successfully , our ability to provide wireless services to our subscribers , to retain and attract subscribers and to maintain and grow our subscriber revenues could be adversely affected , which would negatively impact our operating margins . ting has also enjoyed rapid growth in its first four years of operation . during this growth phase we have been able to continue to grow gross customer additions and maintain a consistent churn rate , which has allowed us to maintain net new customer additions despite the impact of churn on a fast growing customer base . we expect price competition to grow more intense in the industry which could result in increased customer churn or reductions of customer acquisition rates either of which could result in slower growth rates or in certain cases , our ability to maintain growth . the communications industry continues to compete on the basis of network reach and performance , types of services and devices offered , and price . the increased competition in the market for internet services in recent years , which we expect will continue to intensify in the short and long term , poses a material risk for us . as new registrars are introduced , existing competitors expand service offerings and competitors offer price discounts to gain market share , we face pricing pressure , which can adversely impact our revenues and profitability . to address these risks , we have focused on leveraging the scalability of our infrastructure and our ability to provide proactive and attentive customer service to aggressively compete to attract new customers and to maintain existing customers . substantially all of our domain services revenue is derived from domain name registrations and related value-added services from wholesale and retail customers using our provisioning and management platforms . the market for wholesale registrar services is both price sensitive and competitive and is evolving with the introduction of new gtlds , particularly for large volume customers , such as large web hosting companies and owners of large portfolios of domain names . we have a relatively limited ability to increase the pricing of domain name registrations without negatively impacting our ability to maintain or grow our customer base . growth in our domain services revenue is dependent upon our ability to continue to attract and retain customers by maintaining consistent domain name registration and value-added service renewal rates and to grow our customer relationships through refining , evolving and improving our provisioning platforms and customer service for both resellers and end-users . in addition , we also generate revenue through pay-per-click advertising and the sale of names from our portfolio of domain names and through the opensrs domain expiry stream . the revenue associated with names sales and advertising has recently experienced flat to declining trends due to the uncertainty around the implementation of icann 's new gtld program , lower traffic and advertising yields in the marketplace , which we expect to continue . from time-to-time certain of our vendors provide us with market development funds to expand or maintain the market position for their services . any decision by these vendors to cancel or amend these programs for any reason may result in payments in future periods not being commensurate with what we have achieved during past periods . sales of domain names from our domain portfolio have a negative impact on our advertising revenue as these names are no longer available for advertising purposes . in addition , the timing of larger domain names portfolio sales is unpredictable and may lead to significant quarterly and annual fluctuations in our portfolio revenue . 39 our revenue is primarily realized in u.s. dollars and a major portion of our operating expenses are paid in canadian dollars . fluctuations in the exchange rate between the u.s. dollar and the canadian dollar may have a material effect on our business , financial condition and results from operations . in particular , we may be adversely affected by a significant weakening of the u.s. dollar against the canadian dollar on a quarterly and an annual basis .
| general and administrative general and administrative expenses consist primarily of compensation and related costs for managerial and administrative personnel , fees for professional services , public listing expenses , rent , foreign exchange and other general corporate expenses . replace_table_token_29_th general and administrative expenses for fiscal 2014 increased by $ 1.9 million , or 26 % , to $ 9.5 million as compared to fiscal 2013. this increase was primarily the result of $ 1.0 million in increased credit card processing fees and bad debts , largely related to the growth of ting and $ 0.6 million in increased professional fees as compared to fiscal 2013. the professional fee increase included additional sox compliance work that we have undertaken for the first time as well as pre-acquisition due diligence and other costs of $ 0.1 million that related to a potential acquisition that was abandoned once we determined that its completion was not probable , as well as increased losses in foreign exchange contracts of $ 0.2 million when compared to fiscal 2013. depreciation of property and equipment property and equipment is depreciated on a straight-line basis over the estimated useful lives of the assets . replace_table_token_30_th depreciation costs for fiscal 2014 remained essentially flat at $ 0.2 million . amortization of intangible assets replace_table_token_31_th amortization of intangible assets consists of amounts arising in connection with the acquisition of innerwise , inc. in july 2007 and the acquisition of epag in august 2011. the brand and customer relationships acquired in connection with the acquisitions of innerwise inc. and epag are being amortized on a straight-line basis over seven years . technology acquired in connection with the acquisition of epag is amortized on a straight-line basis over two years .
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final purchase consideration as of august 31 , 2016 closing stock purchase : offer per share $ 33.00 multiplied by number of shares outstanding at acquisition ( in thousands of shares ) 67,277 fair value of axiall shares outstanding purchased by the company 2,220 plus : axiall debt repaid at acquisition 247 seller 's transaction costs paid by the company ( 1 ) 48 total fair value of consideration transferred 2,515 fair value of axiall share-based awards attributed to pre-combination service ( 2 ) 12 additional settlement value of shares acquired 13 purchase consideration 2,540 fair value of previously held equity interest in axiall ( 3 ) 102 story_separator_special_tag overview we are a vertically integrated global manufacturer and marketer of petrochemicals , polymers and building products . our two principal operating segments are olefins and vinyls . we use the majority of our internally-produced basic chemicals to produce higher value-added chemicals and building products . consumption of the basic chemicals that we manufacture in the commodity portions of our olefins and vinyls processes has increased significantly since we began operations in 1986. our olefins and vinyls products are some of the most widely used chemicals in the world and are upgraded into a wide variety of higher value-added chemical products used in many end-markets . petrochemicals are typically manufactured in large volume by a number of different producers using widely available technologies . the petrochemical industry exhibits cyclical commodity characteristics , and margins are influenced by changes in the balance between supply and demand and the resulting operating rates , the level of general economic activity and the price of raw materials . the cycle is generally characterized by periods of tight supply , leading to high operating rates and margins , followed by a decline in operating rates and margins primarily as a result of excess new capacity additions . due to the significant size of new plants , capacity additions are built in large increments and typically require several years of demand growth to be absorbed . since 2009 and continuing through 2017 , a cost advantage for ethane-based ethylene producers over naphtha-based ethylene producers has allowed a strong export market for polyethylene and ethylene derivatives and higher margins for north american chemical producers , including westlake . continued strong global demand for polyethylene has benefited operating margins and cash flows for our olefins segment in recent years . however , we have seen a significant reduction in the cost advantage enjoyed by north american ethane-based ethylene producers due to lower crude oil prices , beginning in the third quarter of 2014 and continuing through 2017 ( which has resulted in reduced prices and margins ) . looking forward , new ethylene and polyethylene capacity additions in north america , asia and the middle east , and a number of new capacities announced in recent years , may lead to periods of over-supply and lower profitability . as a result , our olefins segment operating margins may be negatively impacted . since the u.s. housing market collapse in 2008 , continued slow recovery in the u.s. construction markets and budgetary constraints in municipal spending have contributed to lower north american demand for our vinyls products , which has negatively impacted our vinyls segment operating rates and margins . however , since late 2010 , the pvc industry in the u.s. has experienced an increase in pvc resin exports , driven largely by more competitive feedstock and energy cost positions in the u.s. as a consequence , the u.s. pvc resin industry operating rates have improved since 2010. in addition , our july 2014 acquisition of vinnolit holdings gmbh and its subsidiary companies ( `` vinnolit '' ) , an integrated global leader in specialty pvc resins , has contributed to improved operating margins and cash flows for our vinyls segment . globally , there were large chlor-alkali capacity additions between 2008 and 2015 resulting in excess capacity and lower industry operating rates which exerted downward pressure on caustic soda pricing . announced capacity is now complete and increasing demand driven by the improving economic growth and u.s. producers ' competitive export position is expected to result in improved operating rates and caustic soda pricing . westlake is the second-largest purchaser of ethylene in the u.s. and lower prices of ethylene could positively impact our vinyls segment . we purchase significant amounts of ethane feedstock , natural gas , ethylene and salt from external suppliers for use in production of basic chemicals in the olefins and vinyls chains . we also purchase significant amounts of electricity to supply the energy required in our production processes . while we have agreements providing for the supply of ethane feedstock , natural gas , ethylene , salt and electricity , the contractual prices for these raw materials and energy vary with market conditions and may be highly volatile . factors that have caused volatility in our raw material prices in the past , and which may do so in the future include : the availability of feedstock from shale gas and oil drilling ; supply and demand for crude oil ; shortages of raw materials due to increasing demand ; ethane and liquefied natural gas exports ; capacity constraints due to higher construction costs for investments , construction delays , strike action or involuntary shutdowns ; the general level of business and economic activity ; and the direct or indirect effect of governmental regulation . 30 significant volatility in raw material costs tends to put pressure on product margins as sales price increases could lag behind raw material cost increases . conversely , when raw material costs decrease , customers may seek immediate relief in the form of lower sales prices . we currently use derivative instruments to reduce price volatility risk on feedstock commodities and lower overall costs . normally , there is a pricing relationship between a commodity that we process and the feedstock from which it is derived . story_separator_special_tag the 2021 notes were redeemed on february 15 , 2018 using cash on hand , including the net proceeds from the november 2017 offering of $ 500 million aggregate principal amount of westlake 's 4.375 % senior notes due 2047 and the november 2017 remarketing of $ 250 million aggregate principal amount of louisiana local government environmental facilities and community development authority revenue refunding bonds ( go zone ) ( non-amt ) ( the `` refunding bonds '' ) . on december 5 , 2017 , westlake partners increased the capacity of its existing revolving credit agreement with westlake chemical finance corporation from $ 300 million to $ 600 million . the facility maturity date is april 29 , 2021. on november 28 , 2017 , we closed the public offering of $ 500 million aggregate principal amount of 4.375 % senior notes due 2047. on november 29 , 2017 , we closed the remarketing of $ 250 million aggregate principal amount of the refunding bonds . we issued $ 250 million aggregate principal amount of 3.50 % senior notes due 2032 to collateralize our obligations under the loan agreement relating to the refunding bonds . on september 29 , 2017 , westlake partners completed a secondary offering of 5,175,000 common units at a price of $ 22.00 per unit and purchased an additional 5.0 % newly-issued limited partner interest in westlake chemical opco lp ( `` opco '' ) for approximately $ 229 million , resulting in an aggregate 18.3 % limited partner interest in opco effective july 1 , 2017. net proceeds to westlake partners from the sale of the units was $ 111 million , net of underwriting discounts , structuring fees and estimated offering expenses of approximately $ 3 million . westlake partners used the proceeds from the offering and the existing revolving credit facility with westlake chemical finance corporation , our subsidiary , to fund the purchase of the additional 5.0 % interest in opco . during september 2017 , we directed the louisiana local government authority environmental facilities and community development authority ( the `` authority '' ) to optionally redeem in full $ 250 million aggregate principal amount of the authority 's 6 ¾ % tax-exempt revenue bonds due november 2032 on november 1 , 2017 at a redemption price of par . the 6 ¾ % tax-exempt revenue bonds due november 2032 were issued by the authority in december 2007 under the gulf opportunity zone act of 2005 ( the `` go zone act '' ) for our benefit and were subject to optional redemption by the authority at any time on or after november 1 , 2017 for 100.0 % of the principal plus accrued unpaid interest , if any . the 6 ¾ % tax-exempt revenue bonds due november 2032 were redeemed on november 1 , 2017. in connection with the redemption of the 6 ¾ % tax-exempt revenue bonds due november 2032 , the authority caused the westlake 6 ¾ % senior notes to be surrendered to the trustee for cancellation . on august 30 , 2017 , following westlake partners ' cash distribution for the second quarter of 2017 , the requirement under westlake partners ' partnership agreement for the conversion of all subordinated units was satisfied . as a result , effective august 30 , 2017 , 12,686,115 subordinated units owned by us converted into common units on a one-for-one basis and thereafter participate on terms equal with all other common units in distributions of available cash . on august 1 , 2017 , we , westlake partners and opco executed an investment management agreement ( the `` investment management agreement '' ) that authorized westlake to invest westlake partners ' and opco 's excess cash . on august 1 , 2017 , our wholly-owned subsidiary , westlake chemical finance corporation , entered into an amendment to the revolving credit facility with westlake partners , resulting in the extension of the credit facility 's maturity date from april 29 , 2018 to april 29 , 2021. we completed an upgrade and capacity expansion of our calvert city ethylene unit in april 2017. the expansion , along with other initiatives , increased ethylene capacity by approximately 100 million pounds annually to a total annual ethylene capacity of approximately 730 million pounds . 32 results of operations segment data replace_table_token_6_th replace_table_token_7_th replace_table_token_8_th 33 ( 1 ) industry pricing data was obtained through ihs . we have not independently verified the data . ( 2 ) represents average north american spot prices of ethylene over the period as reported by ihs . ( 3 ) represents average north american net transaction prices of polyethylene low density gp-film grade over the period as reported by ihs . ( 4 ) represents average north american contract prices of styrene over the period as reported by ihs . ( 5 ) represents average north american undiscounted contract prices of caustic soda over the period as reported by ihs . ( 6 ) represents average north american contract prices of chlorine ( into chemicals ) over the period as reported by ihs . ( 7 ) represents average north american contract prices of pvc over the period as reported by ihs . effective january 1 , 2017 , ihs made a non-market downward adjustment of 15 cents per pound to pvc prices . for comparability , we adjusted each prior-year period 's pvc price downward by 15 cents per pound consistent with the ihs non-market adjustment . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 1,894 million in 2016 , mainly due to higher sales prices for our major products compared to the prior year . average sales prices for the olefins segment increased by 9 % in 2017 as compared to 2016 , while average sales volumes decreased by 1 % in 2017 as compared to 2016 , primarily due to lower polyethylene sales . income from operations . income from operations was $ 655 million in 2017 as compared to $ 558 million in 2016 .
| summary for the year ended december 31 , 2017 , net income attributable to westlake chemical corporation was $ 1,304 million , or $ 10.00 per diluted share , on net sales of $ 8,041 million . this represents an increase in net income attributable to westlake chemical corporation of $ 905 million , or $ 6.94 per diluted share , compared to 2016 net income attributable to westlake chemical corporation of $ 399 million , or $ 3.06 per diluted share , on net sales of $ 5,076 million . net income for the year ended december 31 , 2017 increased versus the prior year primarily due to ( 1 ) the tax benefit recorded in the fourth quarter of 2017 of approximately $ 591 million , or $ 4.54 per diluted share , resulting from the reduction of the federal corporate income tax rate under the tax act ; ( 2 ) earnings contributed by axiall , which was acquired on august 31 , 2016 ; ( 3 ) higher sales prices for our major products , resulting in improved margins ; and ( 4 ) lower transaction and integration-related costs associated with the integration of axiall . these increases versus the prior year were partially offset by ( 1 ) higher interest expense due to the debt assumed as a result of the axiall acquisition ; ( 2 ) higher unabsorbed fixed manufacturing and other costs associated with turnarounds ; and ( 3 ) the realized gain in 2016 of $ 49 million from the previously held common stock of axiall . net sales for the year ended december 31 , 2017 increase d $ 2,965 million to $ 8,041 million compared to net sales for the year ended december 31 , 2016 of $ 5,076 million , mainly due to higher sales contributed by axiall and higher sales prices for our major products .
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the bank owns : first bank financial services , inc. shen-valley land holdings , llc first national ( va ) statutory trust ii ( trust ii ) first national ( va ) statutory trust iii ( trust iii ) first bank financial services , inc. invests in entities that provide title insurance and investment services . shen-valley land holdings , llc was formed to hold other real estate owned and future office sites . the trusts were formed for the purpose of issuing redeemable capital securities , commonly known as trust preferred securities . products , services , customers and locations the bank 's primary market area is currently located within an hour commute of the washington , d.c. metropolitan area . the bank 's office locations are well-positioned in strong markets along the interstate 81 and interstate 66 corridors in the shenandoah valley region of virginia . within the market area , there are various types of industry including medical and professional services , manufacturing , retail , government contracting and higher education . customers include individuals , small and medium-sized businesses , local governmental entities and non-profit organizations . the bank provides loan , deposit , wealth management and other products and services in the shenandoah valley region of virginia . loan products and services include personal loans , residential mortgages , home equity loans and commercial loans . deposit products and services include checking , savings , now accounts , money market accounts , ira accounts , certificates of deposit and cash management accounts . the bank offers other services , including internet banking , mobile banking , remote deposit capture and other traditional banking services . the bank 's wealth management division offers estate planning , investment management of assets , trustee under an agreement , trustee under a will , individual retirement accounts , estate settlement , 401 ( k ) and benefit plans . in addition , the division offers financial planning and brokerage services to individuals throughout the bank 's market area . the bank launched a new mortgage division named first mortgage during the second quarter of 2014. the mortgage division began originating residential mortgage loans to customers in the third quarter of 2014. the majority of loans originated in future periods through this division are expected to be sold to investors in the secondary market . first mortgage offers mortgage services to customers throughout the shenandoah valley of virginia . the bank 's products and services are provided through 10 branch offices , 1 customer service center , 2 loan production offices , 25 atms and its website , www.fbvirginia.com . upon the completion of a pending branch acquisition scheduled to close in april 2015 , the bank expects to add four branch offices in the shenandoah valley region of virginia located in woodstock , staunton , waynesboro and elkton , and two branch offices in central virginia located in farmville and dillwyn . after the transaction closes , the bank expects to operate a total of 16 branch offices with approximately $ 750 million in total assets . the loan production offices were opened during 2014 and are located in staunton and harrisonburg , virginia . the bank operates six of its offices under the financial center concept . a financial center offers all of the bank 's financial services at one location . this concept allows loan , deposit , and wealth management personnel to be readily available to serve customers throughout the bank 's market area . for the location of each of these financial centers , see item 2 of this form 10-k. 24 revenue sources and expense factors the primary source of revenue is from net interest income earned by the bank . net interest income is the difference between interest income and interest expense and typically represents between 70 % and 80 % of the company 's total revenue . interest income is determined by the amount of interest-earning assets outstanding during the period and the interest rates earned on those assets . the bank 's interest expense is a function of the amount of interest-bearing liabilities outstanding during the period and the interest rates paid . in addition to net interest income , noninterest income is the other source of revenue for the company . noninterest income is derived primarily from service charges on deposits , fee income from wealth management services and atm and check card fees . the provision for loan losses and noninterest expense are the two major expense categories . the provision is determined by factors that include net charge-offs , asset quality , economic conditions and loan growth . changing economic conditions caused by inflation , recession , unemployment or other factors beyond the company 's control have a direct correlation with asset quality , net charge-offs and ultimately the required provision for loan losses . the largest component of noninterest expense for the year ended december 31 , 2014 was salaries and employee benefits , comprising 56 % of noninterest expenses , followed by occupancy and equipment expense , comprising 13 % of expenses . financial performance for the year ended december 31 , 2014 , net income totaled $ 7.6 million , compared to $ 9.9 million in 2013. the prior year net income included a $ 4.8 million favorable impact to the income tax provision from elimination of the valuation allowance on net deferred tax assets . story_separator_special_tag for further information about the company 's loans and the allowance for loan losses , see notes 3 and 4 in this form 10-k. the allowance for loan losses is evaluated on a quarterly basis by management and is based upon management 's periodic review of the collectability of the loans in light of historical experience , including the nature and volume of the loan portfolio , adverse situations that may affect the borrower 's ability to repay , estimated value of any underlying collateral and prevailing economic conditions . this evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available . the company performs regular credit reviews of the loan portfolio to review credit quality and adherence to underwriting standards . the credit reviews consist of reviews by its internal credit administration department and reviews performed by an independent third party . upon origination , each loan is assigned a risk rating ranging from one to nine , with loans closer to one having less risk . this risk rating scale is our primary credit quality indicator . the company has various committees that review and ensure that the allowance for loans losses methodology is in accordance with gaap and loss factors used appropriately reflect the risk characteristics of the loan portfolio . the allowance represents an amount that , in management 's judgment , will be adequate to absorb any losses on existing loans that may become uncollectible . management 's judgment in determining the level of the allowance is based on evaluations of the collectability of loans while taking into consideration such factors as trends in delinquencies and charge-offs , changes in the nature and volume of the loan portfolio , current economic conditions that may affect a borrower 's ability to repay and the value of the collateral , overall portfolio quality and review of specific potential losses . the evaluation also considers the following risk characteristics of each loan portfolio class : 1-4 family residential mortgage loans carry risks associated with the continued creditworthiness of the borrower and changes in the value of the collateral . real estate construction and land development loans carry risks that the project may not be finished according to schedule , the project may not be finished according to budget and the value of the collateral may , at any point in time , be less than the principal amount of the loan . construction loans also bear the risk that the general contractor , who may or may not be a loan customer , may be unable to finish the construction project as planned because of financial pressure or other factors unrelated to the project . other real estate loans and commercial and industrial loans carry risks associated with the successful operation of a business or a real estate project , in addition to other risks associated with the ownership of real estate , because repayment of these loans may be dependent upon the profitability and cash flows of the business or project . in addition , there is risk associated with the value of collateral other than real estate which may depreciate over time and can not be appraised with as much reliability . consumer and other loans carry risk associated with the continued credit-worthiness of the borrower and the value of the collateral , i.e . rapidly depreciating assets such as automobiles , or lack thereof . consumer loans are likely to be immediately adversely affected by job loss , divorce , illness or personal bankruptcy , or other changes in circumstances . 27 the allowance for loan losses consists of specific and general components . the specific component relates to loans that are classified as impaired , and is established when the discounted cash flows , collateral value or observable market price of the impaired loan is lower than the carrying value of that loan . for collateral dependent loans , an updated appraisal is ordered if a current one is not on file . appraisals are performed by independent third-party appraisers with relevant industry experience . adjustments to the appraised value may be made based on recent sales of like properties or general market conditions among other considerations . the general component covers loans that are not considered impaired and is based on historical loss experience adjusted for qualitative factors . the historical loss experience is calculated by loan type and uses an average loss rate during the preceding twelve quarters . the qualitative factors are assigned by management based on delinquencies and asset quality , national and local economic trends , effects of the changes in the value of underlying collateral , trends in volume and nature of loans , effects of changes in the lending policy , the experience and depth of management , concentrations of credit , quality of the loan review system and the effect of external factors such as competition and regulatory requirements . the factors assigned differ by loan type . the general allowance estimates losses whose impact on the portfolio has yet to be recognized by a specific allowance . allowance factors and the overall size of the allowance may change from period to period based on management 's assessment of the above described factors and the relative weights given to each factor . for further information regarding the allowance for loan losses see notes 1 and 4 to the consolidated financial statements . other real estate owned ( oreo ) other real estate owned ( oreo ) consists of properties obtained through a foreclosure proceeding or through an in-substance foreclosure in satisfaction of loans and properties originally acquired for branch expansion but no longer intended to be used for that purpose . oreo is reported at the lower of cost or fair value less costs to sell , determined on the basis of current appraisals , comparable sales , and other estimates of fair value obtained principally from independent sources , adjusted for estimated selling costs .
| results of operations general net interest income represents the primary source of earnings for the company . net interest income equals the amount by which interest income on interest-earning assets , predominantly loans and securities , exceeds interest expense on interest-bearing liabilities , including deposits , other borrowings and trust preferred securities . changes in the volume and mix of interest-earning assets and interest-bearing liabilities , as well as their respective yields and rates , are the components that impact the level of net interest income . the net interest margin is calculated by dividing tax-equivalent net interest income by average earning assets . the provision for loan losses , noninterest income and noninterest expense are the other components that determine net income . noninterest income and expense primarily consists of income from service charges on deposit accounts ; revenue from wealth management services ; atm and check card income ; revenue from other customer services ; income from bank owned life insurance ; general and administrative expenses and other real estate owned expenses . net interest income net interest income totaled $ 18.6 million for the year ended december 31 , 2014 , which was a 1 % increase when compared to $ 18.5 million for the same period in 2013. the net interest margin increased to 3.86 % from 3.72 % and average earning assets were $ 12.3 million lower when comparing the periods . the impact of the higher net interest margin on net interest income was partially offset by the impact of lower interest-earning assets . interest-earning asset yields decreased 4 basis points while the cost of funds , including noninterest-bearing deposits , decreased 18 basis points .
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( 2 ) significant accounting policies use of estimates the preparation of financial statements in conformity with gaap requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of story_separator_special_tag the following discussion and analysis should be read in conjunction with “ item 6 selected financial data '' and our consolidated financial statements and related notes contained elsewhere in this annual report on form 10-k. for additional information related to our industry segments , see note 21 - segment and related information to the consolidated financial statements , which is included in item 8 herein . for information regarding our revenues , net income and assets , see our consolidated financial statements included in item 8. overview northwestern corporation , doing business as northwestern energy , provides electricity and natural gas to approximately 678,200 customers in montana , south dakota and nebraska . as you read this discussion and analysis , refer to our consolidated statements of income , which present the results of our operations for 2013 , 2012 and 2011 . following is a brief overview of highlights for 2013 , and a discussion of our strategy and outlook . significant items significant items for the year ended december 31 , 2013 include : on september 26 , 2013 , we entered into an agreement to purchase hydro-electric generating facilities with approximately 633 megawatts of generation capacity , which is expected to close in the second half of 2014. acquired additional natural gas production interests in montana for approximately $ 68.7 million . placed into service the aberdeen generating station , a 60 mw natural gas peaking facility , which was constructed for a total cost of approximately $ 54.3 million . received approval from the mpsc to increase rates effective april 1 , 2013 , in our natural gas distribution rate case . successfully accessed the capital markets to fund growth projects and extend debt maturities as follows : ◦ received proceeds of approximately $ 56.8 million after commissions and other fees from the sale of 1,381,494 common shares under our equity distribution agreement , ◦ extended the maturity date of our revolving credit facility to november 5 , 2018 , and ◦ issued $ 35 million of first mortgage bonds at 3.99 % and $ 65 million of first mortgage bonds at 4.85 % , maturing in 2028 and 2043 , respectively . hydro transaction on september 26 , 2013 , we entered into an agreement with ppl montana , llc ( ppl montana ) , a wholly owned subsidiary of ppl corporation , to purchase ppl montana 's hydro-electric generating facilities and associated assets located in montana , which includes approximately 633 megawatts of hydro-electric generation capacity , for a purchase price of $ 900 million ( hydro transaction ) . the purchase price will be subject to a number of adjustments , including the proration of operating expenses , the performance of planned capital expenditures , and the termination of certain power purchase agreements . the hydro transaction includes the kerr project , a 194 megawatt hydro-electric generating facility . the ferc license for the kerr project provides the confederated salish and kootenai tribes of the flathead reservation ( cskt ) an option to acquire the facility between september 2015 and september 2025. we believe cskt will exercise their option and acquire the kerr project in september 2015. ppl montana and cskt are currently involved in arbitration over the conveyance price of the kerr project . under our agreement with ppl montana , the $ 900 million purchase price includes a $ 30 million reference price to the kerr project . if cskt exercises their option and ultimately pays more than $ 30 million for the kerr project , we will pay the difference to ppl montana . if cskt pays less than $ 30 million for the kerr project , ppl montana will pay the difference to us . completion of the hydro transaction is subject to customary conditions and approvals , including approval from the ferc , the mpsc , other state and federal agencies and as required by the hart-scott-rodino antitrust improvements act . in december 2013 , we submitted an application with the mpsc to acquire these assets , and in january 2014 , we submitted three applications with the ferc concerning the hydro transaction . for further information on these filings see note 4 - regulatory matters . either party may terminate the agreement if the closing does not occur by september 26 , 2014 ; however , this date will be extended for an additional six months if any governmental approval is still pending . assuming receipt of reasonably satisfactory regulatory approvals , we expect the hydro transaction to close in the second half of 2014 . 24 the permanent financing for the hydro transaction is anticipated to be a combination of long-term debt , new equity issuance and cash flows from operations . the hydro transaction is supported by a fully committed $ 900 million 364 -day senior bridge credit facility ( see note 11 - short-term borrowings ) . during 2013 , we incurred approximately $ 4.4 million of legal and professional fees associated with the hydro transaction and approximately $ 1.9 million of expenses related to the bridge credit facility . if the acquisition is completed during the second half of 2014 , we expect to sell any excess generation in the market and provide revenue credits to our montana retail customers until cskt exercises their option to acquire the kerr project . if cskt exercises their option to acquire the kerr project in september 2015 , we will own approximately 60 percent of our average electric load serving requirements in montana . natural gas production assets in december 2013 , we completed the purchase of additional natural gas production interests in northern montana 's bear paw basin for approximately $ 68.7 million , subject to post-closing purchase price adjustments . story_separator_special_tag regulatory matters general rate cases are necessary to cover the cost of providing safe , reliable service , while contributing to earnings growth and achieving our financial objectives . as noted above , during 2013 we received mpsc approval to increase our natural gas delivery rates in montana . during the first quarter of each year we evaluate the need for electric and natural gas rate changes in each state in which we provide service . distribution investment montana distribution system infrastructure project ( dsip ) as part of our commitment to maintain high level reliability and system performance we continue to evaluate the condition of our distribution assets to address aging infrastructure through our asset management process . the primary goals of our infrastructure investment are to reverse the trend in aging infrastructure , maintain reliability , proactively manage safety , build capacity into the system , and prepare our network for the adoption of new technologies . we are working on various solutions taking a proactive and pragmatic approach to replace these assets while also evaluating the implementation of additional technologies to prepare the overall system for smart grid applications . dsip completed its first full year of production after a two-year phase in period . this nearly $ 380 million ( $ 290 million capital and $ 90 million expense ) , multi-year effort to accelerate the replacement and modernization of our existing electric and natural gas distribution system in montana is intended to address a number of objectives to arrest and or reverse the trend in aging infrastructure while maintaining and or improving upon our already high level of safety and reliability . during 2013 , we had dsip capital expenditures of approximately $ 47 million . we expect dsip capital expenditures of approximately $ 52 million during 2014. incremental operating and maintenance costs related to the phase-in of dsip during 2012 and 2011 were deferred in accordance with the mpsc 's approval of an accounting order . incremental dsip costs for 2013 forward are being expensed as incurred and the amounts previously deferred are being amortized over five years . during 2013 we amortized approximately $ 3.1 million and incurred incremental dsip expenses of approximately $ 9.3 million . we expect dsip expenses to be at a similar level during 2014 . 26 other supply investments south dakota electric the big stone and neal # 4 electric generation facilities are subject to additional emission reduction requirements . our current estimate of project costs for big stone is approximately $ 405 million ( our share is 23.4 % ) and is expected to be operational by 2016. as of december 31 , 2013 , we have capitalized costs of approximately $ 40.5 million related to this project . neal # 4 began incurring costs in 2011 and the project was substantially completed in 2013. our share ( 8.7 % ) of the capitalized costs related to this project were approximately $ 22.6 million . 27 results of operations our consolidated results include the results of our divisions and subsidiaries constituting each of our business segments . the overall consolidated discussion is followed by a detailed discussion of gross margin by segment . non-gaap financial measure the following discussion includes financial information prepared in accordance with gaap , as well as another financial measure , gross margin , that is considered a “ non-gaap financial measure. ” generally , a non-gaap financial measure is a numerical measure of a company 's financial performance , financial position or cash flows that exclude ( or include ) amounts that are included in ( or excluded from ) the most directly comparable measure calculated and presented in accordance with gaap . gross margin ( revenues less cost of sales ) is a non-gaap financial measure due to the exclusion of depreciation from the measure . the presentation of gross margin is intended to supplement investors ' understanding of our operating performance . gross margin is used by us to determine whether we are collecting the appropriate amount of energy costs from customers to allow recovery of operating costs . our gross margin measure may not be comparable to other companies ' gross margin measure . furthermore , this measure is not intended to replace operating income as determined in accordance with gaap as an indicator of operating performance . story_separator_special_tag style= '' line-height:120 % ; font-size:10pt ; padding-left:24px ; '' > dsip expenses of $ 12.4 million as discussed above ; legal and professional fees associated with the hydro transaction . we expect to incur additional hydro transaction related legal and professional fees during 2014 ; increased labor costs due primarily to compensation increases , a larger number of employees , and less time spent on capital projects , which increases expense ; higher plant operator costs primarily due to the spion kop acquisition and higher maintenance and outage costs at colstrip unit 4 and neal # 4 ; higher natural gas production costs due to the acquisition of the natural gas production assets discussed above ; non-employee directors deferred compensation increased primarily due to changes in our stock price . directors may defer their board fees into deferred shares held in a rabbi trust . if the market value of our stock goes up , deferred compensation expense increases ; however , we account for the deferred shares as trading securities and their increase in value is reflected in other income with no impact on net income ; and higher bad debt expense , due to a combination of higher revenues and slower collections of receivables from customers related to our customer information systems implementation . these increases were partly offset by : decreased pension expense of approximately $ 19.1 million offset in part by higher incentive and other employee benefit costs . our montana pension costs are included in expense on a pay as you go ( cash funding ) basis .
| factors affecting results of operations our revenues may fluctuate substantially with changes in supply costs , which are generally collected in rates from customers . in addition , various regulatory agencies approve the prices for electric and natural gas utility service within their respective jurisdictions and regulate our ability to recover costs from customers . revenues are also impacted to a lesser extent by customer growth and usage , the latter of which is primarily affected by weather . very cold winters increase demand for natural gas and to a lesser extent , electricity , while warmer than normal summers increase demand for electricity , especially among our residential and commercial customers . we measure this effect using degree-days , which is the difference between the average daily actual temperature and a baseline temperature of 65 degrees . heating degree-days result when the average daily temperature is less than the baseline . cooling degree-days result when the average daily temperature is greater than the baseline . the statistical weather information in our regulated segments represents a comparison of this data . 28 overall consolidated results year ended december 31 , 2013 compared with year ended december 31 , 2012 replace_table_token_4_th replace_table_token_5_th replace_table_token_6_th 29 consolidated gross margin in 2013 was $ 674.9 million , which remained flat from gross margin in 2012 .
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we believe that our holding company structure is an agile and efficient platform from which to pursue , finance , and oversee new opportunities , such as in the water sector , while also providing legal separation between regulated natural gas distribution operations and other businesses . in this reorganization , shareholders of nw natural ( the predecessor publicly held parent company ) became shareholders of nw holdings , on a one-for-one basis , with the same number of shares and same ownership percentage as they held in nw natural immediately prior to the reorganization . nw natural became a wholly-owned subsidiary of nw holdings . additionally , certain subsidiaries of nw natural were transferred to nw holdings . as required under accounting guidance , these subsidiaries are presented as discontinued operations in the consolidated results of nw natural within this report . nw holdings is a holding company headquartered in portland , oregon and owns nw natural , nwn water , and other businesses and activities . nw natural is nw holdings ' largest subsidiary . nw natural 's natural gas distribution activities are reported in the natural gas distribution ( ngd ) segment , formerly titled and reported as the utility segment . all other business activities , including certain gas storage activities , water businesses , and other investments and activities are aggregated and reported as other at their respective registrant . references in this discussion to `` notes '' are to the notes to the consolidated financial statements in item 8 of this report . in addition , nw holdings has reported discontinued operations results related to the pending sale of gill ranch storage , llc ( gill ranch ) . nw natural gas storage , llc ( nwn gas storage ) , currently an indirect wholly-owned subsidiary of nw holdings , entered into a purchase and sale agreement during the second quarter of 2018 that provides for the sale of all membership interests in gill ranch . gill ranch owns a 75 % interest in the natural gas storage facility located near fresno , california known as the gill ranch gas storage facility . pacific gas and electric company ( pg & e ) owns the remaining 25 % interest in the gill ranch gas storage facility . for more information , see `` results of operations - pending sale of gill ranch storage `` below . the following is management 's assessment of nw holdings ' and nw natural 's financial condition , including the principal factors that affect results of operations . the discussion covers the years ended december 31 , 2018 , 2017 , and 2016 and refers to the consolidated results of nw holdings , the substantial majority of which consist of the operating results of nw natural . when significant activity exists at nw holdings that does not exist at nw natural , additional disclosure has been provided . nw holdings ' direct and indirect wholly-owned subsidiaries include : northwest natural gas company ( nw natural ) ; ◦ northwest energy corporation ( energy corp ) ; ▪ nwn gas reserves llc ( nwn gas reserves ) ; nw natural energy , llc ( nwn energy ) ; ◦ nw natural gas storage , llc ( nwn gas storage ) ; ▪ gill ranch storage , llc ( gill ranch ) , which is presented as a discontinued operation ; nng financial corporation ( nng financial ) ; ◦ kb pipeline company ( kb ) ; nw natural water company , llc ( nwn water ) ; ◦ falls water co. , inc. ( falls water ) ; ◦ salmon valley water company ; ◦ cascadia water , llc ( cascadia ) ; ◦ nw natural water of oregon , llc ( nwn water of oregon ) ; ◦ nw natural water of washington , llc ( nwn water of washington ) ; ◦ nw natural water of idaho , llc ( nwn water of idaho ) ; and ▪ gem state water company , llc ( gem state ) the ngd segment includes our nw natural local gas distribution business , nwn gas reserves , which is a wholly-owned subsidiary of energy corp , and the ngd-portion of nw natural 's mist storage facility in oregon . other activities aggregated and reported as other at nw natural include the non-ngd storage activity at mist as well as asset management services and the appliance retail center operations . other activities aggregated and reported as other at nw holdings include nwn energy 's equity investment in trail west holding , llc ( twh ) , which is pursuing the development of a proposed natural gas pipeline through its wholly-owned subsidiary , trail west pipeline , llc ( twp ) ; nng financial 's investment in kelso-beaver pipeline ( kb pipeline ) ; and nwn water , which owns and continues to pursue investments in the water sector . see note 4 for further discussion of our business segment and other , as well as our direct and indirect wholly-owned subsidiaries . non-gaap financial measures . in addition to presenting the results of operations and earnings amounts in total , certain financial measures are expressed in cents per share or exclude the effects of certain items , which are non-gaap financial measures . we present net income or loss and earnings or loss per share adjusted for certain items along with the u.s. gaap measures to illustrate their magnitude on ongoing business and operational results . although the excluded amounts are properly included in the determination of net income or loss and earnings or loss per share under u.s. gaap , we believe the amount and nature of these items make period to period comparisons of operations difficult or potentially confusing . we use such non-gaap financial measures to analyze our financial performance because we believe they provide useful information to our investors and creditors in evaluating our financial condition and results of operations . story_separator_special_tag the study outlines how natural gas can help achieve crucial emission reductions of 80 % by 2050. we will continue helping our customers reduce and offset their consumption as we support the development of renewable natural gas supply and explore other cutting edge solutions to lower the carbon intensity of natural gas , such as power to gas . integrate and grow water . nw water began its expansion into the water business more than a year ago with a focus on water sector investments that fit our conservative risk profile and core competencies . in 2019 we plan to close our largest acquisition to date in sunriver , oregon that serves approximately 9,400 water and wastewater connections . once all outstanding transactions are closed , nw water will serve 18,000 connections and have invested nearly $ 70 million in the water sector . 33 dividends nw holdings dividend highlights include : replace_table_token_11_th in january 2019 , the nw holdings ' board of directors declared a quarterly dividend on nw holdings common stock of $ 0.4750 per share , payable on february 15 , 2019 , to shareholders of record on january 31 , 2019 , reflecting an indicated annual dividend rate of $ 1.90 per share . see `` financial condition - liquidity and capital resources '' for more information regarding the nw holdings and nw natural dividend policies and regulatory conditions on nw natural dividends to its parent , nw holdings . 34 results of operations regulatory matters regulation and rates natural gas distribution . nw natural 's natural gas distribution business is subject to regulation by the opuc and wutc with respect to , among other matters , rates and terms of service , systems of accounts , and issuances of securities by nw natural . in 2018 , approximately 89 % of ngd customers were located in oregon , with the remaining 11 % in washington . earnings and cash flows from natural gas distribution operations are largely determined by rates set in general rate cases and other proceedings in oregon and washington . they are also affected by weather , the local economies in oregon and washington , the pace of customer growth in the residential , commercial , and industrial markets , and nw natural 's ability to remain price competitive , control expenses , and obtain reasonable and timely regulatory recovery of its natural gas distribution-related costs , including operating expenses and investment costs in plant and other regulatory assets . see `` most recent general rate cases '' below . mist interstate gas storage . nw natural 's interstate storage activity at mist is subject to regulation by the opuc , wutc , and ferc with respect to , among other matters , rates and terms of service . the opuc also regulates the intrastate storage services at mist , while ferc regulates the interstate storage services at mist . the ferc uses a maximum cost of service model which allows for gas storage prices to be set at or below the cost of service as approved by each agency in their last regulatory filing . the opuc schedule 80 rates are tied to the ferc rates , and are updated whenever nw natural modifies ferc maximum rates . other . in june 2018 , nwn gas storage entered into a purchase and sale agreement for the sale of all of its ownership interests in gill ranch , a natural gas storage facility located near fresno , california , which is subject to approval by the cpuc and other customary closing conditions . see note 18 for more information . most recent general rate cases oregon . effective november 1 , 2012 , through october 31 , 2018 , the opuc authorized rates to customers based on an roe of 9.5 % , an overall rate of return of 7.78 % , and a capital structure of 50 % common equity and 50 % long-term debt . effective november 1 , 2018 , the opuc authorized rates to customers based on an roe of 9.4 % , an overall rate of return of 7.317 % , and a capital structure of 50 % common equity and 50 % long-term debt . for additional information , see `` regulatory proceeding updates '' below . washington . effective january 1 , 2009 , the wutc authorized rates to customers based on an roe of 10.1 % and an overall rate of return of 8.4 % with a capital structure of 51 % common equity , 5 % short-term debt , and 44 % long-term debt . on december 31 , 2018 , nw natural filed a general rate case in washington requesting an roe of 10.3 % , an overall rate of return of 7.63 % , and a capital structure of 49.5 % common equity , 49.5 % long-term debt , and 1 % short-term debt . for additional information , see `` regulatory proceeding updates '' below . ferc . nw natural is required under its mist interstate storage certificate authority and rate approval orders to file every five years either a petition for rate approval or a cost and revenue study to change or justify maintaining the existing rates for its interstate storage services . in january 2018 , various state parties filed a request with the ferc to adjust the revenue requirements of public utilities to reflect the recent reduction in the federal corporate income tax rate and other impacts resulting from the tcja . in july 2018 , the ferc issued an order finalizing its regulations regarding the effect of the tcja . the new regulations required nw natural to file a petition for rate approval or a cost and revenue study to reflect the new federal corporate income tax rate within thirty days of the rate effective date of nw natural 's oregon rate case . on october 12 , 2018 , nw natural filed a rate petition with ferc for revised maximum cost-based rates , which incorporated the new federal corporate income tax rate .
| executive summary we manage our business and strategic initiatives with a long-term view of providing service safely and reliably to our customers , working with regulators on key policy initiatives , and remaining focused on growing our businesses . see `` 2019 outlook '' below for more information . highlights for the year include : added over 12,500 natural gas customers in 2018 for an annual growth rate of 1.7 % at december 31 , 2018 ; invested $ 215 million in ngd distribution systems and facilities for growth and reliability ; completed key components of the north mist gas storage expansion project and continue to target an in-service date during the spring of 2019 ; nw natural ranked first in the west in the 2018 j.d . power gas utility residential customer satisfaction study and gas utility business customer satisfaction study ; completed key aspects of nw natural 's oregon general rate case and filed for a general rate increase in washington for the first time in a decade ; completed four water distribution acquisitions with several more pending , the largest of which is a water and wastewater business in sunriver , oregon . once pending transactions close , our water business is expected to serve 18,000 connections ; and delivered increasing dividends for the 63 rd consecutive year to shareholders . key financial highlights for nw holdings include : replace_table_token_9_th key financial highlights for nw natural include : replace_table_token_10_th ( 1 ) see the non-gaap reconciliations table at the beginning of item 7 for a reconciliation of this non-gaap financial measure to its closest u.s. gaap measure . 2018 compared to 2017 .
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we do not have an obligation to publicly update any forward-looking statements , whether as a result of the receipt of new information , the occurrence of future events or otherwise . overview the company provides advanced material solutions to the electronics , robotics , automotive , defense and other industries . cps ' primary advanced material solution is metal matrix composites , a new class of materials which are a combination of metal and ceramic . cps has a leading , proprietary position in metal matrix composites . metal matrix composites have several superior properties compared to conventional materials including improved thermal conductivity , thermal expansion matching , stiffness and light weight , which enable higher performance and higher reliability in our customers ' products . the end markets which account for a majority of our sales today are all electronics markets : primarily the high-performance microprocessor and application-specific integrated circuits market and the motor controller market . the company 's products are typically in the form of housings , packages , lids , substrates , thermal planes , heat spreaders or baseplates , and are used in applications where thermal management and or weight are important considerations . in addition to electronics end markets , we are developing , manufacturing and marketing metal-matrix composite components for some structural end-markets including armor . the objective of the cooperative agreement with the u.s. army is to further develop large hybrid metal matrix composite modules which integrally combine metal matrix composites and ceramics by enveloping ceramic tiles with mmcs . this system offers a lighter weight , durable , multi-hit capable and cost competitive alternative to conventional steel , aluminum and ceramic based armor systems . cps hybrid hard face armor modules are comprised of multiple materials completely enveloped within and mechanically and chemically bonded to lightweight and stiff aluminum metal matrix composites . the company believes that its hybrid hard face armor tiles will find application in many military vehicles as well as armored commercial vehicles . cps 's products are custom rather than catalog items . they are made to customers ' designs and are used as components in systems built and sold by our customers . at any point in time our product mix will consist of some products with on-going production demand , and some products which are in the prototyping or evaluation stages at our customers . the company seeks to have a portfolio of products which include products in every stage of the technology adoption lifecycle at our customers . cps ' growth is dependent upon the level of demand for those products already in production , as well as its success in achieving new `` design wins '' for future products . as a manufacturer of highly technical and custom products , the company incurs fixed costs needed to support the business , but which do not vary significantly with changes in sales volume . these costs include the fixed costs of applications engineering , tooling design and fabrication , process engineering , etc . accordingly , particularly given our current size , changes in sales volume generally result in even greater changes in financial performance on a percentage basis as fixed costs are spread over a larger or smaller base . sales volume is therefore a key financial metric used by management . the company believes the underlying demand for metal matrix composites is growing as the electronics and other industries seek higher performance , higher reliability , and reduced costs . cps believes that the company is well positioned to offer our solutions to current and new customers as these demands grow . in 2012 its top three customers accounted for 63 % of revenue and the remaining 37 % of revenue was derived from 69 other customers . in 2011 the top three customers accounted for 71 % of revenue and the remaining 29 % of revenue was derived from approximately 49 customers . application of critical accounting policies financial statements are prepared in conformity with accounting principles generally accepted in the united states of america . as such , the company is required to make certain estimates , judgments and assumptions that it believes are reasonable based upon the information available . these estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented . cps 's significant accounting policies are presented within note 2 to the financial statements ; the significant accounting policies which management believes are most critical to aid in fully understanding and evaluating its reported financial results include the following : revenue recognition ( $ in 000 ) revenue is recognized in accordance with the provisions of the securities and exchange commission staff accounting bulletin ( `` sab '' ) no . 104 which establishes guidance in applying generally accepted accounting principles to revenue recognition in financial statements . sab no . 104 requires that four basic criteria must be met before revenue can be recognized : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred or services rendered ; ( 3 ) the price to the buyer is fixed or determinable ; and ( 4 ) collectability is reasonably assured . shipping terms are customarily exw ( ex-works ) shipping point which terms are consistent with “ fob shipping point ” . revenues for products sold in the normal course of business are recognized upon shipment when delivery terms are exw shipping point and all other revenue recognition criteria have been met . the company also has consigned inventory agreements with a few customers . story_separator_special_tag likewise , if the company chooses to manufacture product in advance of anticipated purchase orders and those orders did not materialize , it is unlikely that it would be able to sell that inventory to another customer . the value of cps 's work in process and finished goods is based on the assumption that specific customers will take delivery of specific items of inventory . the company has not experienced losses to date as a result of customer cancellations and has not established a reserve for such cancellations . property and equipment property and equipment are stated at cost . depreciation of equipment is calculated on a straight-line basis over the estimated useful life , generally five years for production equipment and three to five years for furniture and office equipment . amortization of equipment under capital leases is calculated on a straight-line basis over the life of the lease . maintenance and repairs are charged to expense as incurred . upon retirement or sale , the cost and related accumulated depreciation or amortization are removed from their respective accounts . any gains or losses on the disposition of property and equipment are included in the results of operations in the period in which they occur . income taxes deferred tax assets and liabilities are based on the net tax effects of tax credits , operating loss carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . the company considers many factors in assessing whether or not a valuation allowance for its deferred tax asset is warranted . on the positive side , the company considered such factors as its : history of taxable earnings ( seven consecutive years from 2003-10 ) , global customer base consisting of large companies with significant resources , current products and their expected life , technological advantages , potential for price increases , trend of improved manufacturing efficiencies and the magnitude of the deferred tax asset compared with the company 's expectation of future earnings over the remaining life of the asset . on the negative side , the company considered such factors as : the current global recession , the company 's ability to absorb a period of operating losses and negative cash flow and the potential for the technological breakthroughs and substitution of the company 's products by lower cost solutions . in the second quarter of 2012 , the company decided to reclassify 100 % of its deferred tax asset as non-current as sales slowed and it became clear that earning a profit for the year and realizing some deferred tax benefit over the next twelve months would be unlikely . at the end of 2012 a detailed analysis was made considering the future outlook for operations and projected changes in balance sheet accounts . based upon this analysis , it was decided to classify $ 355 thousand of the deferred tax asset as current and the balance as non-current . at december 29 , 2012 , the company 's deferred tax asset included net operating loss carryforwards and other temporary differences which will require taxable income of approximately $ 7.1 million to fully utilize , assuming an effective corporate tax rate of 39 % . the company has concluded that it is more likely than not that its deferred tax asset will be fully realized . current projections of future taxable income , including the reversal of temporary differences , reflect the company 's belief that it has attractive growth opportunities and a favorable cost structure . these projections support the conclusion that the company will generate taxable income sufficient to utilize the losses before they expire . an important consideration in this analysis is the fact that none of the nol carryforwards expire before 2020 and the nol carryforwards from 2012 will not expire until 2032. the company 's policy is to recognize interest and penalties related to income tax matters in income tax expense . as of december 29 , 2012 and december 31 , 2011 , the company has no accruals for interest or penalties related to income tax matters . the company does not have any uncertain tax positions at december 29 , 2012 or december 31 , 2011 which required accrual or disclosure . income tax effects related to share-based compensation that are in excess , or less than , of grant-date fair value , less any proceeds received on exercise of stock prices , are recognized as either an increase or decrease to additional paid-in capital upon exercise . story_separator_special_tag these respective periods . the accounts receivable balances at the end of december 29 , 2012 , and december 29 , 2011 were both net of an allowance for doubtful accounts of $ 10 thousand . inventories decreased to $ 2.5 million at december 29 , 2012 from $ 3.1 million at december 31 , 2011. during 2011 the company increased inventories to meet forecasts provided by a key customer which fell short of expectations . during 2012 , primarily in the fourth quarter , the company was able to draw down on this inventory as sales from this customer increased . the company did not experience any obsolescence as a result of this situation . the inventory turnover in 2011 , using a 5 point average for inventories , was 8.0. in 2012 , the inventory turnover was 4.4. this decline was due to a combination of the inaccuracy in the customers forecast as well as an increase in the percentage of sales made on a consignment basis which extended the inventory pipeline . all consigned inventory is shipped under existing purchase orders and per customers ' requests . of the total inventory of $ 2.5 million at december 29 , 2012 , $ 1.1 million was located at customers ' locations pursuant to consigned inventory agreements . of the total inventory of $ 3.1 million at
| results of operations year ended december 29 , 2012 ( “ 2012 ” ) compared to the year ended december 31 , 2011 ( “ 2011 ” ) . total revenues were $ 14.1 million in 2012 compared to total revenues of $ 19.8 million in 2011 , a 29 % decrease . this reduction of $ 5.7 million was made up of three main categories : baseplates used in the traction and high power markets , lids and heatspreaders , and revenue earned from the cooperative agreement with the u.s. army research laboratory . the traction and high power markets were adversely affected by the weak economies in europe and the slow-down of traction spending in china . the reduction in the lid and heatspreaders occurred as many products approached their end of life . the lower revenues earned on the contract with the u.s. army laboratory reflected a general tightening of the defense spending as well as the fact that the cooperative agreement is nearing the end of its contract . gross margin in 2012 totaled $ 256 thousand , representing 2 % margin on sales . this compares with $ 3.0 million gross margin generated in 2011 ( 15 % of sales ) . the most significant factor causing the decline was the drop in sales volume which resulted in manufacturing fixed costs being spread over significantly fewer dollars . other factors contributing to this reduction in margin percentage included $ 292 thousand obsolescence charges for lids that reached the end of life earlier than forecast by customers , additional costs associated with an outside finishing operation recorded in the first quarter , and the lower prices for certain baseplate products .
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we intend to sell foreclosed assets . we story_separator_special_tag introduction the following discussion and analysis is designed to provide a better understanding of our consolidated financial condition and results of operations and as such should be read in conjunction with the consolidated financial statements , including the notes thereto and the information contained elsewhere in this form 10-k , including `` item 1a . risk factors . '' unless stated otherwise , references to “ we , ” “ our ” or “ us ” relate to the consolidation of national rural utilities cooperative finance corporation ( “ cfc ” ) , rural telephone finance cooperative ( “ rtfc ” ) , national cooperative services corporation ( “ ncsc ” ) and certain entities created and controlled by cfc to hold foreclosed assets and to accommodate loan securitization transactions . throughout this md & a , we refer to certain of our financial measures that are based on amounts not in accordance with generally accepted accounting principles in the united states ( “ gaap ” ) as non-gaap “ adjusted ” measures . in addition to discussing our reported gaap results , our `` executive summary '' below discusses the key non-gaap metrics that we use to evaluate our business and financial performance , which consist of adjusted times interest earned ratio ( “ tier ” ) and adjusted debt-to-equity ratio . the most closely related gaap measures are tier and debt-to-equity ratio . the financial covenants in our revolving credit agreements and debt indentures are based on our adjusted measures rather than the comparable gaap measures . the primary adjustments we make to calculate these non-gaap measures consist of ( i ) adjusting interest expense to include the impact of derivative cash settlements ; ( ii ) adjusting net income , senior debt and total equity to exclude the non-cash impact of the accounting for derivative financial instruments ; ( iii ) adjusting senior debt to exclude the amount that funds cfc member loans guaranteed by the rural utilities service ( “ rus ” ) , subordinated deferrable debt and members ' subordinated certificates ; and ( iv ) adjusting total equity to include subordinated deferrable debt and members ' subordinated certificates . see `` non-gaap financial measures '' for further explanation of the adjustments we make to our financial results for our own analysis and covenant compliance and for a reconciliation to the most comparable gaap measures . story_separator_special_tag year 2014 versus gains in 2013 reflect the composition of our derivative portfolio and changes in interest rates . the increase in net interest income of $ 39 million in fiscal year 2014 was largely attributable to the refinancing of higher-cost debt with lower-cost debt . adjusted net income the decrease of $ 63 million in our adjusted net income in fiscal year 2014 from the prior fiscal year was primarily driven by the shift in the provision for loan losses discussed above partially offset by a $ 22 million increase in adjusted net interest income . the increase in adjusted net interest income of $ 22 million was due to the $ 39 million increase to net interest income resulting from the refinancing of higher-cost debt discussed above partially offset by an increase of $ 17 million to derivative cash settlements expense during fiscal year 2014. outlook for the next 12 months we expect the amount of new long-term loan advances to exceed scheduled loan repayments over the next 12 months . we anticipate an increase to earnings from core lending operations over the next 12 months due to the expected increase in long-term loans outstanding and the decrease in our funding costs resulting from the call of our 7.5 % member capital securities and the debt exchange completed in may 2014. during fiscal year 2014 , the cfc board of directors authorized management to execute the call of our 7.5 % member capital securities and offer members the option to invest in a new series of member capital securities that currently have a 5 % interest rate . as of may 31 , 2014 , $ 267 million of the 7.5 % member capital securities were redeemed and we had call notices outstanding for another $ 59 million . the call dates for the $ 59 million will take place through august 2014. over the next 12 months , we expect to provide notice to members for the early call of an additional $ 61 million of 7.5 % member capital securities with call dates through january 2015. as of may 31 , 2014 , members have invested $ 147 million in the new series of member capital securities . we have $ 1,512 million of long-term debt scheduled to mature over the next 12 months . we believe that we have sufficient liquidity from the combination of member loan repayments and our ability to issue debt in the capital markets , to our members and in private placements , to satisfy member loan advances and meet our need to fund long-term debt maturing over the next 12 months . at may 31 , 2014 , we had $ 944 million in cash , investments , and time deposits , up to $ 624 million available under committed loan facilities from the federal financing bank , $ 3,224 million available under committed revolving lines of credit with a syndicate of banks and , subject to market conditions , up to $ 2,232 million available under a revolving note purchase agreement with the federal agricultural mortgage corporation . we also have the ability to issue collateral trust bonds and 27 medium-term notes in the capital markets and medium-term notes to members . we believe we can continue to roll over the $ 3,887 million of commercial paper , select notes , daily liquidity fund notes and bank bid notes scheduled to mature over the next 12 months , as we expect to continue to maximize the utilization of these short-term funding options . story_separator_special_tag we have been lending to electric cooperatives since our incorporation in 1969. at may 31 , 2014 , the $ 43 million reserve produced by our general allowance for loan losses model represented 0.21 % of the outstanding balance of loans . an increase or decrease of 10 % in our default rates would result in a corresponding increase or decrease of $ 4 million to the general allowance for loan losses model . an increase or decrease of 1 % in our recovery rates would result in a corresponding increase or decrease of $ 3 million to the general allowance for loan losses model . in addition to the allowance for loan losses for the general portfolio , we maintain a qualitative reserve for the general portfolio based on risk factors not captured in the general allowance for loan losses . the overriding factor that creates the necessity for this additional component of loan loss reserves not captured in our loan loss model is lag in the timing of receipt of information regarding our borrowers . we actively monitor the operations and financial performance of our borrowers through the review of audited financial statements , review of borrower-prepared financial statements ( if required ) and discussions with borrower management . as a result of the lag , there could be credit events or circumstances that exist with our borrowers for which we have not been made aware that could potentially lead to reassessing/downgrading of certain borrower risk ratings to better reflect the risk of default and ultimate loss . additional qualitative considerations include our expectations with respect to loan workouts , risks associated with large loan exposures and economic and environmental factors . to measure these additional risk factors supporting an additional reserve for the general portfolio , we perform an internal credit risk ratings portfolio stress test quantifying the impact that both upgrades and downgrades in internal credit risk ratings would have on our estimate of losses inherent in the portfolio . impaired loans a loan is considered to be impaired when we do not expect to collect all principal and interest payments as scheduled by the original loan terms , other than an insignificant delay or an insignificant shortfall in amount . factors considered in determining impairment may include , but are not limited to : the review of the borrower 's audited financial statements and interim financial statements if available , the borrower 's payment history , communication with the borrower , economic conditions in the borrower 's service territory , pending legal action involving the borrower , restructure agreements between us and the borrower and estimates of the value of the borrower 's assets that have been pledged as collateral to secure our loans . we generally measure impairment for individually impaired loans based on the difference between the recorded investment of the loan and the present value of the expected future cash flows discounted at the loan 's effective interest rate of the loan . if the loan is collateral dependent , we measure impairment based upon the fair value of the underlying collateral , which we determine based on the current fair value of the collateral less estimated selling costs . loans are identified as collateral dependent if we believe that collateral is the expected source of repayment . in calculating the impairment on a loan , the estimates of the expected future cash flows or collateral value are the key estimates made by management . changes in the estimated future cash flows or collateral value affect the amount of the calculated impairment . the change in cash flows required to make the change in the calculated impairment material will be different for 29 each borrower and depend on the period covered , the effective interest rate at the time the loan became impaired and the amount of the loan outstanding . estimates are not used to determine our investment in the receivables or the discount rate since , in all cases , the investment is equal to the loan balance outstanding at the reporting date , and the discount rate is equal to the effective interest rate on the loan at the time the loan became impaired . we recognize interest income on impaired loans on a case-by-case basis . an impaired loan to a borrower that is nonperforming will generally be placed on non-accrual status and we will reverse all accrued and unpaid interest . we generally apply all cash received during the non-accrual period to the reduction of principal , thereby foregoing interest income recognition . interest income may be recognized on an accrual basis for restructured impaired loans where the borrower is performing and is expected to continue to perform based on agreed-upon terms . all loans are written off in the period that it becomes evident that collectability is highly unlikely ; however , our efforts to recover all charged-off amounts may continue . the determination to write off all or a portion of a loan balance is made based on various factors on a case-by-case basis including , but not limited to , cash flow analysis and the fair value of collateral securing the borrower 's loans . we provide additional information on the allowance for loan losses in `` note 3—loans and commitments . '' fair value fair value of financial instruments we identify fair value as a critical accounting policy because of the subjective nature and the requirement for management to make significant estimations in determining the amounts to be recorded . different assumptions and estimates could also be reasonable , and changes in the assumptions used and estimates made could have a material effect on our financial statements . the primary instruments recorded on our balance sheet at fair value are derivative financial instruments . derivative instruments must be recorded on the balance sheet as either an asset or liability measured at fair value . since these instruments generally do not qualify for hedge accounting , the accounting standards require that we record all changes in fair value through earnings .
| executive summary our primary objective as a member-owned cooperative lender is to provide cost-based financial products to our rural electric and telecommunications members while maintaining sound financial results required for investment-grade credit ratings on our debt instruments . our objective is not to maximize net income ; therefore , the rates we charge our member-borrowers reflect our adjusted interest expense plus a spread to cover our operating expenses , a provision for loan losses and earnings sufficient to achieve interest coverage to meet our financial objectives . our goal is to earn an annual minimum adjusted tier of 1.10 and to achieve and maintain an adjusted debt-to-equity ratio below 6.00-to-1 . lending activity total loans outstanding were $ 20,467 million as of may 31 , 2014 , an increase of $ 171 million , or 1 % , from may 31 , 2013. the increase reflected an increase of $ 94 million in cfc distribution loans , an increase of $ 78 million in cfc power supply loans and an increase of $ 55 million in ncsc loans , which was partially offset by a decrease of $ 53 million in rtfc loans . during the year ended may 31 , 2014 , $ 1,164 million of cfc long-term fixed-rate loans repriced . of this total , $ 984 million repriced to a new long-term fixed rate ; $ 69 million repriced to a long-term variable rate ; $ 21 million repriced to a new rate offered as part of our loan sales program and were sold with servicing retained by cfc ; and $ 90 million were repaid in full .
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was deemed the legal and accounting acquirer and iridium the legal and accounting acquiree . on september 29 , 2009 , we changed our name to iridium communications inc. story_separator_special_tag for 85 % of the costs under the fsd for the design and manufacture of iridium next , the premium for the coface insurance and the payment of a portion of interest during a portion of the construction and launch phase of iridium next . scheduled semi-annual principal repayments will begin six months after the earlier of ( i ) the successful deployment of a specified number of iridium next satellites or ( ii ) september 30 , 2017. during this repayment period , we will pay interest on the same date as the principal repayments . prior to the repayment period , interest payments are due on a semi-annual basis in april and october . interest expense incurred during the year ended december 31 , 2012 was $ 25.5 million . we capitalize all interest costs incurred related to the credit facility during the construction period of the assets ; accordingly we capitalized $ 25.5 million related to interest incurred in 2012. we pay interest on each semi-annual due date through a combination of a cash payment and a deemed additional loan . the $ 25.5 million in interest incurred during the year ended december 31 , 2012 consisted of $ 7.7 million payable in cash , of which $ 6.1 million was paid during the year and $ 1.6 million was accrued at year end , and $ 17.8 million payable by deemed loans , of which $ 14.1 million was paid during the year and $ 3.7 million was accrued at year end . the credit facility will mature seven years after the start of the principal repayment period . in addition , we are required to maintain minimum cash reserve levels for debt service , which are classified as restricted cash on the accompanying consolidated balance sheets . minimum debt service reserve levels are estimated as follows ( in millions ) : replace_table_token_7_th the required minimum debt service reserve level at december 31 , 2012 was $ 54.0 million , which we satisfied . obligations under the credit facility are guaranteed by us and our subsidiaries that are obligors under the credit facility . our obligations are secured on a senior basis by a lien on substantially all of our assets and those of the other obligors . we may not prepay any borrowings prior to december 31 , 2015. if , on that date , a specified number of iridium next satellites have been successfully launched and we have adequate time and resources to complete the iridium next constellation on schedule , we may prepay the borrowings without penalty . in addition , following the completion of the iridium next constellation , we may prepay the borrowings without penalty . we may not subsequently borrow any amounts that we repay . we must repay the loans in full upon a delisting of our common stock , a change in control of our company or our ceasing to own 100 % of any of the other obligors , or the sale of all or substantially all of our assets . we must apply all or a portion of specified capital raising proceeds , insurance proceeds and condemnation proceeds to the prepayment of the loans . the credit facility includes customary representations , events of default , covenants and conditions precedent to our drawing of funds . 40 the financial covenants under the credit facility include : a minimum cash requirement ; a minimum debt-to-equity ratio level ; maximum capital expenditure levels ; minimum consolidated operational earnings before interest , taxes , depreciation and amortization levels ; minimum cash flow requirements from customers who have hosted payloads on our satellites ; minimum debt service reserve levels ; a minimum debt service coverage ratio level ; and maximum leverage levels . the covenants also place limitations on our ability and that of our subsidiaries to carry out mergers and acquisitions , dispose of assets , grant security interests , declare , make or pay dividends , enter into transactions with affiliates , fund payments under the fsd from our own resources , incur additional indebtedness , or make loans , guarantees or indemnities . we were in compliance with all covenants as of december 31 , 2012. in august 2012 , we entered into a supplemental agreement , or the supplemental agreement , with the lenders under the credit facility , to amend and restate the credit facility . the credit facility , as amended by the supplemental agreement , authorizes us to fund and operate aireon llc , or aireon , for the purpose of establishing a space-based automatic dependent surveillance-broadcast global air traffic monitoring business . specifically , the amended credit facility excludes aireon from the group of companies ( us and our material subsidiaries ) that are obligors under the credit facility and from our consolidated financial results for purposes of calculating compliance with the financial covenants . the amended credit facility allows us to make a $ 12.5 million investment in aireon , the injection of up to $ 10 million worth of airtime credits in connection with a satellite design and development agreement with harris corporation , if needed , and an additional investment of up to $ 15 million raised from issuances of our common equity . the amended credit facility requires us to use any net distributions received from aireon to repay our debt obligations under the credit facility and to grant the lenders a security interest in our ownership interest in aireon . the supplemental agreement does not modify the principal amount , interest rates , repayment dates , or maturity of the credit facility . story_separator_special_tag the remaining unexercised outstanding $ 7.00 warrants expired in february 2013. investment in subsidiary in november 2012 , aireon and one of our indirect wholly owned subsidiaries , iridium satellite llc , or iridium satellite , entered into an amended and restated limited liability company agreement of aireon , or the aireon llc agreement , with nav canada and nav canada satellite , inc. , a wholly owned subsidiary of nav canada . under the aireon llc agreement , nav canada satellite may purchase series a preferred membership interests in aireon in five tranches representing up to 51 % of the fully diluted equity of aireon for an aggregate investment of up to $ 150 million . each tranche is subject to the satisfaction of a number of operational , commercial , regulatory and financial conditions . on november 19 , 2012 , nav canada satellite made its first tranche investment of $ 15 million , representing 5.1 % of the fully diluted equity of aireon . as of december 31 , 2012 , iridium satellite owned 100 % of aireon 's outstanding common membership interests which represented 94.9 % of aireon 's fully diluted outstanding equity . settlement of motorola litigation on october 1 , 2010 , we entered into a settlement agreement with motorola pursuant to which we settled litigation previously filed by motorola against iridium satellite and iridium holdings in illinois . on the same date , the parties entered into a series of other agreements . pursuant to these several agreements , we agreed to pay motorola an aggregate of $ 46.0 million to repay debt of $ 15.4 million otherwise due in 2010 , and $ 14.9 million in consideration of expanded intellectual property licenses , the conversion of existing intellectual property licenses from being royalty-based to prepaid , the transfer to us of ownership of certain intellectual property rights , and $ 15.7 million for the termination of motorola 's rights to distributions and payments based on the value of our company upon specified “ triggering events ” and mutual releases of claims . of the total $ 46.0 million , we paid $ 23.0 million contemporaneously with the execution of the settlement agreement and the remaining $ 23.0 million was reflected in a promissory note . in december 2010 , we paid $ 0.8 million to motorola , which was applied against the promissory note principal . in may 2011 , we paid $ 23.6 million to motorola solutions , inc. , motorola 's successor , in full satisfaction of the outstanding balance of its promissory note including accrued interest . total interest expense under the note payable totaled approximately $ 1.4 million and was capitalized as construction in progress . material trends and uncertainties our industry and customer base has historically grown as a result of : demand for remote and reliable mobile communications services ; 42 increased demand for communications services by the u.s. department of defense , or dod , disaster and relief agencies and emergency first responders ; a broad and expanding wholesale distribution network with access to diverse and geographically dispersed niche markets ; a growing number of new products and services and related applications ; improved data transmission speeds for mobile satellite service offerings ; regulatory mandates requiring the use of mobile satellite services ; a general reduction in prices of mobile satellite services and subscriber equipment ; and geographic market expansion through the receipt of licenses to sell our services in additional countries . nonetheless , we face a number of challenges and uncertainties in operating our business , including : our ability to develop iridium next and related ground infrastructure , and to develop products and services for iridium next , including our ability to continue to access the credit facility to meet our future capital requirements for the design , build and launch of the iridium next satellites ; our ability to obtain sufficient internally generated cash flows , including cash flows from hosted payloads , to fund a portion of the costs associated with iridium next and support ongoing business ; aireon 's ability to successfully fund , develop and market its space-based ads-b global aviation monitoring service to be carried as a hosted payload on the iridium next system ; our ability to maintain the health , capacity , control and level of service of our existing satellite network through the transition to iridium next ; changes in general economic , business and industry conditions ; our reliance on a single primary commercial gateway and a primary satellite network operations center ; competition from other mobile satellite service providers and , to a lesser extent , from the expansion of terrestrial-based cellular phone systems and related pricing pressures ; changes in demand from u.s. government customers , particularly the dod ; our ability to successfully negotiate a new contract with the dod when it expires later in 2013 ; market acceptance of our products ; regulatory requirements in existing and new geographic markets ; rapid and significant technological changes in the telecommunications industry ; reliance on our wholesale distribution network to market and sell our products , services and applications effectively ; reliance on single source suppliers for some of the components required in the manufacture of our end user subscriber equipment and our ability to purchase parts that are periodically subject to shortages resulting from surges in demand , natural disasters or other events ; and reliance on the u.s. government and a few significant distributors for a substantial portion of our revenue . critical accounting policies and estimates the 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 , or u.s. gaap . the preparation of these financial statements requires the use of estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities .
| overview of our business we are engaged primarily in providing mobile voice and data communications services using a constellation of orbiting satellites . we are the second largest provider of satellite-based mobile voice and data communications services based on revenue , and the only commercial provider of communications services offering true global coverage . our satellite network provides communications services to regions of the world where wireless or wireline networks do not exist or are impaired , including extremely remote or rural land areas , airways , open-ocean , the polar regions and regions where the telecommunications infrastructure has been affected by political conflicts or natural disasters . we provide voice and data communications services to businesses , the u.s. and foreign governments , non-governmental organizations and consumers using our constellation of in-orbit satellites and related ground infrastructure . we utilize an interlinked , mesh architecture to route traffic across the satellite constellation using radio frequency crosslinks . this unique architecture minimizes the need for ground facilities to support the constellation , which facilitates the global reach of our services and allows us to offer services in countries and regions where we have no physical presence . we sell our products and services to commercial end users through a wholesale distribution network , encompassing more than 70 service providers , 175 value-added resellers , or vars , and 50 value-added manufacturers , or vams , who either sell directly to the end user or indirectly through other service providers , vars or dealers . these distributors often integrate our products and services with other complementary hardware and software and have developed a broad suite of applications for our products and services targeting specific lines of business .
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the following discussion contains “ forward-looking statements ” that reflect our future plans , estimates , beliefs , and expected performance . actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors . see “ item 1a . risk factors ” and “ cautionary statement regarding forward-looking statements. ” overview we are a publicly traded delaware limited partnership formed by diamondback in february 2014 to , among other things , own , acquire and exploit oil and natural gas properties in north america . the partnership is currently focused on oil and natural gas properties in the permian basin and eagle ford shale . as of december 31 , 2018 , our general partner held a 100 % general partner interest in us , and diamondback owned 731,500 common units and all of our 72,418,500 outstanding class b units , representing approximately 59 % of our total units outstanding . diamondback also owns and controls our general partner . we operate in one reportable segment engaged in the acquisition of oil and natural gas properties . our assets consist primarily of producing oil and natural gas properties principally located in the permian basin of west texas . recapitalization , tax status election and related transactions on may 9 , 2018 , we filed an election with the internal revenue service to change our federal income tax status from that of a pass-through partnership to that of a taxable entity via a “ check the box ” election . in connection with making this election , on that date we ( i ) amended and restated our first amended and restated partnership agreement , ( ii ) amended and restated the first amended and restated limited liability company agreement of viper energy partners llc , or operating company , ( iii ) amended and restated our existing registration rights agreement with diamondback and ( iv ) entered into an exchange agreement with diamondback , our general partner and the operating company . simultaneously with the effectiveness of these agreements , diamondback delivered and assigned to us the 73,150,000 common units diamondback owned in exchange for ( i ) 73,150,000 of our newly-issued class b units and ( ii ) 73,150,000 newly-issued units of the operating company pursuant to the terms of a recapitalization agreement dated march 28 , 2018 , as amended as of may 9 , 2018 , or recapitalization agreement . immediately following that exchange , we continued to be the managing member of the operating company , with sole control of its operations , and owned approximately 36 % of the outstanding units issued by the operating company , and diamondback owned the remaining approximately 64 % of the outstanding units issued by the operating company . the operating company units and our class b units owned by diamondback are exchangeable from time to time for the partnership 's common units ( that is , one operating company unit and one partnership class b unit , together , will be exchangeable for one partnership common unit ) . on may 10 , 2018 , the change in our income tax status became effective . on that date , pursuant to the terms of the recapitalization agreement , ( i ) the general partner made a cash capital contribution of $ 1.0 million to us in respect of its general partner interest and ( ii ) diamondback made a cash capital contribution of $ 1.0 million to us in respect of the class b units . diamondback , as the holder of the class b units , and the general partner , as the holder of the general partner interest , are entitled to receive an 8 % annual distribution on the outstanding amount of these capital contributions , payable quarterly , as a return on this invested capital . on may 10 , 2018 , diamondback also exchanged 731,500 class b units and 731,500 units in the operating company for 731,500 of our common units and a cash amount of $ 10,000 representing a proportionate return of the $ 1.0 million invested capital in respect of our class b units . the general partner continues to serve as our general partner and diamondback continues to control us . after the effectiveness of the tax status election and the completion of related transactions , our minerals business continues to be conducted through the operating company , which continues to be taxed as a partnership for federal and state income tax purposes . this structure was adopted to provide anticipated significant benefits to our business , including operational effectiveness , acquisition and disposition transactional planning flexibility and income tax efficiency . for additional information regarding the tax status election and related transactions , please refer to our definitive information statement on schedule 14c filed with the sec on april 17 , 2018 and our current report on form 8-k filed with the sec on may 15 , 2018. sources of our income our income is primarily derived from royalty payments we receive from our operators based on the sale of oil and natural gas production , as well as the sale of natural gas liquids that are extracted from natural gas during processing . royalty payments may vary significantly from period to period as a result of changes in commodity prices , production mix and volumes of production sold by our operators . 44 the following table presents the breakdown of our operating income for the following periods : replace_table_token_9_th as a result , our income is more sensitive to fluctuations in oil prices than they are to fluctuations in natural gas liquids or natural gas prices . our income may vary significantly from period to period as a result of changes in volumes of production sold or changes in commodity prices . oil , natural gas liquids and natural gas prices have historically been volatile . story_separator_special_tag for the year ended december 31 , 2018 , we accrued $ 0.2 million for texas margin tax payable pursuant to our tax sharing agreement with diamondback . for the years ended december 31 , 2017 and 2016 , we did no t accrue any texas margin tax . 46 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; font-weight : bold ; '' > provision for ( benefit from ) income taxes we recorded an income tax benefit of $ 72.4 million for the year ended december 31 , 2018 . prior to the second quarter of 2018 , we had no provision for or benefit from income taxes . total income tax benefit for the year ended december 31 , 2018 differed from amounts computed by applying the federal statutory tax rate to pre-tax income for the period primarily due to deferred taxes recognized as a result of our change in federal income tax status . adjusted ebitda adjusted ebitda is a supplemental non-gaap financial measure that is used by management and external users of our financial statements , such as industry analysts , investors , lenders and rating agencies . we believe adjusted ebitda is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure . in addition , management uses adjusted ebitda in evaluating cash flow that will be available to pay distributions to our common unitholders . we define adjusted ebitda as net income ( loss ) plus interest expense , net , non-cash unit-based compensation expense , depletion expense , impairment expense , loss on revaluation of investment and benefit from income taxes . adjusted ebitda is not a measure of net income ( loss ) as determined by gaap . we exclude the items listed above from net income ( loss ) in arriving at adjusted ebitda because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets , capital structures and the method by which the assets were acquired . certain items excluded from adjusted ebitda are significant components in understanding and assessing a company 's financial performance , such as a company 's cost of capital and tax structure , as well as the historic costs of depreciable assets , none of which are components of adjusted ebitda . adjusted ebitda should not be considered as an alternative to , or more meaningful than , net income ( loss ) , royalty income , cash flow from operating activities or any other measure of financial performance or liquidity presented as determined in accordance with gaap . our computations of adjusted ebitda may not be comparable to other similarly titled measures of other companies . the following table presents a reconciliation of adjusted ebitda , to net income , our most directly comparable gaap financial measure for the periods indicated : replace_table_token_14_th liquidity and capital resources overview our primary sources of liquidity have been cash flows from operations , proceeds from equity offerings and borrowings under our credit agreement , and our primary uses of cash have been , and are expected to continue to be , distributions to our unitholders and replacement and growth capital expenditures , including the acquisition of oil and natural gas interests . we intend to finance potential future acquisitions through a combination of cash on hand , borrowings under our credit agreement and , subject to market conditions and other factors , proceeds from one or more capital market transactions , which may include debt or equity offerings . our ability to generate cash is subject to a number of factors , some of which are beyond our control , including commodity prices and general economic , financial , competitive , legislative , regulatory and other factors , including weather . 50 the board of directors of our general partner has adopted a policy pursuant to which the operating company will distribute all of the available cash it generates each quarter to unitholders ( including us ) , and we , in turn , will distribute all of the available cash we receive from the operating company to our common unitholders . cash distributions are made to the common unitholders of record on the applicable record date , generally within 60 days after the end of each quarter . available cash for us and the operating company for each quarter is determined by the board of directors of our general partner following the end of such quarter . available cash for the operating company for each quarter will generally equal its adjusted ebitda reduced for cash needed for debt service and other contractual obligations and fixed charges and reserves for future operating or capital needs that the board of directors of our general partner deems necessary or appropriate , if any , and our available cash will generally equal our adjusted ebitda ( which will be our proportionate share of the available cash distributed to us by the operating company ) , less as a result of the tax election , cash needed for the payment of income taxes payable by us , if any . we will not have a minimum quarterly distribution or employ structures intended to consistently maintain or increase distributions over time . the board of directors of our general partner may change our distribution policy at any time . our partnership agreement does not require us to pay distributions to our common unitholders on a quarterly or other basis . the following table presents cash distributions approved by the board of directors of our general partner for the periods presented : replace_table_token_15_th * the q4 2018 distribution is payable on february 25 , 2019 to unitholders of record at the close of business on february 19 , 2019 .
| results of operations the following table summarizes our revenue and expenses and production data for the periods indicated : replace_table_token_10_th 47 replace_table_token_11_th comparison of the years ended december 31 , 2018 , 2017 and 2016 royalty income our royalty income for the years ended december 31 , 2018 , 2017 and 2016 was $ 282.7 million , $ 160.2 million and $ 78.8 million , respectively . our royalty income is a function of oil , natural gas liquids and natural gas production volumes sold and average prices received for those volumes . in addition to the increase in average prices received during the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 , we also benefited from a 57 % increase in combined volumes sold by our operators . during the year ended year ended december 31 , 2017 , average prices received and combined volumes sold by our operators also increased as compared to the year ended december 31 , 2016 . replace_table_token_12_th 48 replace_table_token_13_th ( 1 ) production volumes are presented in mbbls for oil and natural gas liquids and mmcf for natural gas . lease bonus income lease bonus income decreased by $ 5.8 million from $ 11.9 million for the year ended december 31 , 2017 to $ 6.0 million for the year ended december 31 , 2018 . during the year ended december 31 , 2018 , we received $ 3.4 million which was attributable to lease bonus payments to extend the term of 15 leases , reflecting an average bonus of $ 4,513 per acre , and $ 2.7 million attributable to lease bonus payments on six new leases , reflecting an average bonus of $ 12,740 per acre .
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as of january 2 , 2015 we had a staff of 637 which includes licensed engineers and other professionals . since fiscal 2008 , we have been providing increased services to public and private utilities that service major metropolitan communities and commercial and industrial firms , particularly in connection with the growth of our energy efficiency and sustainability services . historically , our clients have primarily been public agencies in communities with populations ranging from 10,000 to 300,000 people . we believe communities of this size are underserved by large outsourcing companies that tend to focus on securing large federal and state projects , as well as projects for the private sector . we seek to establish close working relationships with our clients and expand the breadth and depth of the services we provide to them over time . while we currently serve communities throughout the country , our business with public agencies is concentrated in california and arizona . we provide services to approximately 71 % of the 482 cities and approximately 89 % of the 58 counties in california . we also serve special districts , school districts , a range of public agencies and private industry . our business with public and private utilities is concentrated in california and new york . we also have business with utilities in texas , illinois , ohio and washington state . we were founded in 1964 and willdan group , inc. , a delaware corporation , was formed in 2006 to serve as our holding company . we consist of a family of wholly owned companies that operate within the following segments for financial reporting purposes : energy efficiency services . our energy efficiency services segment consists of the business of our subsidiary , willdan energy solutions , which offers energy efficiency and sustainability consulting services to utilities , public agencies and private industry . this segment is currently our largest segment based on contract revenue , representing approximately 49 % and 42 % of our consolidated contract revenue for fiscal years 2014 and 2013 , respectively . engineering services . our engineering services segment includes the operations of our subsidiaries , willdan engineering , willdan infrastructure and public agency resources ( `` pars '' ) . willdan engineering provides civil engineering-related and city planning services to our clients . pars primarily provides staffing to willdan engineering . contract revenue for the engineering services segment represented approximately 38 % and 41 % of our overall consolidated contract revenue for fiscal years 2014 and 2013 , respectively . public finance services . our public finance services segment consists of the business of our subsidiary , willdan financial services , which offers economic and financial consulting services to 36 public agencies . contract revenue for the public finance services segment represented approximately 10 % and 12 % of our consolidated contract revenue for fiscal years 2014 and 2013 , respectively . homeland security services . our homeland security services segment consists of the business of our subsidiary , willdan homeland solutions , which offers national preparedness and interoperability services and communications and technology solutions . contract revenue for our homeland security services segment represented approximately 3 % and 5 % of our consolidated contract revenue for fiscal years 2014 and 2013 , respectively . while we were profitable in fiscal year 2014 and fiscal year 2013 , our profitability in fiscal year 2012 was severely impacted by a goodwill impairment charge related to a prior acquisition . recent developments acquisitions . on january 15 , 2015 , we completed two separate acquisitions . through our wholly-owned subsidiary , willdan energy solutions ( `` wes '' ) , we acquired all of the outstanding shares of abacus resource management company ( `` abacus '' ) , an oregon-based energy engineering company . in addition , we , through our wholly-owned subsidiary wes , also acquired substantially all of the assets of 360 energy engineers , llc ( `` 360 energy '' ) , a kansas-based energy and engineering energy management consulting company . pursuant to the terms of the stock purchase agreement , dated as of january 15 , 2015 ( the `` abacus agreement '' ) , by and among us , wes , abacus and mark kinzer and steve rubbert ( the `` abacus shareholders '' ) , wes will pay the abacus shareholders a maximum purchase price of $ 6,150,000 , consisting of ( i ) $ 2,500,000 in cash paid at closing ( subject to certain post-closing adjustments ) , ( ii ) 75,758 shares of common stock , par value $ 0.01 per share , of the company ( `` common stock '' ) equaling $ 1,000,000 based on the volume-weighted average price of shares of the common stock for the ten trading days immediately prior to , but not including , the closing date of the abacus acquisition , ( iii ) $ 1,250,000 aggregate principal amount of promissory notes issued to the abacus shareholders ( collectively , the `` abacus notes '' ) and ( iv ) up to $ 1,400,000 in cash , payable at the end of the company 's and wes 's 2015 and 2016 fiscal years , if certain financial targets of abacus are met during such fiscal years . the abacus notes were issued in an initial outstanding principal amount of $ 625,000 to each of the abacus shareholders . the abacus notes provide for a fixed interest rate of 4 % per annum and are fully amortizing and payable in equal monthly installments between january 15 , 2015 and their january 15 , 2017 maturity date . the abacus notes contain events of default provisions customary for documents of their nature . story_separator_special_tag the contracts we enter into with our clients contain three principal types of pricing provisions : time and materials , unit based , and fixed price . revenue on our time and materials and unit based contracts are recognized as the work is performed in accordance with specific terms of the contract . approximately 14 % of our contracts are based on contractual rates per hour plus costs incurred . some of these contracts include 38 maximum contract prices , but the majority of these contracts are not expected to exceed the maximum . contract revenue on our fixed price contracts is determined on the percentage of completion method based generally on the ratio of direct costs incurred to date to estimated total direct costs at completion . many of our fixed price contracts are relatively short in duration , thereby lowering the risks of not properly estimating the percent complete . adjustments to contract cost estimates are made in the periods in which the facts requiring such revisions become known . when the revised estimate indicates a loss , such loss is recognized currently in its entirety . claims revenue is recognized only upon resolution of the claim . change orders in dispute are evaluated as claims . costs related to un-priced change orders are expensed when incurred and recognition of the related contract revenue is based on an evaluation of the probability of recovery of the costs . estimated profit is recognized for un-priced change orders if realization of the expected price of the change order is probable . our contracts come up for renewal periodically and at the time of renewal may be subject to renegotiation , which could impact the profitability on that contract . in addition , during the term of a contract , public agencies may request additional or revised services which may impact the economics of the transaction . most of our contracts permit our clients , with prior notice , to terminate the contracts at any time without cause . while we have a large volume of transactions , the renewal , termination or modification of a contract , in particular our contract with consolidated edison , may have a material adverse effect on our consolidated operations . direct costs of contract revenue direct costs of contract revenue consist primarily of subcontractor services and that portion of technical and nontechnical salaries and wages that have been incurred in connection with revenue producing projects . direct costs of contract revenue also include production expenses and other expenses that are incurred in connection with revenue producing projects . direct costs of contract revenue generally exclude depreciation and amortization , that portion of technical and nontechnical salaries and wages related to marketing efforts , vacations , holidays and other time not spent directly generating revenue under existing contracts . such costs are included in general and administrative expenses . additionally , payroll taxes , bonuses and employee benefit costs for all of our personnel are included in general and administrative expenses since no allocation of these costs is made to direct costs of contract revenue . no allocation of facilities costs is made to direct costs of contract revenue nor is depreciation and amortization allocated to direct costs . we expense direct costs of contract revenue when incurred . as a firm that provides multiple and diverse services , we do not believe gross margin is a consistent or appropriate indicator of our performance and therefore we do not use this measure as construction contractors and other types of consulting firms may . other companies may classify as direct costs of contract revenue some of the costs that we classify as general and administrative expenses . as a result , our direct costs of contract revenue may not be comparable to direct costs for other companies , either as a line item expense or as a percentage of contract revenue . general and administrative expenses general and administrative expenses include the costs of the marketing and support staffs , other marketing expenses , management and administrative personnel costs , payroll taxes , bonuses and employee benefits for all of our employees and the portion of salaries and wages not allocated to direct costs of contract revenue for those employees who provide our services . general and administrative expenses also include facility costs , depreciation and amortization , professional services , legal and accounting fees and administrative operating costs . within general and administrative expenses , `` other '' includes expenses such as provision for billed or unbilled receivables , professional services , legal and accounting , computer costs , travel and entertainment and marketing costs . we expense general and administrative costs when incurred . 39 critical accounting policies this discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles in the u.s. , or gaap . to prepare these financial statements in conformity with gaap , we must make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses in the reporting period . our actual results may differ from these estimates . we have provided a summary of our significant accounting policies in note 2 to our consolidated financial statements included elsewhere in this report . we describe below those accounting policies that require material subjective or complex judgments and that have the most significant impact on our financial condition and results of operations . our management evaluates these estimates on an ongoing basis , based upon information currently available and on various assumptions management believes are reasonable as of the date of this report . contract accounting we enter into contracts with clients that contain three principal types of pricing provisions : fixed price , time-and-materials , and unit-based .
| results of operations the following table sets forth , for the periods indicated , certain information derived from our consolidated statements of operations expressed as a percentage of contract revenue . amounts may not add to the totals due to rounding . replace_table_token_8_th fiscal year 2014 compared to fiscal year 2013 contract revenue . our contract revenue was $ 108.1 million for fiscal year 2014 , with $ 52.9 million attributable to the energy efficiency services segment , $ 40.8 million attributable to the engineering services segment , $ 10.6 million attributable to the public finance services segment , and $ 3.7 million attributable to the homeland security services segment . consolidated contract revenue increased $ 22.6 million , or 26.4 % , to $ 108.1 million for fiscal year 2014 from $ 85.5 million for fiscal year 2013. this was primarily the result of increases of $ 16.9 million , or 46.9 % , and $ 5.6 million , or 15.8 % , in contract revenue from our energy efficiency services and engineering services segments , respectively . contract revenue for our public finance services increased $ 0.8 million , or 8.0 % to $ 10.6 million for fiscal year 2014 from $ 9.8 million for fiscal year 2013. contract revenue for our homeland security services segment decreased by $ 0.7 million , or 15.4 % , to $ 3.7 million for fiscal year 2014 from 43 $ 4.4 million for fiscal year 2013. contract revenue for the energy efficiency services segment increased primarily because of increased demand for energy efficiency services in the states of new york and california , largely due to a contract modification that expanded an existing small business direct install ( `` sbdi '' ) contract with consolidated edison . contract revenue for the engineering services segment increased primarily due to greater demand for our city engineering services in northern california , our building and safety services , and our construction management services .
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1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 32.2 certification of chief financial officer pursuant to rule 13a-14 ( b ) or rule 15d-14 ( b ) promulgated under the securities exchange act of 1934 and 18 u.s.c . 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 ( 1 ) included as an exhibit to our current report on form 8-k filed on september 16 , 2009 . ( 2 ) included as an exhibit to our current report on form 8-k filed on june 9 , 2009 . ( 3 ) included as an exhibit to our current report on form 8-k filed on june 23 , 2009 . ( 4 ) included as an exhibit to our current report on form 8-k filed on july 27 , 2009 . ( 5 ) included as an exhibit to our current report on form 8-k filed on november 2 , 2009 . 20 signatures pursuant to the requirements of section 13 or 15 ( d ) of the exchange act , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . date : february 16 , 2010 double halo resources inc. by : george m. rock rutherford george m. rock rutherford president , chief executive officer pursuant to the requirements of the exchange act , 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 george m. rock rutherford president , chief executive officer february 16 , 2010 george m. rock rutherford michael killman chief financial officer , principal accounting officer february 16 , 2010 michael killman john kuykendall secretary , treasurer february 16 , 2010 john kuykendall michael todd rutherford vice president of information technology february 16 , 2010 michael todd rutherford david chapman director february 16 , 2010 david chapman 21 story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements , including the notes thereto , appearing elsewhere in this annual report . the discussions of results , causes and trends should not be construed to imply any conclusion that these results or trends will necessarily continue into the future . story_separator_special_tag planned expenditures , we will require approximately $ 570,000 to proceed with our business plan over the next 12 months . if we secure less than the full amount of financing that we require , we will not be able to carry out our complete business plan and we will be forced to proceed with a scaled back business plan based on our available financial resources . we intend to raise the balance of our cash requirements for the next 12 months from private placements , loans from related parties or possibly a registered public offering ( either self-underwritten or through a broker-dealer ) . if we are unsuccessful in raising enough money through such efforts , we may review other financing possibilities such as bank loans . at this time we do not have a commitment from any broker-dealer to provide us with financing . there is no assurance that any financing will be available to us or if available , on terms that will be acceptable to us . 7 even though we plan to raise capital through equity or debt financing , we believe that the latter may not be a viable alternative for funding our operations as we do not have tangible assets to secure any such financing . we anticipate that any additional funding will be in the form of equity financing from the sale of our common stock . however , we do not have any financing arranged and we can not provide any assurance that we will be able to raise sufficient funds from the sale of our common stock to finance our operations . in the absence of such financing , we may be forced to abandon our business plan . going concern our financial statements for the period ended october 31 , 2009 have been prepared on a going concern basis and contain an additional explanatory paragraph in note 1 which identifies issues that raise substantial doubt about our ability to continue as a going concern . our financial statements do not include any adjustments that might result from the outcome of this uncertainty . we have not generated any revenues , have achieved losses since our inception , and rely upon the sale of our common stock to fund our operations . we may not generate any revenues even if we close the proposed share exchange transaction with agr stone & tools usa , inc. , and if we are unable to raise equity or secure alternative financing , we may not be able to continue our operations and our business plan may fail . if our operations and cash flow improve , management believes that we can continue to operate . however , no assurance can be given that management 's actions will result in profitable operations or an improvement in our liquidity situation . the threat of our ability to continue as a going concern will cease to exist only when our revenues have reached a level able to sustain our business operations . off-balance sheet arrangements we have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to stockholders . critical accounting policies our financial statements are affected by the accounting policies used and the estimates and assumptions made by management during their preparation . a complete summary of these policies is included in note 2 of the notes to our financial statements . we have identified below the accounting policies that are of particular story_separator_special_tag 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 32.2 certification of chief financial officer pursuant to rule 13a-14 ( b ) or rule 15d-14 ( b ) promulgated under the securities exchange act of 1934 and 18 u.s.c . 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 ( 1 ) included as an exhibit to our current report on form 8-k filed on september 16 , 2009 . ( 2 ) included as an exhibit to our current report on form 8-k filed on june 9 , 2009 . ( 3 ) included as an exhibit to our current report on form 8-k filed on june 23 , 2009 . ( 4 ) included as an exhibit to our current report on form 8-k filed on july 27 , 2009 . ( 5 ) included as an exhibit to our current report on form 8-k filed on november 2 , 2009 . 20 signatures pursuant to the requirements of section 13 or 15 ( d ) of the exchange act , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . date : february 16 , 2010 double halo resources inc. by : george m. rock rutherford george m. rock rutherford president , chief executive officer pursuant to the requirements of the exchange act , 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 george m. rock rutherford president , chief executive officer february 16 , 2010 george m. rock rutherford michael killman chief financial officer , principal accounting officer february 16 , 2010 michael killman john kuykendall secretary , treasurer february 16 , 2010 john kuykendall michael todd rutherford vice president of information technology february 16 , 2010 michael todd rutherford david chapman director february 16 , 2010 david chapman 21 story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements , including the notes thereto , appearing elsewhere in this annual report . the discussions of results , causes and trends should not be construed to imply any conclusion that these results or trends will necessarily continue into the future . story_separator_special_tag planned expenditures , we will require approximately $ 570,000 to proceed with our business plan over the next 12 months . if we secure less than the full amount of financing that we require , we will not be able to carry out our complete business plan and we will be forced to proceed with a scaled back business plan based on our available financial resources . we intend to raise the balance of our cash requirements for the next 12 months from private placements , loans from related parties or possibly a registered public offering ( either self-underwritten or through a broker-dealer ) . if we are unsuccessful in raising enough money through such efforts , we may review other financing possibilities such as bank loans . at this time we do not have a commitment from any broker-dealer to provide us with financing . there is no assurance that any financing will be available to us or if available , on terms that will be acceptable to us . 7 even though we plan to raise capital through equity or debt financing , we believe that the latter may not be a viable alternative for funding our operations as we do not have tangible assets to secure any such financing . we anticipate that any additional funding will be in the form of equity financing from the sale of our common stock . however , we do not have any financing arranged and we can not provide any assurance that we will be able to raise sufficient funds from the sale of our common stock to finance our operations . in the absence of such financing , we may be forced to abandon our business plan . going concern our financial statements for the period ended october 31 , 2009 have been prepared on a going concern basis and contain an additional explanatory paragraph in note 1 which identifies issues that raise substantial doubt about our ability to continue as a going concern . our financial statements do not include any adjustments that might result from the outcome of this uncertainty . we have not generated any revenues , have achieved losses since our inception , and rely upon the sale of our common stock to fund our operations . we may not generate any revenues even if we close the proposed share exchange transaction with agr stone & tools usa , inc. , and if we are unable to raise equity or secure alternative financing , we may not be able to continue our operations and our business plan may fail . if our operations and cash flow improve , management believes that we can continue to operate . however , no assurance can be given that management 's actions will result in profitable operations or an improvement in our liquidity situation . the threat of our ability to continue as a going concern will cease to exist only when our revenues have reached a level able to sustain our business operations . off-balance sheet arrangements we have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to stockholders . critical accounting policies our financial statements are affected by the accounting policies used and the estimates and assumptions made by management during their preparation . a complete summary of these policies is included in note 2 of the notes to our financial statements . we have identified below the accounting policies that are of particular
| results of operations revenues we have limited operational history . from our inception on march 11 , 2004 to october 31 , 2009 we did not generate any revenues and we sustained operational losses . as of october 31 , 2009 we had no total assets and total liabilities of $ 231,895. we anticipate that we will incur substantial losses for the foreseeable future and our ability to generate any revenues in the next 12 months continues to be uncertain . we believe that our success depends on our ability to close the proposed share exchange transaction with agr stone & tools usa , inc. and develop its business as our own . expenses from our inception on march 11 , 2004 to october 31 , 2009 we incurred total operating expenses of $ 306,157 , including $ 25,567 in consulting fees , $ 62,257 in general and administrative expenses , $ 16,898 in mineral property and exploration costs and $ 201,435 in professional fees . for the fiscal year ended october 31 , 2009 we incurred total expenses of $ 103,152 , including $ 25,567 in consulting fees , $ 9,654 in general and administrative expenses and $ 67,931 in professional fees , whereas for the fiscal year ended october 31 , 2008 we incurred total expenses of $ 58,448 , including $ 12,290 in general and administrative expenses and $ 46,158 in professional fees . our general and administrative expenses consisted primarily of transfer agent fees and general office expenses . our professional fees include legal , accounting and auditing fees . net loss from our inception on march 11 , 2004 to october 31 , 2009 we incurred a net loss of $ 306,157. for the fiscal year ended october 31 , 2009 we incurred a net loss of $ 103,152 , whereas for the fiscal year ended october 31 , 2008 we incurred a net loss of $ 58,448 .
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if the mbth shareholder elect not to exercise the mbth warrant or they elect to exercise a portion or all of the mbth warrant into shares of mbth , a proportionate number of common shares under the 42,857 warrant will be issued to mbth . the company agreed to award mbth an option for 142,857 common shares with an exercise price equal to $ 8.75 per share . on january 16 , 2013 , in consideration of the terms above , mbth gave the company notice to its intention to exercise the conversion rights on the 2011 convertible loan . on march 26 , 2013 , the company issued 1,127,819 common shares to mbth in consideration of the conversion rights under the may 2011 convertible note to convert the principal balance of $ 15.0 million into common shares at $ 13.30 per share , and 142,857 common shares were issued for the discharge of mbth 's collateral over the company 's assets . the additional consideration described above was considered an induced conversion of the 2011 convertible loan . the company recorded debt inducement for the differential in the value of securities issued to the debt holder under the original terms compared to the value of securities issued to the debt holder under the amended terms . additionally , the modification of options were accounted for as debt inducement based upon the valuation of the option immediately prior to the amendment compared to the value of the option with the amended terms . as a result of the modified terms , the company recorded debt inducement of $ 14.1 million during the year ended december 31 , 2013. the inducement was recorded as a reduction and increase to additional paid in capital as mbth is a related party . the company agreed to award mbth a 3 % cash success fee if mbth arranges additional financing for the company by a third party ( other than the bridge loan as defined below ) or arranges a merger , consolidation or sale by the company of substantially all of the assets to a third party . bridge loan under a subscription agreement and convertible promissory note ( the bridge loan ) between the company and mbth dated january 16 , 2013 , mbth committed to advance to the company $ 5 million as part of a new convertible bridge loan for up to an aggregate of $ 10 million . the bridge loan was issued to refinance principal advances under the may 2011 convertible loan in excess of $ 15 million , all accrued interest and fees under the may 2011 convertible loan and for general corporate purposes including ; additional working f-17 xg technology , inc. notes to financial statements 9 convertible notes payable ( continued ) capital and product development . on january 16 , 2013 , the company refinanced principal of $ 2,648,000 and accrued interest of fees of $ 1,393,000 under the may 2011 convertible note for a beginning principal balance of $ 4,041,000 under the bridge loan . the bridge loan was for a term of one year and was convertible , at each loan note holder 's option , into common shares at any time prior to final maturity at $ 5.225 ( 95 % of $ 5.50 , the price of the company 's initial public offering completed on july 24 , 2013 ) . interest was payable at 20 % per annum , semi-annually in cash or shares , at the option of each loan note holder . the bridge loan may be prepaid by the company in whole ( or in part ) , subject to payment of a minimum of six months ' interest if prepaid within the first six months . the company may redeem 50 % of the bridge loan without prepayment penalty by forcing a conversion into shares , provided that the shares are marginable and freely tradable on a liquid exchange , and provided further that , if such forced conversion was effected within six months from the date of the bridge loan , then the company shall pay six month 's interest on the unpaid and unconverted principal balance of the bridge loan immediately before such forced conversion ( such interest being payable in cash or shares , at the option of each loan note holder ) . for every $ 350 of principal amount of bridge loan advanced by mbth , the loan note holder will be issued one warrant to subscribe one share at a subscription price story_separator_special_tag the following information should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this report . the share numbers in the following discussion reflect a 1-for-25 reverse stock split that we effected march 24 , 2013 as well as the 1-for-1.4 reverse stock split that we effected march 28 , 2013. overview xg technology , inc. has developed a broad portfolio of innovative intellectual property that we believe will enhance wireless communications . our intellectual property is embedded in proprietary software algorithms that offer cognitive interference mitigation and spectrum access solutions . our strategy is initially to commercialize our intellectual property portfolio by developing and selling network equipment using our proprietary software algorithms to offer cognitive interference mitigation and spectrum access solutions . in the future , our strategy is for our intellectual property to be embedded by partners in a semiconductor chip that could be sold to third party equipment manufacturers and inserted in their devices and to license our intellectual property to other customers in vertical markets world-wide . story_separator_special_tag 25 initial public offering on july 24 , 2013 , the company closed its initial public offering of 1,337,792 shares of common stock , par value $ 0.00001 per share , and warrants to purchase 668,896 shares of common stock , at a purchase price to the public of $ 5.50 per share and $ 0.01 per warrant , for net proceeds to the company , after deducting underwriter discounts and offering expenses , of $ 6,750,673. the warrants have an exercise price of $ 6.87 per share , are exercisable immediately and will expire five years from the date of issuance . feltl and company and aegis capital corp acted as joint underwriters for the offering . over-allotment option on august 19 , 2013 , the underwriters exercised in full their over-allotment option to purchase an additional 200,668 shares of common stock and warrants to purchase 100,334 shares of common stock with an exercise price of $ 6.87 , at a purchase price to the public of $ 5.50 per share and $ 0.01 per warrant , for net proceeds to the company , after deducting underwriter discounts , of $ 1,027,349. convertible notes payable during the year ended december 31 , 2013 , the company drew down $ 450,000 under the convertible notes payable to related party , compared to $ 10.3 million for 2012. on january 16 , 2013 , principal in excess of $ 15 million and any accrued interest and fees related to the convertible notes were converted into the bridge loan balance discussed below . bridge loan during 2013 , the company drew down $ 5.0 million under the bridge loan . on august 22 , 2013 , the company refinanced approximately $ 1,013,000 of liabilities previously paid by mbth during 2013 on behalf of the company through the bridge loan and incurred an origination fee of approximately $ 50,000. on august 7 , 2013 , the company repaid $ 125,000 to a non-related investor for investment into the bridge loan . on august 22 , 2013 , the company issued 2,187,529 common shares for the conversion of the balance of approximately $ 11,429,000 in principal and accrued interest and fees at a price per share of $ 5.225. secondary offering on november 18 , 2013 , the company closed its secondary public offering of 5,715,000 shares of common stock , par value $ 0.00001 per share , at a purchase price to the public of $ 1.75 per share , for net proceeds to the company , after deducting underwriter discounts and offering expenses , of $ 9,146,888. in connection with the offering , the company issued warrants to the underwriters to purchase 171,450 shares of common stock , for an aggregate price of $ 100. the warrants have an exercise price of $ 2.1875 per share and are exercisable immediately and will expire five years from the date of issuance . over-allotment option on december 12 , 2013 , the underwriters made a partial exercise of their over-allotment option in which they purchased an additional 255,000 shares of common stock at a purchase price to the public of $ 1.75 per share , for net proceeds to the company , after deducting underwriter discounts , of $ 415,013. the underwriters had an option to purchase up to 857,250 shares of common stock or 15 % of the total number of shares offered within 45 days after the closing of the offering . cash flows the following table sets forth the major components of our statements of cash flows data for the periods presented . replace_table_token_4_th 26 operating activities net cash used in operating activities for the year ended december 31 , 2013 totaled $ 14.4 million as compared to $ 5.6 million for the year ended december 31 , 2012. of the $ 14.4 million , approximately 10.1 million was a result of the independent directors of the company authorizing a onetime agreement on september 30 , 2013 , whereby we issued to mbth 1,599,453 shares of our common stock and a warrant to purchase 1,363,636 shares of our common stock at an exercise price of $ 6.87 per share for the difference in price between the shares issued to them in march 2013 at a price of $ 13.30 per share in exchange for the conversion of its 2011 convertible note and the $ 5.50 purchase price for shares sold in our initial public offering in july 2013. the cash used in operating activities consisted principally of the net loss from operations . investing activities net cash used in investing activities for the year ended december 31 , 2013 was $ 2.9 million as compared to $ 5.0 million for the year ended december 31 , 2012. this represents capital expenditures primarily associated with the investment in product and technology development and our patent portfolio . we have invested in product and technology development and our patent portfolio , with $ 2.6 million accounted for as investment in intangible assets in the year ended december 31 , 2013 , and $ 4.5 million in the year ended december 31 , 2012. in addition , the company 's investment in property and equipment , comprising the purchase of testing and manufacturing equipment , of $ 0.3 million in the year ended december 31 , 2013 decreased by $ 0.2 million , or 43 % , from $ 0.5 million in the year ended december 31 , 2012. financing activities our net cash provided by financing activities for the year ended december 31 , 2013 was $ 22.5 million as compared to $ 10.7 million for 2012 , which primarily consisted of proceeds from further advances under convertible promissory notes issued by the companyand proceeds from issuance of common stock .
| result of operations the following table sets forth the relationship to total revenues of principal items contained in the statement of operations of the financial statements included herewith for the fiscal years ending december 31 , 2013 and december 31 , 2012. xg technology , inc. statements of operations ( in thousands except net loss per share data ) replace_table_token_2_th revenue our revenues for the fiscal year ended december 31 , 2013 were $ 0.4 million compared to $ 0.0 million in fiscal 2012. the revenue of $ 323,000 resulted from sales of equipment and $ 83,000 from engineering and consulting services agreement . cost of revenue and operating expenses cost of components and personnel cost of components and personnel was $ 0.1 million in the year ended december 31 , 2013 compared to $ 0.0 million in fiscal 2012 as the company recorded no revenue and thus no cost of components and personnel in the year ending december 31 , 2012. cost of components and personnel of $ 98,000 is based on the cost of components and the time allocated to building the products sold and $ 4,000 is based on the cost of the time allocated towards the engineering and consulting services agreements . general and administrative expenses general and administrative expenses are the expenses of operating the business on a daily basis and include salary and benefit expenses and payroll taxes , as well as the costs of trade shows , marketing programs , promotional materials , professional services , facilities , general liability insurance , and travel . general and administrative expenses remained the same at $ 5.5 million in the year ended december 31 , 2013 and 2012 , respectively . we had a decrease in payroll expense through an adjustment to the fair market value of the 23 accrued bonus which was offset by an increase in a variety of expenses .
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we also operate 237 dd 's discounts stores in 18 states as of february 2 , 2019 that feature a more moderately-priced assortment of first-quality , in-season , name brand apparel , accessories , footwear , and home fashions for the entire family at savings of 20 % to 70 % off moderate department and discount store regular prices every day . our primary objective is to pursue and refine our existing off-price strategies to maintain and improve both profitability and financial returns over the long term . in establishing appropriate growth targets for our business , we closely monitor market share trends for the off-price industry and believe our share gains over the past few years were driven mainly by continued focus on value by consumers . our sales and earnings gains in 2018 continued to benefit from efficient execution of our off-price model throughout all areas of our business . our merchandise and operational strategies are designed to take advantage of the expanding market share of the off-price industry as well as the ongoing customer demand for name brand fashions for the family and home at compelling discounts every day . we refer to our fiscal years ended february 2 , 2019 , february 3 , 2018 , and january 28 , 2017 as fiscal 2018 , fiscal 2017 , and fiscal 2016 , respectively . fiscal 2017 was a 53-week year . fiscal 2018 and 2016 were each 52-week years . story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; font-size:10pt ; '' > in fiscal 2017 , the tax cuts and jobs act ( the “ tax act ” or `` tax reform '' ) was signed into law . the tax act made significant changes to u.s. corporate taxation including reducing the u.s. federal corporate income tax rate from 35 % to 21 % effective january 1 , 2018 , the last month of fiscal 2017. u.s. gaap requires that the impact of tax legislation be recognized in the period in which the law was enacted . we applied a u.s. federal income tax rate of 21 % for fiscal 2018 and a blended u.s. federal income tax rate of approximately 34 % for fiscal 2017. this rate reduction resulted in an increase to our earnings per share of approximately $ 0.70 for fiscal 2018. for fiscal 2017 , the rate reduction , along with the remeasurement of deferred taxes , resulted in an increase to our earnings per share of approximately $ 0.21. net earnings . net earnings as a percentage of sales for fiscal 2018 were higher than in fiscal 2017 , primarily due to lower taxes as a result of tax reform , and higher interest income , partially offset by higher cost of goods sold and higher sg & a expenses . net earnings as a percentage of sales for fiscal 2017 were higher compared to fiscal 2016 , primarily due to lower taxes due to tax reform , lower cost of goods sold , and lower sg & a expenses . 25 earnings per share . diluted earnings per share in fiscal 2018 was $ 4.26 , which includes a per share benefit of approximately $ 0.70 from tax reform and $ 0.07 from the favorable resolution of a tax matter , compared to $ 3.55 in the prior year , which included a per share benefit of approximately $ 0.21 from tax reform and a $ 0.10 benefit from the 53rd week . the 20 % increase in diluted earnings per share is attributable to an increase of approximately 16 % in net earnings ( which included a 14 % impact from tax reform and a 2 % impact from the favorable resolution of a tax matter ) and 4 % from the reduction in weighted average diluted shares outstanding , largely due to the repurchase of common stock under our stock repurchase program . diluted earnings per share in fiscal 2017 was $ 3.55 , which included a per share benefit of approximately $ 0.21 from tax reform and $ 0.10 from the 53rd week , compared to $ 2.83 in fiscal 2016. the 25 % increase in diluted earnings per share was attributable to an increase of approximately 22 % in net earnings ( which included a 7 % impact from tax reform and a 4 % impact from the 53rd week ) and 3 % from the reduction in weighted average diluted shares outstanding , largely due to the repurchase of common stock under our stock repurchase program . financial condition liquidity and capital resources our primary sources of funds for our business activities are cash flows from operations and short-term trade credit . our primary ongoing cash requirements are for merchandise inventory purchases , payroll , rent , taxes , and capital expenditures in connection with new and existing stores , and investments in distribution centers , information systems , and buying and corporate offices . we also use cash to repurchase stock under our stock repurchase program and to pay dividends , and for the repayment of debt as it becomes due . replace_table_token_9_th 1 as the result of the adoption of asu 2016-18 , statement of cash flow ( topic 230 ) : restricted cash , the prior year amounts were retrospectively adjusted . see note a. operating activities net cash provided by operating activities was $ 2,066.7 million , $ 1,681.3 million , and $ 1,558.9 million in fiscal 2018 , 2017 , and 2016 , respectively , and was primarily driven by net earnings excluding non-cash expenses for depreciation and amortization and for deferred taxes . our primary source of operating cash flow is the sale of our merchandise inventory . we regularly review the age and condition of our merchandise and are able to maintain current merchandise inventory in our stores through replenishment processes and liquidation of slower-moving merchandise through clearance markdowns . story_separator_special_tag our board of directors declared cash dividends of $ 0.225 per common share in march , may , august , and november 2018 , cash dividends of $ 0.160 per common share in february , may , august , and november 2017 , and cash dividends of $ 0.135 per common share in march , may , august , and november 2016 . during fiscal 2018 , 2017 , and 2016 , we paid dividends of $ 337.2 million , $ 247.5 million , and $ 214.6 million , respectively . on december 13 , 2018 , we repaid at maturity the $ 85 million principal amount of the series a 6.38 % unsecured senior notes . short-term trade credit represents a significant source of financing for merchandise inventory . trade credit arises from customary payment terms and trade practices with our vendors . we regularly review the adequacy of credit available to us from all sources and expect to be able to maintain adequate trade credit , bank lines , and other credit sources to meet our capital and liquidity requirements , including lease payment obligations , in 2019 . our existing $ 600 million unsecured revolving credit facility expires in april 2021 and contains a $ 300 million sublimit for issuance of standby letters of credit ( subject to increase in proportion to any increase in the size of the credit facility ) . the facility also contains an option allowing us to increase the size of our revolving credit facility by up to an additional $ 200 million , with the agreement of the lenders . interest on any borrowings under this facility is based on libor plus an applicable margin ( currently 100 basis points ) and is payable quarterly and upon maturity . as of february 2 , 2019 , we had no borrowings or standby letters of credit outstanding on this facility and our $ 600 million credit facility remains in place and available . the revolving credit facility is subject to a financial leverage ratio covenant . as of february 2 , 2019 , we were in compliance with this covenant . we estimate that existing cash balances , cash flows from operations , bank credit lines , and trade credit are adequate to meet our operating cash needs and to fund our planned capital investments , repayment of debt , common stock repurchases , and quarterly dividend payments for at least the next twelve months . contractual obligations the table below presents our significant contractual obligations as of february 2 , 2019 : replace_table_token_11_th 1 we have a $ 77.9 million liability for unrecognized tax benefits that is included in other long-term liabilities on our consolidated balance sheets . this liability is excluded from the schedule above as the timing of payments can not be reasonably estimated . ²our new york buying office building is subject to a 99-year ground lease . senior notes . as of february 2 , 2019 , we had outstanding unsecured 3.375 % senior notes due september 2024 with an aggregate principal amount of $ 250 million . interest on the 2024 notes is payable semi-annually . as of february 2 , 2019 , we also had outstanding series b unsecured senior notes in the aggregate principal amount of $ 65 million , held by various institutional investors . the series b notes are due in december 2021 and bear interest at a rate of 6.53 % . borrowings under these senior notes are subject to certain financial covenants , including interest coverage and other financial ratios . as of february 2 , 2019 , we were in compliance with those covenants . 28 the 2024 notes , and series b senior notes are subject to prepayment penalties for early payment of principal . off-balance sheet arrangements operating leases . we currently lease all but two of our store locations . we also lease five warehouse facilities and two buying offices . in addition , we have a ground lease related to our new york buying office . except for certain leasehold improvements and equipment , these leased locations do not represent long-term capital investments . two of our leased warehouses are in carlisle , pennsylvania with leases expiring in 2019 and 2020 , one is in fort mill , south carolina , with the lease expiring in 2024 , one is in rock hill , south carolina , with the lease expiring in 2028 , and one is in shafter , california , with the lease expiring in 2029. all of the warehouse leases contain renewal provisions . we currently lease approximately 103,000 and 5,000 square feet of office space for our los angeles and boston buying offices , respectively . the lease terms for these facilities expire in 2022 and 2020 , respectively , and contain renewal provisions . purchase obligations . as of february 2 , 2019 we had purchase obligations of approximately $ 2.6 billion . these purchase obligations primarily consist of merchandise inventory purchase orders , commitments related to construction projects , store fixtures and supplies , and information technology services , transportation , and maintenance contracts . standby letters of credit and collateral trust . we use standby letters of credit outside of our revolving credit facility in addition to a funded trust to collateralize our insurance obligations . as of february 2 , 2019 and february 3 , 2018 , we had $ 7.3 million and $ 8.7 million , respectively , in standby letters of credit outstanding and $ 58.3 million and $ 57.1 million , respectively , in a collateral trust . the standby letters of credit are collateralized by restricted cash and the collateral trust consists of restricted cash , cash equivalents , and investments . trade letters of credit . we had $ 13.3 million and $ 20.7 million in trade letters of credit outstanding at february 2 , 2019 and february 3 , 2018 , respectively . effects of inflation or deflation .
| results of operations the following table summarizes the financial results for fiscal 2018 , 2017 , and 2016 : replace_table_token_5_th 23 stores . total stores open at the end of fiscal 2018 , 2017 , and 2016 were 1,717 , 1,622 , and 1,533 , respectively . the number of stores at the end of fiscal 2018 , 2017 , and 2016 increased by 6 % , 6 % , and 6 % from the respective prior years . our expansion strategy is to open additional stores based on market penetration , local demographic characteristics , competition , expected store profitability , and the ability to leverage overhead expenses . we continually evaluate opportunistic real estate acquisitions and opportunities for potential new store locations . we also evaluate our current store locations and determine store closures based on similar criteria . replace_table_token_6_th sales . sales for fiscal 2018 increased $ 0.8 billion , or 6.0 % , compared to the prior year due to the opening of 95 net new stores during 2018 and a 4 % increase in comparable store sales ( defined as stores that have been open for more than 14 complete months ) . sales for fiscal 2017 increased $ 1.3 billion , or 9.9 % , compared to the prior year due to the opening of 89 net new stores during 2017 and a 4 % increase in sales from comparable stores , and the impact of the 53rd week . our sales mix is shown below for fiscal 2018 , 2017 , and 2016 : replace_table_token_7_th we intend to address the competitive climate for off-price apparel and home goods by pursuing and refining our existing strategies and by continuing to strengthen our organization , diversify our merchandise mix , and more fully develop our systems to improve regional and local merchandise offerings .
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the company does not story_separator_special_tag unless otherwise stated , all monetary amounts in this management 's discussion and analysis of financial condition and results of operations , other than per share amounts , are stated in thousands . executive overview the company designs , manufactures and markets high quality recreational products for the outdoor enthusiast . through a combination of innovative products , strong marketing , a talented and passionate workforce and efficient distribution , the company seeks to set itself apart from the competition . its subsidiaries operate as a network that promotes innovation and leverages best practices and synergies , following the strategic vision set by executive management and approved by the company 's board of directors . story_separator_special_tag of foreign currency translation in diving and sluggish to declining sales in watercraft and outdoor equipment . net sales for the marine electronics business increased $ 9,119 , or 4.1 % during 2012. innovative products such as minn kota 's i-pilot wireless gps trolling system and increased oem sales helped fuel the growth . outdoor equipment net sales decreased $ 3,554 , or 9.1 % , in 2012 primarily due to a slowdown in the consumer camping market and further declines in u.s. military spending . the watercraft business experienced an increase in net sales of approximately 1 % , or $ 469 , due primarily to high volumes of low margin product sold to outdoor retailers and the sale of inventory to a distributor related to the closure of the uk sales office . net sales for the diving business declined $ 1,549 , or 1.7 % , year over year , due primarily to $ 3,825 , or 4.3 % , of unfavorable currency translation , which more than offset increased sales in the u.s. and asian markets . cost of sales cost of sales was $ 247,970 , or 60.1 % of net sales on a consolidated basis for the year ended september 28 , 2012 compared to $ 244,287 or 60.0 % of net sales in 2011. costs of raw materials and components increased only slightly over the prior year while increases in labor rates were largely offset by process improvement efforts in each of the businesses . gross profit gross profit of $ 164,322 was 39.9 % of net sales on a consolidated basis for the year ended september 28 , 2012 compared to $ 163,135 or 40.0 % of net sales in 2011. gross profit in the marine electronics business increased $ 2,685 from the prior year due primarily to the 9.1 % increase in volume , which was offset in part by inventory write-offs and other costs related to the closure of the european office . gross profit in the outdoor equipment business decreased $ 1,099 from 2011 due to decreases in net sales , but increased as a percent of net sales from 36.7 % in the prior year to 37.3 % in 2012 , driven by the impact of the flood in the prior year results and favorable mix in the military tent business in the current year . gross profit in the watercraft segment was $ 1,800 lower than 2011 levels and decreased as a percent of net sales from 32.5 % in 2011 to 29.2 % in 2012. the decrease in gross profit was due primarily to the mix of lower priced product as well as the closure of the u.k. sales office and the sale of its remaining inventory to a distributor at low margins . gross profit for the diving segment increased by $ 1,363 and increased as a percentage of net sales from 48.2 % in 2011 to 50.6 % in 2012. the increase in margin was driven primarily by price increases implemented in the current year to address the impact of cost increases in the prior year . operating expenses operating expenses decreased from the prior year by $ 2,556. the decrease was driven by a $ 3,500 favorable settlement with an insurance carrier that was recognized as an expense reduction in the company 's second fiscal quarter of 2012 and $ 2,600 of lower legal expenses , offset in part by an increase in bad debt expense , higher incentive compensation expense , and higher deferred compensation expense resulting from the increase in the market value of the non-qualified plan 's assets . 19 operating expenses for the marine electronics segment decreased by $ 1,470 from 2011 levels . the decrease was due mainly to lower legal and warranty costs , offset in part by higher incentive compensation and severance costs related to the closure of the european office . outdoor equipment operating expenses decreased by $ 934 from 2011 due primarily to the recovery of flood related losses in 2012 versus expenses incurred in 2011. see further discussion of the impact of the flooding at note 14 to the consolidated financial statements included elsewhere in this report . the watercraft business saw a decline in operating expenses of $ 2,743 during 2012 from 2011 due primarily to the favorable insurance settlement of $ 3,500 which was partially offset by costs related to the closure of the u.k. office and restructuring activities in the u.s. operating expenses for the diving business decreased by $ 1,434 due primarily to the $ 1,636 favorable impact of currency translation which was offset in part by higher bad debt expense driven by the economic conditions in southern europe . operating results the company 's operating profit was $ 21,413 in 2012 compared to an operating profit of $ 17,670 in fiscal 2011. marine electronics operating profit increased by $ 4,156 from the prior year . outdoor equipment operating profit declined from $ 2,996 to $ 2,831. the watercraft business incurred an operating loss in 2012 of $ 408 , compared to a loss of $ 1,351 in the prior year . diving operating profit increased $ 2,798 from the prior year . story_separator_special_tag on september 16 , 2013 , the company and certain of its subsidiaries entered into a new credit facility with pnc bank national association and certain other lenders which terminated the amended revolving credit and security agreement with pnc bank national association and the other lenders named therein , dated as of november 16 , 2010. the new credit facility consists of a revolving credit agreement dated september 16 , 2013 among the company , certain of the company 's subsidiaries , pnc bank , national association , as lender and as administrative agent and the other lenders named therein ( the “ revolving credit agreement ” or “ revolver ” ) . the revolver has a 60 month term and provides for borrowing of up to an aggregate principal amount not to exceed $ 90,000 with an accordion feature that gives the company the option to increase the maximum seasonal financing availability subject to the conditions of the revolving credit agreement and subject to the approval of the lenders . the revolver imposes a seasonal borrowing limit such that borrowing may not exceed $ 60,000 from the period june 30 th through october 31 st of each year under the agreement . the interest rate on the revolver resets each quarter and is based on libor plus an applicable margin . the applicable margin ranges from 1.25 percent to 2.00 percent and is dependent on the company 's leverage ratio for the trailing twelve month period . the interest rate on the revolver at september 27 , 2013 was approximately 1.42 % . the revolver is secured with a first priority lien on working capital assets and certain patents and trademarks of the company and its subsidiaries and a second priority lien on land , buildings , machinery and equipment of the company 's domestic subsidiaries . the revolving credit agreement limits asset or stock acquisitions to no more than $ 20,000 in the event that the company 's consolidated leverage ratio is greater than 2.5 times . no limits are imposed if the company 's consolidated leverage ratio is less than 2.5 times and the remaining borrowing availability under the revolver is greater than $ 10,000 at the time of the acquisition . the revolving credit agreement limits the amount of restricted payments ( primarily dividends and repurchases of common stock ) made during each fiscal year . the company may declare , and pay , dividends in accordance with historical practices , but in no event may the aggregate amount of all dividends or repurchases of common stock exceed $ 10,000 in any fiscal year . the revolving credit agreement includes maximum leverage ratio and minimum interest coverage ratio limitations . concurrent with the execution of the revolving credit agreement described above , johnson outdoors canada inc. repaid and terminated its amended revolving credit and security agreement with pnc bank canada branch dated as of november 16 , 2010. as of september 27 , 2013 , the company held approximately $ 45,900 of cash and cash equivalents in bank accounts in foreign jurisdictions . 22 contractual obligations and off balance sheet arrangements the company has contractual obligations and commitments to make future payments under its existing credit facilities , including interest , operating leases and open purchase orders . the following schedule details these significant contractual obligations at september 27 , 2013. replace_table_token_11_th the company utilizes letters of credit primarily as security for the payment of future claims under its workers ' compensation insurance . letters of credit outstanding at september 27 , 2013 were $ 846 compared to $ 1,401 on september 28 , 2012 and were included in the company 's total loan availability . the company had no unsecured revolving credit facilities at its foreign subsidiaries as of september 27 , 2013 or september 28 , 2012. the company has no other off-balance sheet arrangements . the company anticipates making contributions to its defined benefit pension plans of $ 492 through october 3 , 2014. market risk management foreign exchange risk the company has significant foreign operations , for which the functional currencies are denominated primarily in euros , swiss francs , hong kong dollars , japanese yen and canadian dollars . as the values of the currencies of the foreign countries in which the company has operations increase or decrease relative to the u.s. dollar , the sales , expenses , profits , losses , assets and liabilities of the company 's foreign operations , as reported in the company 's consolidated financial statements , increase or decrease , accordingly . approximately 21 % of the company 's revenues for the fiscal year ended september 27 , 2013 were denominated in currencies other than the u.s. dollar . approximately 11 % were denominated in euros , with the remaining 10 % denominated in various other foreign currencies . changes in foreign currency exchange rates can cause unexpected financial losses or cash flow needs . the company mitigates a portion of the fluctuations in certain foreign currencies through the use of foreign currency forward contracts . foreign currency forward contracts enable the company to lock in the foreign currency exchange rate for a fixed amount of currency to be paid or received on a specified date in the future . the company uses such foreign currency forward contracts to mitigate the risk associated with changes in foreign currency exchange rates on financial instruments and known commitments denominated in foreign currencies . interest rate risk the company operates in a seasonal business and experiences significant fluctuations in operating cash flow as working capital needs increase in advance of the company 's primary selling and cash generation season , and decline as accounts receivable are collected and cash is accumulated or debt is repaid .
| highlights on november 14 , 2012 , the company acquired jetboil inc. ( “ jetboil ” ) founded and based in manchester , new hampshire . jetboil designs and manufactures the world 's top brand of portable outdoor cooking systems . see further discussion of the acquisition at note 18 to the consolidated financial statements included elsewhere in this report . the company 's fiscal 2013 revenues improved by 3.4 % while operating profit grew 19.5 % from the prior year . both the acquisition of jetboil and successful new products introduced in the marine electronics business contributed to the growth year over year and more than offset sales declines in other segments . net income grew by over 90 % from the prior year and was impacted significantly by the change in the company 's effective tax rate . reversals of valuation reserves on foreign tax credits helped reduce the rate by approximately 12 points in fiscal 2013. results of operations summary consolidated financial results from continuing operations for the fiscal years presented were as follows : replace_table_token_5_th the company 's internal and external sales and operating profit ( loss ) by business segment for each of the three most recent completed fiscal years were as follows : replace_table_token_6_th 16 replace_table_token_7_th see note 12 to the consolidated financial statements included elsewhere in this report for the definition of segment net sales and operating profit . fiscal 2013 vs. fiscal 2012 net sales net sales in 2013 increased 3.4 % to $ 426,461 compared to $ 412,292 in 2012. the increase was driven primarily by the success of the marine electronics business and incremental sales from the acquisition of jetboil , which more than offset declining sales in diving and watercraft .
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in addition , any statements that refer to expectations , projections or other characterizations of future events or circumstances are forward-looking statements . the forward-looking statements are not historical facts , but rather are based on current expectations , estimates , assumptions and projections about our industry and business . our actual results could differ materially from the results contemplated by these forward-looking statements . forward looking strategic overview dlh 's strategic plan is to expand our proven health services and solutions within the growing federal health field . primary growth markets include mission-critical agency requirements ( including , but not limited to , those of dod and dva ) , such as : behavioral health ; telehealth services ; medication therapy management ; health it commodities ; process management ; case management ; clinical systems support ; and healthcare delivery . our tactical business expansion capture initiatives include : dlh differentiators : leverage our differentiation tools and technology to deliver high-value performance in partnership with and in support of customers , teams , and end-users including : dlh eprat® - a web-based , open-architecture , secure system to manage expert delivery and resourcing of the “ continuum of care requirements ” for military combatants , veterans , and retirees . designed to meet hipaa privacy rules , commission on accreditation of rehabilitation facilities ( carf ) , federal information security modernization act ( fisma ) , and national institute of standards and technology ( nist ) requirements . dlh spot-m - a unique approach to integration of people , processes , and technology tools to measure , manage and optimize our performance at project or enterprise levels . dlh business development resources : continue to expand our business development leadership team , strategic advisers , directors , and health industry resources to increase our opportunity to win a larger share of the federal health market . dlh teaming partner relationships : continue our successful development and expansion of teaming partner relationships to broaden our service offerings in the growing federal health market , and to provide our customers with cost benefits and efficiencies through synergies with our partners . dlh organic growth : continue expansion through organic growth as a prime contractor by delivering quality services and cost effective solutions to our customers . organic growth contributed to a 10.5 % compound annual growth rate ( cagr ) over the past two years , from $ 53.5 million for fiscal year 2013 to $ 65.3 million for fiscal 2015. dlh strategic growth : dlh will continue to selectively review and position ourselves for a potential joint venture or strategic acquisition . business overview dlh provides services and solutions within two broad us government markets : healthcare and logistics . our offerings are segregated into two revenue streams : healthcare delivery solutions and logistics & technical services , which now includes our contingency staff augmentation service offering . our services are provided to government agencies including the department of veteran affairs , the department of defense , and other government clients . the approximate percentage of revenue derived from our services and solutions are shown in the following table : 18 fiscal year ended fiscal year ended revenue stream september 30 , 2015 september 30 , 2014 healthcare delivery solutions 53 % 52 % logistics & technical services 47 % 48 % healthcare delivery solutions healthcare delivery solutions provides a broad continuum of care for our nation 's servicemen/women and veterans in various settings and facilities . these include military treatment facilities ( mtfs ) , medical centers , community-based outpatient clinics ( cbocs ) , and pharmacy distribution centers ( including va consolidated mail-order outpatient pharmacy ) . we leverage our network of over 400 active clinicians and other healthcare workers throughout selected regions in the us , applying differentiating tools , databases and technology ( including e-prat and spot-m ) to deliver these services . for over a decade , dlh solutions has been serving the dva and dod in providing qualified medical and other professionals in a variety of positions . as more and more federal and dod programs increase their performance-based requirements , dlh solutions ' workforce profile of medical talent and credentials will help it to compete and differentiate itself in the market place . our healthcare and medical service new business pipeline adds important credentials strategically linked to diversifying and profitably growing our healthcare delivery solutions business base . professional services have included case management , health and injury assessment , critical care , medical/surgical , emergency room/trauma center , counseling , behavioral health and traumatic brain injury management , medical systems analysis , and medical logistics . while the dva is its largest customer in this business unit , the company has focused on leveraging that experience in adjacent healthcare markets within dod and other federal agencies . logistics & technical services logistics & technical services draws heavily upon our proven logistics expertise and processes . dlh resources possess expertise covering a wide range of logistics , readiness and project engineering . the experience of dlh solutions ' project personnel is diverse from operational unit level to systems and program office experience . our core competencies include supply chain management , performance-based logistics , distribution center and inventory management , statistical process control , packaging/handling/storage & transportation , configuration management , readiness planning , and supply support operations . in addition , we provide program and project management , systems engineering and applicable information technology services , integrated logistics support ( including operational systems ) , readiness assessments , training , equipment maintenance , hazardous material management , facilities and shipyard support services and more . dlh solutions also provides professional staff to the federal government specializing in logistics , office administration , it , and facilities/warehouse management . contingency staff augmentation provides disaster and emergency response services and civilian workforce augmentation services . story_separator_special_tag hhs budget authority has continued to grow during the recent tight federal budget environment , having increased from $ 0.96 trillion in fiscal 2014 to $ 1.09 trillion for fiscal 2016. according to hhs projections , national health insurance spending is expected to reach $ 5.43 trillion and comprise 19.6 % of gross domestic product ( gdp ) by 2024. the federal health expenditure projections are expected to reach $ 1.75 trillion by 2024 , growing at a 5.1 % compound annual growth rate ( cagr ) from an estimated $ 1.02 trillion in 2014. telehealth trends : 20 telehealth is a growing and relevant market for health service providers and patients . telehealth is a mode of delivering health care utilizing information and communication technologies to enable the diagnosis , consultation , treatment , and care management of patients by health care providers . telehealth technologies can transform health care delivery by improving access to quality care by removing traditional barriers to health care delivery such as distance , mobility , and time constraints . in april 2015 , reach health , inc. released their `` 2015 u.s. telemedicine industry benchmark survey '' conducted during late 2014 and early 2015. among the two hundred and thirty three healthcare executives , physicians , nurses and other professionals who participated in the survey , they found that : `` with a growing population of aging and unhealthy individuals , coupled with increasing shortages of specialist physicians , telemedicine is evolving from a specialty offering to a mainstream service . nearly 60 percent of survey participants noted telemedicine as their top priority or one of their highest priorities for their healthcare organizations . '' prescription drugs spending : the u.s. department of health & human services national health expenditures projections for 2014-2024 indicate that prescription drug spending growth is projected to average 6.3 percent annual growth from 2015 through 2024 due to improving economic conditions , changes in benefit management designed to encourage better drug adherence for people with chronic health conditions , and anticipated changing clinical guidelines designed to encourage drug therapies at earlier stages of treatment . large defense companies divesting from federal services market : large government contractors have begun divesting from the federal services market and increasing their focus and consolidation on advanced military products , which typically generate much higher margins than services . this trend may open up increased opportunities for smaller federal service providers such as dlh . continued focus on small business participation in federal contracting the federal government has an overall goal of 23 % of prime contracts flowing to small business contractors , with a means of achieving these goals through the structuring of set-asides in federal agencies requests for proposal . as a part of our growth plan , dlh may elect to team in support of these small businesses for specific pursuits that align with our strategic roadmap . story_separator_special_tag period , which included a $ 4.6 million deferred tax benefit related to the release of a portion of our valuation allowance , recorded to reflect the amount of our deferred tax asset that we expect to realize in future years . net income net income for the year ended september 30 , 2015 was approximately $ 8.7 million or $ 0.91 and $ 0.87 per basic and diluted share , respectively , compared to approximately $ 5.4 million over prior year period , or $ 0.56 and $ 0.54 per basic and diluted share . the total year net income increase was $ 3.4 million over prior year , attributable to improved operating margin of $ 1.7 million , a $ 0.9 million increase in tax benefit for fiscal 2015 , and $ 0.7 million net gain due principally to favorable closure of legacy payroll tax and retroactive payment claim issues . other data for the year ended 2015 and 2014 on a non-gaap basis , earnings before interest tax depreciation and amortization ( “ ebitda ” ) adjusted for other non-cash charges ( “ adjusted ebitda ” for year ended september 30 , 2015 was approximately $ 3.0 million , an increase of approximately $ 1.7 million , or 125.8 % , over the prior fiscal year . this increase was due principally to improved gross margin of approximately $ 2.7 million , partially offset by expense growth of $ 1.0 million as previously described . diluted earnings per share on adjusted ebitda for the year ended september 30 , 2015 was $ 0.30 compared to $ 0.14 for the year ended september 30 , 2014. a reconciliation for these non-gaap measures is provided below . 23 reconciliation of gaap net income and eps to adjusted ebitda and eps on adjusted ebitda : we use earnings before interest tax depreciation and amortization ( “ ebitda ” ) adjusted for other non-cash charges ( “ adjusted ebitda ” ) and “ fully-diluted eps on adjusted ebitda ” as supplemental non-gaap measures of our performance . we define adjusted ebitda as net income plus ( i ) interest and other expenses , net , ( ii ) provision for or benefit from income taxes , if any , ( iii ) depreciation and amortization , and ( iv ) g & a expenses — equity grants . we compute eps on adjusted ebitda using fully diluted shares outstanding as computed for gaap . these non-gaap measures of our performance are used by management to conduct and evaluate its business during its regular review of operating results for the periods presented . management and the company 's board utilize these non-gaap measures to make decisions about the use of the company 's resources , analyze performance between periods , develop internal projections and measure management performance . we believe that these non-gaap measures are useful to investors in evaluating the company 's ongoing operating and financial results and understanding how such results compare with the company 's historical performance .
| results of operations for fiscal year 2015 as compared to fiscal year 2014 the following table summarizes , for the periods indicated , consolidated statements of operations data expressed in dollars in thousands except for per share amounts , and as a percentage of revenue : 21 replace_table_token_5_th ref ( a ) : this is a non-gaap measure . net income per share for fiscal 2015 and 2014 includes a benefit from reduction of dlh 's tax valuation allowance . presentation of `` income before taxes per share '' allows comparison of results excluding that impact . revenues fiscal year 2015 revenue was $ 65.3 million , an increase of $ 4.9 million or 8.0 % over the prior year period . the increase in revenue is due primarily to new contract awards and expansion on current programs . direct expenses direct expenses are generally comprised of direct labor ( including benefits ) , taxes and insurance , workers compensation expense , subcontract cost , and other direct costs . fiscal year 2015 direct expenses were $ 53.7 million , an increase of approximately $ 2.1 million or 4.1 % over the prior year period on higher revenue . as a percentage of revenue , direct expenses decrease d by approximately ( 3.1 ) % , with the improvement attributable to program performance and cost management . gross margin gross margin for the year ended september 30 , 2015 was approximately $ 11.7 million , an increase of approximately $ 2.7 million or 30.5 % over prior fiscal year on higher revenue and improved performance on contracts . as a percentage of revenue , our gross margin rate of 17.9 % for the year ended september 30 , 2015 , increase d by 3.1 % over the prior year period .
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the four domestic business units consist of commercial , live events , schools and theatres , and transportation , all of which include the geographic territories of the united states and canada . our net sales and profitability historically have fluctuated due to the impact of large project orders , such as display systems for professional sports facilities and colleges and universities or spectacular projects in the commercial area , as well as the seasonality of the sports market . large project orders can include a number of displays , controllers , and subcontracted structure builds , each of which can occur on varied schedules according to the customer 's needs . net sales and gross profit percentages also have fluctuated due to other seasonal factors , including the impact of holidays , which primarily affects our third quarter . our gross margins on large custom and standard orders tend to fluctuate more than on small standard orders . large product orders involving competitive bidding and substantial subcontract work for product installation generally have lower gross margins . although we follow the percentage of completion method of recognizing revenues for large custom orders , we nevertheless have experienced fluctuations in operating results and expect our future results of operations will be subject to similar fluctuations . orders are booked and included in backlog only upon receipt of an executed contract and any required deposits . as a result , certain orders for which we have received binding letters of intent or contracts will not be booked until all required contractual documents and deposits are received . in addition , order bookings can vary significantly on a quarterly basis as a result of the timing of large orders . 18 general our business , especially the large video display business in all of our business units , is very competitive , and generally our margins on these large video display contracts are similar across the business units over the long-term . there are , however , differences in the short term among the business units , which are discussed in the following analysis . overall , our business growth is driven by the market demand for large format electronic displays with the depth and quality of our products , including related control systems , the depth of our service offerings and our technology , serving these market demands . this growth , however , is partially offset by declines in product prices caused by increasing competition . each business unit also has unique key growth drivers and challenges . commercial business unit : over the long-term , we believe growth in the commercial business unit will result from a number of factors , including : the growing interest in our standard display products used in many different retail-type establishments and other types of commercial establishments . the demand in this area is driven by these establishments ' desire to attract the attention of motorists and others into their storefronts . it is also driven by the need to communicate messages to the public . national accounts may replace their displays reaching end of life , which could lead to increased sales . furthermore , we believe in the future there will be increased demand from national accounts , including retailers , quick serve restaurants and other types of nationwide organizations , which could lead to increased sales . increasing interest in spectaculars , which include very large and sometimes highly customized displays as part of entertainment venues such as casinos , amusement parks and times square type locations . the introduction of architectural lighting products for commercial buildings , which real estate owners use to add accents or effects to an entire side or circumference of a building to communicate messages or to decorate the building . the continued deployment of digital billboards as billboard companies continue developing new sites and start to replace digital billboards which are reaching end of life . this is dependent on there being no adverse changes in the digital billboard regulatory environment , which could restrict future deployments of billboards , as well as maintaining our current market share of the business concentrated in a few large billboard companies . live events business unit : over the long-term , we believe growth in the live events business unit will result from a number of factors , including : facilities spending more on larger display systems to enhance the game-day and event experience for attendees . lower product costs , driving an expansion of the marketplace . our product and service offerings , which remain the most integrated and comprehensive offerings in the industry . the competitive nature of sports teams , which strive to out-perform their competitors with display systems . the desire for high-definition video displays , which typically drives larger displays or higher resolution displays , both of which increase the average transaction size . schools and theatres business unit : over the long-term , we believe growth in the schools and theatres business unit will result from a number of factors , including : increased demand for video systems in high schools as school districts realize the revenue-generating potential of these displays versus traditional scoreboards . increased demand for different types of displays , such as message centers at schools to communicate to students , parents and the broader community . the use of more sophisticated displays in athletic facilities , such as aquatic venues in schools . transportation business unit : over the long-term , we believe growth in the transportation business unit will result from increasing applications and acceptance of electronic displays to manage transportation systems , including roadway , airport , parking , transit and other applications . this growth is highly dependent on government spending , primarily by the federal government , along with the continuing acceptance of public private partnerships as an alternative funding source . story_separator_special_tag if we would become aware of an increase in our estimated warranty costs , additional reserves may become necessary , resulting in an increase in costs of goods sold . we do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to determine our reserve for warranties . as of april 26 , 2014 and april 27 , 2013 , we had approximately $ 27.3 million and $ 25.1 million reserved for these costs , respectively . extended warranty and product maintenance . we recognize deferred revenue related to separately priced extended warranty and product maintenance agreements . the deferred revenue is recognized ratably over the contractual term . if we would become aware of an increase in our estimated costs under these agreements in excess of our deferred revenue , additional reserves may be necessary , resulting in an increase in costs of goods sold . in determining if additional reserves are necessary , we examine cost trends on the contracts and other information and compare them to the deferred revenue . we do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to determine estimated costs under these agreements . as of april 26 , 2014 and april 27 , 2013 , we had $ 13.8 million and $ 13.0 million of deferred revenue related to separately priced extended warranty and product maintenance agreements , respectively . inventory . inventories are stated at the lower of cost or market . market refers to the current replacement cost , except market may not exceed the net realizable value ( that is , the estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal ) , and market is not less than the net realizable value reduced by an allowance for normal profit margins . in valuing inventory , we estimate market value where it is believed to be the lower of cost or market , and any necessary changes are charged to costs of goods sold in the period in which they occur . in determining market value , we review various factors such as current inventory 21 levels , forecasted demand and technological obsolescence . we do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to calculate the estimated market value of inventory . however , if market conditions change , including changes in technology , product components used in our products or expected sales , we may be exposed to unforeseen losses which could be material . income taxes . as part of the process of preparing our consolidated financial statements , we are required to estimate our income taxes in each of the jurisdictions in which we operate . this process involves estimating the actual current tax expense , as well as assessing temporary differences in the treatment of items for tax and financial reporting purposes . these timing differences result in deferred tax assets and liabilities , which are included in our consolidated balance sheets . we must then assess the likelihood our deferred tax assets will be recovered from future taxable income in each jurisdiction , and to the extent we believe recovery is not likely , a valuation allowance must be established . we review deferred tax assets , including net operating losses , and to the extent we believe the asset may not be realized , we recognize a valuation allowance . if our estimates of future taxable income are not met in future periods , a valuation allowance for some of the remaining deferred tax assets may be required . we believe we will generate taxable income in future years which will allow for realization of deferred tax assets . realization of the deferred tax assets would require approximately $ 34 million of taxable income , which we believe is achievable through future earnings . we operate within multiple taxing jurisdictions , both domestic and international , and are subject to audits in these jurisdictions . these audits can involve complex issues , including challenges regarding the timing and amount of deductions and the allocation of income amounts to various tax jurisdictions . at any one time , multiple tax years are subject to audit by various tax authorities . we record our income tax provision based on our knowledge of all relevant facts and circumstances , including the existing tax laws , the status of any current examinations and our understanding of how the tax authorities view certain relevant industry and commercial matters . in evaluating the exposure associated with our various tax filing positions , we record reserves for probable exposures consistent with asc 740 , income taxes . a number of years may elapse before a particular matter for which we have established a reserve is audited and fully resolved or clarified . we adjust our income tax provision in the period in which actual results of a settlement with tax authorities differs from our established reserve , when the statute of limitations expires for the relevant taxing authority to examine the tax position , or when more information becomes available . our tax contingencies reserve contains uncertainties because management is required to make assumptions and apply judgment to estimate the exposure associated with our various filing positions . we believe any potential tax assessments from various tax authorities not covered by our income tax provision will not have a material adverse impact on our consolidated financial position , results of operations or cash flow . asc 740 requires disclosure of the gross amount of temporary differences for which no deferred tax liability has been recognized related to our investment in foreign subsidiaries when the earnings of the foreign subsidiaries are indefinitely reinvested . the amount of cash and short-term investments held by foreign subsidiaries that would not be available to fund domestic operations unless the funds are repatriated is $ 2.7
| results of operations net sales replace_table_token_3_th 23 fiscal year 2014 as compared to fiscal year 2013 commercial : the increase in net sales for fiscal 2014 compared to fiscal 2013 was the net result of : an increase of $ 6.0 million in sales of large custom video contracts . the level of large custom contract orders and sales in this niche is subject to volatility . an increase of $ 4.7 million in sales in our reseller niche resulting from increased contract orders in the shopping centers and malls ; and civic and nonprofit niches . relatively flat sales in our billboard niche . a number of custom video project opportunities are available in the marketplace ; however , due to a number of factors , such as the discretionary nature of customers committing to a system , it is difficult to precisely predict orders and sales for fiscal 2015 in the commercial business unit . however , we believe sales for fiscal 2015 will be slightly higher due to increases in the shipment of digital billboard orders and increases in large video projects as compared to fiscal 2014. we expect growth in this business unit over the long-term , assuming the economy continues to improve . live events : the increase in net sales for fiscal 2014 compared to fiscal 2013 was the net result of : an increase of $ 40.0 million in sales in our large sports venue segment , resulting from $ 26.5 million in sales to national football league ( `` nfl '' ) stadiums , $ 18.4 million in sales to multi-sport arenas , and $ 4.3 million in sales to major league baseball ( `` mlb '' ) stadiums . this was offset by decrease in sales to minor league stadiums , national hockey league ( `` nhl '' ) stadiums , and other various niches .
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palmer is a manufacturer of liquid storage solutions and separation equipment for the petroleum , municipal water , wastewater , chemical and food industries . the company views the palmer acquisition as an excellent complement to the metals segment as both companies service many of the same markets story_separator_special_tag critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations discusses the company 's 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 management to make estimates and assumptions that affect the 14 reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . on an on-going basis , management evaluates its estimates and judgments based on historical experience and on various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . management believes the following critical accounting policies , among others , affect its more significant judgments and estimates used in the preparation of the company 's consolidated financial statements . allowance for doubtful accounts the company maintained allowances for doubtful accounts of $ 1,312,715 as of december 29 , 2012 , for estimated losses resulting from the inability of its customers to make required payments and for disputed claims and quality issues . the allowance is based upon a review of outstanding receivables , historical collection information and existing economic conditions . the company performs periodic credit evaluations of its customers ' financial condition and generally does not require collateral . receivables are generally due within 30 to 45 days . delinquent receivables are written off based on individual credit evaluations and specific circumstances of the customer . inventory reserves the company establishes a reserve for estimated obsolescence or unmarketable inventory in an amount equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and current market conditions . based on historical results , the company also maintains an inventory reserve to provide for the amount of estimated inventory quantity loss since the last physical inventory . as of december 29 , 2012 , the company has $ 2,383,000 accrued for inventory obsolescence and market reserves . if actual market conditions are less favorable than those estimated by management , additional inventory reserves may be required . environmental reserves as noted in note 5 to the consolidated financial statements included in item 8 of this form 10-k , the company has accrued $ 640,000 as of december 29 , 2012 , in environmental remediation costs which , in management 's best estimate , are sufficient to satisfy anticipated costs of known remediation requirements as explained in note 5. expenditures related to costs currently accrued are not discounted to their present values and are expected to be made over the next three to four years . however , as a result of the evolving nature of the environmental regulations , the difficulty in estimating the extent and necessary remediation of environmental contamination , and the availability and application of technology , the estimated costs for future environmental compliance and remediation are subject to uncertainties and it is not possible to predict the amount or timing of future costs of environmental matters which may subsequently be determined . changes in information known to management or in applicable regulations may require the company to record additional remediation reserves . impairment of long-lived assets the company continually reviews the recoverability of the carrying value of long-lived assets . long-lived assets are reviewed for impairment when events or changes in circumstances , also referred to as `` triggering events '' , indicate that the carrying value of a long-lived asset or group of assets ( the `` assets '' ) may no longer be recoverable . triggering events include : a significant decline in the market price of the assets ; a significant adverse change in the operating use or physical condition of the assets ; a significant adverse change in legal factors or in the business climate impacting the assets ' value , including regulatory issues such as environmental actions ; the generation by the assets of historical cash flow losses combined with projected future cash flow losses ; or the expectation that the assets will be sold or disposed of significantly before the end of the useful life of the assets . the company concluded that there were no indications of impairment requiring further testing during the year ended december 29 , 2012. if the company concluded that , based on its review of current facts and circumstances , there were indications of impairment , testing of the applicable assets would be performed . the recoverability of the assets to be held and used is tested by comparing the carrying amount of the assets at the date of the test to the sum of the estimated future undiscounted cash flows expected to be generated by those assets over the remaining useful life of the assets . in estimating the future undiscounted cash flows , the company uses projections of cash flows directly associated with , and which are expected to arise as a direct result of , the use and eventual disposition of the assets . this approach requires significant judgments including the company 's projected net cash flows , which are derived using the most recent available estimate for the reporting unit containing the assets tested . several key assumptions would include periods of operation , projections of product pricing , production levels , product costs , market supply and demand , and inflation . story_separator_special_tag a receivable from the prior owners of palmer was established in december 2012 for $ 1,494,000 which resulted from the final working capital adjustment , uncollected accounts receivable and other items detailed in the spa . this receivable was settled in january 2013. cash flows used in operating activities during 2011 and 2010 totaled $ 3,858,000 and $ 6,048,000 , respectively , an improvement in cash flows of $ 2,190,000. cash flows in 2011 were generated from net income totaling $ 8,456,000 before depreciation and amortization expense of $ 2,659,000. cash flows were adversely affected by an $ 8,710,000 increase in inventories in 2011 , as year-end balances increased , net of reserves , from $ 34,353,000 at the end of 2010 to $ 43,063,000 at the end of 2011. substantially all 16 of the increase occurred in the metals segment to support higher 2012 sales projections , a sales mix shift to higher cost special alloy products along with the company deciding to begin stocking select special alloy finished goods products to be responsive to projected customer demands . accounts receivable increased by $ 6,609,000 in 2011 , net of reserves , as a result of the higher metals segment sales activity during the fourth quarter of 2011 compared to the same period of 2010 , combined with an increased number of days sales outstanding for fabrication sales . higher priced special alloy inventory purchases made during the fourth quarter of 2011 increased the accounts payable balance at the end of 2011 by $ 2,369,000 when compared to the 2010 year-end balance . operating cash flows were favorably affected by higher accrued expenses at the end of 2011 compared to the end of 2010 of $ 1,806,000 , as profit based incentives increased $ 1,019,000 reflecting higher profits earned and advances from customers ( prepayments from customers used to purchase raw materials required for piping systems projects ) increased $ 470,000 in 2011 compared to 2010. in 2012 , the company 's current assets increased $ 16,284,000 and current liabilities increased $ 6,709,000 , from the year ended 2011 amounts , which caused working capital for 2012 to increase by $ 9,575,000 to $ 65,919,000 from the 2011 total of $ 56,344,00 0. the current ratio for the year ended december 29 , 2012 , decreased to 3.6:1 from the 2011 year-end ratio of 4.1:1. on august 21 , 2012 , the company acquired all of the outstanding stock of palmer , a leading manufacturer of liquid storage solutions and separation equipment for the petroleum , municipal water , wastewater , chemical and food industries . in recent years , palmer 's business has been focused on providing fiberglass and steel tanks to the oil industry . its primary facility in andrews , texas is strategically located in the heart of the permian basin of west texas and also serves other liquid rich shale areas including the anadarko basin , eagle ford shale and the barnett shale . with approximately 130 employees , palmer generated $ 36 million in revenues for the trailing twelve months ended july 31 , 2012. the company paid approximately $ 27,895,000 for this acquisition . the prior shareholders of palmer have the ability to receive additional earn-out payments ranging from $ 2,500,000 to $ 10,500,000 if the business unit achieves targeted levels of ebitda over a three year period following closing ; the company will have the ability to claw-back portions of the purchase price over a two year period following closing if ebitda falls below baseline levels . the company is currently forecasting earn-out payments totaling $ 8,500,000 , which was discounted to a present value of $ 8,152,000 using our incremental borrowing rate of 2 percent . $ 2,500,000 of this liability was classified as a current liability since the first payment is expected to be made within the next year . the various assumptions and projections used in the earn-out projections were reviewed at december 29 , 2012 with no additional adjustments required . any future changes to the projected earn-out payments as a result of our quarterly review of forecasted ebitda would be reflected as an adjustment to earnings in that period . the company funded the purchase price through an increase in its existing credit facility and new long-term debt in the amount of $ 22.5 million . the transaction is expected to be immediately accretive to the company 's earnings . the operating results of palmer are included in the metals segment . the liability for the projected earn-out payments represent the only fair value asset or liability that is represented as a level 3 liability . there were no transfers of assets or liabilities between level 1 , level 2 or level 3 in the years ended december 29 , 2012 or december 31 , 2011. there have also been no changes in the fair value methodologies used by the company . the company also used cash during 2012 for investing activities to fund capital expenditures of $ 4,740,000. financing activities during 2012 generated $ 31,910,000 through net borrowings on long-term debt and the company paid a $ 0.25 dividend on december 10 , 2012 which used $ 1,596,000. the company expects that existing cash balances , cash flows from 2013 operations and available borrowings will be sufficient to make debt payments and fund estimated 2013 capital expenditures of $ 4,800,000. on june 30 , 2010 , the company entered into a credit agreement with a regional bank to provide a $ 20,000,000 line of credit that was to expire on june 30 , 2013. this agreement was amended by the bank on august 19 , 2011 to extend the maturity date of the credit agreement by one additional year to june 30 , 2014. in connection with the palmer acquisition discussed in note 16 to the consolidated financial statements included in item 8 of this form 10-k , on august 21 , 2012 , the company modified the credit agreement to increase the limit of the credit facility by $ 5,000,000 to a
| results of operations comparison of 2012 to 2011 - consolidated for the fiscal year ending december 29 , 2012 , the company generated net earnings of $ 4,235,000 , or $ 0.66 per share , on sales of $ 197,659,000 , compared to net earnings of $ 5,797,000 , or $ 0.91 per share , on sales of $ 170,575,000 in the prior year . the company generated net earnings of $ 965,000 , or $ 0.15 per share , on sales of $ 53,138,000 in the fourth quarter of 2012 , compared to net earnings of $ 1,017,000 , or $ 0.16 per share , on sales of $ 40,241,000 in the fourth quarter of 2011. consolidated gross profit increased four percent to $ 21,928,000 in 2012 , compared to $ 21,090,000 in 2011 , and , as a percent of sales , decreased to eleven percent of sales in 2012 compared to twelve percent of sales in 2011. for the fourth quarter of 2012 , consolidated gross profit was $ 5,893,000 , an increase of 23 percent from the fourth quarter of 2011 of $ 4,783,000. consolidated gross profit was eleven percent of sales for the fourth quarter of 2012 and twelve percent of sales for same period of 2011. the increases in dollars and in percentage of sales were attributable to the specialty chemicals segment as discussed in the specialty chemicals segment comparison of 2012 to 2011 below . consolidated selling , general and administrative expense for 2012 increased by $ 1,856,000 to $ 14,140,000 compared to $ 12,284,000 for 2011 , and was seven percent of sales for both 2012 and 2011. these costs increased $ 355,000 during the fourth quarter of 2012 compared to the same period of 2011 and decreased to seven percent of sales from nine percent of sales for the fourth quarters of 2012 and 2011 , respectively .
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we recognize revenues related to sales-based milestone and royalty payments upon the later to occur of ( i ) achievement of the collaborator story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with “ selected financial data ” , our consolidated financial statements and the related notes thereto and other financial information appearing elsewhere in 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 in this form 10-k under “ item 1a . risk factors. ” overview we are a clinical-stage biotechnology company advancing two innovative programs : a novel class of oral therapeutic candidates for the treatment of chronic hepatitis b virus ( hbv ) infection and a novel class of oral live microbial biotherapeutic candidates , which are designed to treat disorders associated with the microbiome . hbv cure program over 250 million people worldwide are chronically infected with hbv . our hbv cure program is pursuing multiple drug candidates designed to inhibit the hbv lifecycle and block the generation of covalently closed circular dna ( cccdna ) , with the aim of increasing the current low cure rate for patients with hbv . we have discovered several novel core inhibitors , which are small molecules that directly target and allosterically modulate the hbv core ( hbc ) protein . 2019 developments abi-h0731 : in november 2019 , at the american association for the study of liver diseases annual meeting ( the liver meeting® ) , we presented final 24-week data from hbv e antigen ( hbeag ) positive patients in our phase 2 studies of abi-h0731 ( 731 ) , our lead hbv core inhibitor product candidate—abi-h0731-201 ( study 201 in nucleos ( t ) ide reverse transcriptase inhibitor ( nrti ) suppressed patients ) and abi-h0731-202 ( study 202 nrti-naïve patients ) . in addition , we presented interim data from an ongoing open-label extension study abi-h0731-211 ( study 211 ) , where all patients received a combination of 731 and nrti therapy . in this analysis , of the 97 patients completing study 201 or study 202 , 87 were currently receiving a combination of 731 and nrti therapy and had been treated for at least 16 weeks in study 211 ( cumulative duration of treatment with 731 and nrti therapy of 16 to more than 40 weeks ) . 731 was well-tolerated when administered in combination with nrti therapy with no patients discontinuing treatment due to adverse events ( aes ) . as previously reported in the literature , the vast majority of long-term nrti treated hbeag positive patients continue to have low level infectious virus , which was confirmed in study 201 patients at the time of their enrollment . final week 24 results from the hbeag-positive patients ( n=47 ) demonstrated that , among those with detectable hbv dna at baseline , 22 out of 27 ( 81 % ) of patients treated with 731 and nrti therapy achieved target not detected ( tnd ) by week 24 compared to zero out of 12 ( 0 % ) patients treated with nrti therapy only ( p < 0.001 ) , as measured with a highly sensitive pcr assay ( lower limit of quantification ( lloq ) 5 = iu/ml ) . these results indicate that the addition of 731 to ongoing nrti therapy reduced viral burden to levels not achieved by nrti therapy alone . final week 24 results from treatment-naïve hbeag-positive patients in study 202 ( n=25 ) demonstrated faster and deeper hbv dna declines in patients receiving 731 and entecavir ( etv ) than those receiving etv alone . statistically significant reductions of viral pre-genomic rna ( pgrna ) were observed by week 2 with 731 and etv ( p < 0.001 ) . longer-term treatment with 731 and nrti therapy resulted in deeper reductions in hbv dna and pgrna . in the analysis , 21 out of 25 patients from study 202 who were in treatment in study 211 demonstrated mean hbv dna and pgrna declines from baseline of 6.3 logs and 3.0 logs , respectively , at week 48. of the 27 nrti-suppressed hbeag-positive patients who had received 731 and nrti therapy for at least 40 weeks in study 201 and were on treatment in study 211 , 18 ( 67 % ) achieved hbv dna tnd + pgrna less than 35 u/ml , along with significant declines in hbeag and hbcrag levels in some of these patients . 57 an important finding based on interim data from study 211 is the observed correlation between pgrna and viral antigen s . eleven out of 21 ( 52 % ) patients from study 202 that are now on study 211 who have been treated with 731 and nrti therapy for 16 to 60 weeks have achieved decreases in pgrna of greater than 3 logs . the results in the table below demonstrate that these larger declines in pgrna were associated with observed reductions in viral antigens . as cccdna is the only known source of pgrna , significant declines in pgrna , coupled with multi-log declines in viral antigens in some patients , suggests that cccdna pool levels may be decreasing . replace_table_token_3_th from the final summary of safety findings in study 201 and study 202 , 731 when administered with a nrti therapy for 24 weeks was well-tolerated in both hbeag-positive and -negative patients with no aes leading to discontinuation , no grade 3 or 4 aes and no serious aes reported . five patients receiving 731 and nrti reported a rash ( four grade 1 and one grade 2 ) . no associated systemic signs or laboratory abnormalities were observed , and all patients continued treatment through week 24. overall , laboratory abnormalities observed were of grade 1 or 2 severity and occurred in similar proportions of patients across the two treatment groups . story_separator_special_tag additionally , we have an option to co-promote the licensed programs in the united states and china , subject to certain conditions set forth in the collaboration agreement . operations we currently have corporate and administrative offices and research laboratory space in south san francisco , california and research , development and small-scale manufacturing activities in groton , connecticut and administrative offices in carmel , indiana . since our inception , we have had no revenue from product sales and have funded our operations principally through debt financings prior to our initial public offering in 2010 and through equity financings and collaborations since then . our operations to date have been primarily limited to organizing and staffing our company , licensing our product candidates , discovering and developing our product candidates , establishing small-scale manufacturing capabilities for certain of our product candidates , maintaining and improving our patent portfolio and raising capital . we have generated significant losses to date , and we expect to continue to generate losses as we continue to develop our product candidates . as of december 31 , 2019 , we had an accumulated deficit of approximately $ 439.4 million . because we do not generate revenue from any of our product candidates , our losses will continue as we further develop and seek regulatory approval for , and commercialize , our product candidates . as a result , our operating losses are likely to be substantial over the next several years as we continue the development of our product candidates and thereafter if none are approved or successfully launched . we are unable to predict the extent of any future losses or when we will become profitable , if at all . financial operations overview research and development expense research and development expenses consist primarily of costs incurred for our research activities , including our drug discovery efforts , target validation , lead optimization and the development of our product candidates , which include : employee-related expenses including salaries , benefits , and stock-based compensation expense ; expenses incurred under agreements with third parties , including contract research organizations ( cros ) that conduct research and development , nonclinical and clinical activities on our behalf and the cost of consultants , and contract manufacturing organizations ( cmos ) that manufacture all of our drug substance and the drug product used in our hbv-cure program ; 59 the cost of lab supplies and acquiring , developing , and manufacturing nonclinical and , in the case of our microbiome program , early stage clinical study materials ; fees related to our license agreements ; and facilities , depreciation , and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance , and other operating costs . research and development costs are expensed as incurred . nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized . the capitalized amounts are expensed as the related goods are delivered or the services are rendered . we use our employee and infrastructure resources across multiple research and development programs , and we allocate internal employee-related and infrastructure costs , as well as certain third-party costs , to each of our programs based on the personnel resources allocated to such program . our research and development expenses , by major program , are outlined in the table below ( in thousands ) : replace_table_token_4_th ( 1 ) expenses presented for microbiome do not reflect reimbursement of expenses under the collaboration agreement with allergan as discussed in note 8 to the consolidated financial statements . the successful discovery and development of our product candidates is highly uncertain . as such , 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 remainder of their development . we are also unable to predict when , if ever , material net cash inflows will commence from our product candidates . this is due to the numerous risks and uncertainties associated with developing medicines , including the uncertainty of : the timing , progress and success of our phase 2 clinical development of 731 , our phase 1 and potential phase 2 clinical development of 2158 , our phase 1 clinical development of m201 , and our nonclinical and planned clinical development activities for 3733 and other product candidates we may identify in each of the hbv cure and microbiome programs ; establishing an appropriate safety profile with ind-enabling toxicology studies sufficient to advance additional product candidates into clinical development ; successful enrollment in , and completion of , clinical studies ; receipt of marketing approvals from applicable regulatory authorities ; establishing internal commercial manufacturing capabilities or making arrangements with third-party manufacturers ; obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates ; launching commercial sales of the products , if and when approved , whether alone or in collaboration with others ; and maintaining a continued acceptable safety profile of the products following approval and wide use . 60 a change in the outcome of any of these variables or variables discussed in “ item 1a . risk factors ” with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that product candidate . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical studies . we expect research and development costs to increase significantly for the foreseeable future as our product candidate development programs progress . however , we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization .
| results of operations general at december 31 , 2019 , we had an accumulated deficit of approximately $ 439.4 million primarily as a result of research and development expenses and general and administrative expenses . while we may in the future generate revenue from a variety of sources , including license fees , milestone payments , research and development payments in connection with strategic partnerships and or product sales , our product candidates are at an early stage of development and may never be successfully developed or commercialized . accordingly , we expect to continue to incur substantial losses from operations for the foreseeable future and there can be no assurance that we will ever generate significant revenues . 66 comparison of the years ended december 31 , 2019 and 2018 collaboration revenue during the year ended december 31 , 2019 , we generated approximately $ 16.0 million of collaboration revenue , which included the amortization of deferred revenue and reimbursement revenue in each case incurred under the collaboration agreement , an increase of approximately $ 1.2 million from approximately $ 14.8 million for the same period in 2018. the increase was based on increased research efforts performed during 2019 for our microbiome program . research and development expense research and development expense , excluding stock-based compensation expense , was approximately $ 74.4 million for the year ended december 31 , 2019 , an increase of approximately $ 13.5 million from approximately $ 60.9 million for the same period in 2018. the increase in research and development expenses was primarily due to an increase of approximately $ 9.4 million in research expenses for our hbv-cure program and an increase of approximately $ 4.1 million in research expenses for our microbiome program . stock-based compensation expense was approximately $ 11.4 million for the year ended december 31 , 2019 , a decrease of approximately $ 0.4 million from approximately $ 11.8
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deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the notes to those financial statements appearing elsewhere in the annual report on form 10-k. this discussion contains forward-looking statements that involve significant risks and uncertainties . as a result of many factors , such as those set forth under “ risk factors ” in part 1 item 1a of this annual report on form 10-k , our actual results may differ materially from those anticipated in these forward-looking statements . all dollar amounts are stated in thousands . overview we are a pharmaceutical company focused on developing and commercializing differentiated products which leverage our proprietary pharmfilm® technology to solve patients ' therapeutic problems and to meet patients ' unmet medical needs . we have three commercial products , including one proprietary product and two out-licensed products , another fda-approved product that has been out-licensed for commercialization in european markets following applicable regulatory approvals , as well as a late-stage proprietary product pipeline focused on the treatment of central nervous system , or cns , diseases . we believe that the characteristics of the patient populations our products address and the shortcomings of available treatments create opportunities for the development and commercialization of meaningfully differentiated medicines . we generated revenue of $ 52,609 and $ 67,430 in 2019 and 2018 , respectively , largely from commercial products licensed to our licensees in the form of manufacturing and supply revenue . total revenues also included licensing , royalty and co-development and research fees . our license revenue is subject to the normally uneven timing of co-development and licensing milestone payments , and to the variable product sales volumes achieved by our licensees , for which we receive royalties as well as manufacturing revenues . suboxone , which was launched in 2010 , was our first licensed pharmaceutical product to be commercialized , and we have other licensing relationships that contribute to our revenue and future revenue opportunities . sympazan , which was launched in december 2018 , is the first proprietary pharmaceutical product commercialized directly by the company . in 2013 , we made a strategic decision to develop our own pipeline of proprietary pharmaceutical products and to pursue commercialization of these products . revenues from these development efforts began being realized in late 2018 with sympazan , an oral soluble film formulation of clobazam used as an adjunctive therapy for seizures associated with a rare , intractable form of epilepsy know as lennox-gastaut syndrome , lgs . following approval by the fda we launched sympazan in december 2018. substantial investments have been made since 2013 in the development of our proprietary pipeline . we expect to continue these investments in the commercialization of sympazan in 2020 , and to invest in the pre-launch commercialization phase of the additional product candidates in our pipeline , assuming fda approval . these development and commercialization expenses have utilized and , in the future will utilize , funds generated from licensing , manufacturing and proprietary related revenues and from our capital raising and debt financing . as of december 31 , 2019 , we had $ 49,326 in cash and cash equivalents . as a result of our investments in product development and recent investments in pre-launch commercialization initiatives , our historical operating expenses , and the settlement of obligations related to our performance unit plan and our initial public offering completed in july 2018 and our recent offering of common stock in december 2019 coupled with our prior capitalization , we had net stockholders ' deficit of $ 6,122 as of december 31 , 2019. for the years ended december 31 , 2019 and 2018 , we incurred net losses of $ 66,246 and $ 61,376 , respectively . exservan , utilizing aquestive 's proprietary pharmfilm technology , has been developed for the treatment of amyotrophic lateral sclerosis ( als ) . exservan is expected to fulfill a critical need for als patients , since it can be orally administered safely and easily , twice daily without water . we believe that exservan , can bring meaningful assistance to patients who are diagnosed with als and face difficulties swallowing or administering other forms of medication . exservan was approved by the fda on november 22 , 2019. during the 2019 fourth quarter , we announced the granting of a license to zambon s.p.a. for the development and commercialization of exservan oral film in the eu for treatment of als . zambon is a multinational pharmaceutical company with a focus on the cns therapeutic area . under the terms of the license agreement , an upfront payment was paid to aquestive for the development and commercialization rights for exservan in the eu , and we will be entitled to be paid , subject to the terms of the license agreement , development milestone payments and low double-digit royalties payable on net sales of the product in the eu . zambon will exclusively be responsible for obtaining the regulatory approval and marketing of exservan in the eu , and aquestive will exclusively be responsible for the manufacture of the product . we are seeking an appropriate licensee for the commercialization rights for exservan in the united states . our most advanced proprietary product candidate , which we intend to self-commercialize , subject to fda approval with market access , is libervant : 75 libervant is a buccally , or inside of the cheek , administered soluble film formulation of diazepam . epilepsy patients have been underserved for some time with little choice beyond device-based products such as rectally administered gels and a recently approved nasal spray . aquestive is developing libervant as an alternative to the current standard of care rescue therapy for patients with refractory epilepsy , which is a rectal gel that is invasive , inconvenient , and difficult to administer . story_separator_special_tag indivior accounted for 86 % and 89 % of our total annual revenues for fiscal 2019 and 2018 , respectively . our total revenue mix will shift to a higher proportionate share of proprietary product sales in future years as we continue to grow sympazan revenues and pursue the launch of other products , assuming fda approval . while volume is expected to decrease in 2020 for suboxone branded only , our manufacturing price for suboxone has been increased starting in the first quarter of 2020 which is expected to positively impact gross margin contribution from manufacturing and supply revenue . we manufacture all of our licensed and proprietary products at our fda- and dea-inspected facilities and anticipate that our current manufacturing capacity is sufficient for commercial quantities of our products and product candidates currently in development . not all collaborative or licensed products of the company that may be commercially launched in the future will necessarily be manufactured by the company . we have produced over 2 billion doses of suboxone since 2006. our products are developed using our proprietary pharmfilm® technology and know-how . our patent portfolio currently comprises at least 200 issued patents worldwide , of which at least 40 are u.s. patents , and more than 90 pending patent applications worldwide . 76 on july 27 , 2018 , we closed our initial public offering ( “ ipo ” ) and on august 15 , 2018 , the underwriter 's overallotment option was exercised . a total of 4,925,727 shares of common stock were issued . on july 25 , 2018 , the company began trading on the nasdaq global market under ticker symbol “ aqst ” . total net proceeds to aquestive after underwriters ' discounts and other costs and expenses of the ipo were $ 63,482. on july 15 , 2019 , we completed a private placement of $ 70,000 of 12.5 % senior secured notes due june 2025 ( “ notes ” or “ senior secured notes ” ) and warrants for the purchase of up to 2 million common shares , against which 428,571 common shares were issued in december 2019 upon exercise . the new financing provided net proceeds of $ 66,054 after expenses . the net proceeds of the financing were used to repay all outstanding obligations under the company 's prior credit facility of $ 52,944. we used the remaining net cash proceeds of $ 13,110 for the continued commercialization and advancement of our proprietary products and pipeline candidates , and other general corporate purposes . our notes are discussed in note 12 , 12.5 % senior secured notes , to our consolidated financial statements and in liquidity and capital resources . on september 11 , 2019 , we filed with the sec a registration statement on form s-3 , which was declared effective on september 17 , 2019 ( file no . 333-233716 ) ( the “ s-3 registration statement ” ) . under the s-3 registration statement we may sell up to $ 150 million of our securities including , without limitation , common stock , preferred stock , warrants , and debt securities . on september 11 , 2019 , we entered into an equity distribution agreement to offer shares of our common stock from time to time in an “ at-the-market ” offering . we may offer and sell shares of common stock for an aggregate offering price of up to $ 25.0 million . no shares have been sold pursuant to this “ at-the-market ” offering as of the date of this report . the agreement does not have an expiration date but can be canceled by us at any time for convenience with 10 days written notice . on december 12 , 2019 , we sold 8,050,000 common shares for gross proceeds of $ 40,250 in an underwritten public offering under the s-3 registration statement , that netted $ 37,295 after the underwriting discount and offering costs . we have also reserved under the s-3 registration statement up to an additional 4,228,082 shares of our common stock for sale by our stockholders and for the exercise of warrants held by the holders of our 12.5 % senior secured notes . under our s-3 registration statement we are subject to , among other requirements applicable to our continuing eligibility to offer and sell securities pursuant to that short-form registration statement , the “ baby shelf ” registration requirements , which generally provide that a registrant which does not satisfy a minimum public float requirement ( determined by the market value of publicly-traded shares held by nonaffiliates of the registrant ) of at least $ 75 million at the time it files its form s-3 registration statement , may not offer and sell in a primary offering more than one-third of its public float in any twelve month period ( the “ one-third limit ” ) . however , if a registrant who did not satisfy the minimum public float requirement at the time of filing of its form s-3 registration statement , subsequently increases its public float in excess of $ 75 million ( determined as of any date within 60 days prior to the filing of its form 10-k ) , the one-third limit will not apply for the twelve month period until the public float determination is once again made in connection with its next subsequently filed form 10-k , assuming for this purpose compliance with all other form s-3 primary offering and other requirements .
| results of operations comparison of years ended december 31 , 2019 and 2018 management 's discussion and analysis of our results of operations for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 may be found in the management 's discussion and analysis of financial condition and results of operations sections of our form 10-k , filed with the sec on march 14 , 2019. we recorded revenue of $ 52,609 and $ 67,430 in 2019 and 2018 , respectively , generating net losses of $ 66,246 and $ 61,376 for each of those years , respectively . the following discussion of our results of operations explains the material drivers of these results of operations . revenues the following table sets forth our revenue data for the periods indicated . replace_table_token_3_th revenues decreased 22 % or $ 14,821 in 2019 to $ 52,609 compared to $ 67,430 in 2018. the change is primarily attributable to differences in license and royalty revenue and co-development and research fees that by their respective nature are variable as to timing and magnitude , offset in part by increases in manufacture and supply revenue and proprietary product sales revenue from sympazan , launched in december 2018. additionally , under the indivior supplemental agreement license fees which are variable are currently suspended following the “ at risk ” launches of several generic buprenorphine-naloxone products into the suboxone market . these may be recoverable in the future under certain conditions . 81 manufacture and supply revenue increased approximately 4 % or $ 1,420 in 2019 to $ 38,739 as compared to $ 37,319 in 2018 due to increased pricing associated with our suboxone product which began in late 2018 and continued in 2019 , offset in part by total lower volumes of suboxone and the suboxone authorized generic .
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the pricing for certain product supply provided to healios is driven off the underlying cost per dose over the entire life of the agreement and is subject to variability as those costs change . during our evaluation of variable consideration in the third and fourth quarters of 2019 , we revised our estimated transaction price due to changes in the underlying cost per dose of the product supply occurring during the respective quarter . we estimate the cost per dose for the life of the contract taking into consideration historical experience of our contract manufacturers and anticipated changes to production yields and other factors . during story_separator_special_tag you should read the following discussion and analysis in conjunction with “ item 8. financial statements and supplementary data ” included below in this annual report on form 10-k. overview we are an international biotechnology company that is focused primarily in the field of regenerative medicine . our multistem cell therapy , a patented and proprietary allogeneic stem cell product , is our lead platform product and is currently in clinical development in several therapeutic and geographic areas . our most advanced program is an ongoing phase 3 clinical trial for treatment of ischemic stroke . our current clinical development programs are focused on treating neurological conditions , cardiovascular disease , inflammatory and immune disorders , certain pulmonary conditions and other conditions where the current standard of care is limited or inadequate for many patients , particularly in the critical care segment . as part of the u.s. government 's response to the outbreak of the 2019 novel coronavirus , covid-19 , we have held discussions with and made presentations under the medical countermeasures techwatch program to barda and to the u.s. government interagency covid-19 medical countermeasures task force led by barda that also included other relevant governmental agencies and public health institutions . as a result of this review , our program involving administration of multistem for the treatment of ards was designated as highly relevant by the medical countermeasures techwatch program . following infection with covid-19 , or other viruses or pathogens that trigger severe pulmonary inflammation , ards can occur , resulting in significant morbidity or death . discussions between athersys and barda are continuing regarding the finalization and implementation of a potential collaboration . current programs our multistem cell therapy product development programs in the clinical development stage include the following : ischemic stroke : we are conducting a pivotal phase 3 clinical trial of multistem cell therapy for the treatment of ischemic stroke , referred to as masters-2 . our masters-2 clinical trial is a randomized , double-blind , placebo-controlled clinical trial designed to enroll 300 patients in north america , europe and certain other international locations , who have suffered moderate to moderate-severe ischemic stroke . we initiated the study with a small number of high-enrolling sites and are bringing on additional sites over time in line with clinical product supply and clinical operations objectives . the masters-2 study has received several regulatory distinctions including special protocol assessment , or spa , designation , fast track designation and regenerative medicine advanced therapy designation , which was established under the 21st century cures legislation from the united states food and drug administration , or fda , as well as a final scientific advice positive opinion from the european medicines agency , or ema . in addition , healios k.k. , or healios , has an ongoing clinical trial , treasure , evaluating the safety and efficacy of administration of multistem cell therapy for the treatment of ischemic stroke in japan . treasure will be evaluated under the progressive framework for regenerative medicine therapies in japan . under the new framework , healios ' ischemic stroke program has been awarded the sakigake designation by the pharmaceuticals and medical devices agency , which is designed to expedite regulatory review and approval , and is analogous to fast track designation from the fda . we look forward to the completion of both the masters-2 and treasure trials and using the accelerated pathways afforded to us by the regulators in the united states , europe and japan . ards : in january 2019 and january 2020 , we announced summary results and one-year follow up results , respectively , from our exploratory clinical study of the intravenous administration of multistem cell therapy to treat patients who are suffering from ards . the study results continue to demonstrate a predictable and favorable tolerability profile with no new safety signals identified associated with multistem treatment . importantly , there were lower mortality and a greater number of ventilator-free and icu-free days in the multistem-treated patient group compared to the placebo group . average quality-of-life outcomes were higher in the multistem group compared to placebo through one year . furthermore , inflammatory markers/cytokines were lower in the multistem treatment group than the placebo group . based on the promising results , athersys is planning for a potential registrational trial in this indication . in 2019 , healios initiated a clinical trial in japan for patients with pneumonia-induced ards , which is referred to as the one-bridge study , which is actively enrolling patients . we look forward to the results of this study . 40 trauma : we have previously announced with university of texas health science center at houston , or uthealth , our plans to conduct a clinical trial evaluating multistem cell therapy for early treatment and prevention of complications after severe traumatic injury . this first-ever study of a cell therapy for treatment of a wide range of traumatic injuries is intended to be conducted at memorial hermann-texas medical center , one of the busiest level 1 trauma centers in the united states . the study has grant support from the medical technology enterprise consortium and the memorial hermann foundation . we will provide the clinical product for the conduct of the trial , as well as provide regulatory and operational support . story_separator_special_tag under the collaboration that began in 2016 , healios is responsible for the development and commercialization of the multistem product for the licensed fields in the licensed territories , and we provide services to healios for which we are compensated . each license agreement with healios has defined economic terms , and we may receive success-based milestone payments , some of which may be subject to credits . while there is no assurance that we will receive milestone proceeds under the healios collaboration , any milestone payment we receive is non-refundable and non-creditable towards future royalties or any other payment due from healios . also , we are entitled to receive tiered royalties on net product sales , as defined in the license agreements . in connection with an equity investment in us made by healios in march 2018 , healios has a warrant to purchase up to 4,000,000 shares of our common stock at an exercise price equal to a reference price , as defined , but no less than $ 1.76 per share , and the warrant generally expires in september 2020. while we may generate proceeds from this warrant in the future , it has not been exercised as of december 31 , 2019 . we have had equity purchase agreements in place since 2011 with aspire capital fund llc , or aspire capital , which provide us the ability to sell shares to aspire capital from time-to-time , as appropriate . the current facility was entered into in february 2018 and includes aspire capital 's commitment to purchase up to an aggregate of $ 100 million of shares of common stock over a three-year period . the terms of this 2018 equity facility are similar to the previous arrangements , and we issued 450,000 shares of our common stock to aspire capital as a commitment fee in february 2018 and filed a registration statement for the resale of 24,700,000 shares of common stock in connection with the equity facility . also , in connection with this equity facility , aspire capital invested $ 1.0 million to purchase 500,000 shares of common stock at $ 2.00 per share . in november 2019 , we entered into a new equity facility to replace the current facility , which will provide us with the ability to sell shares to aspire capital up to $ 100.0 million in aggregate to support operational and other initiatives over the next several years . the terms of the 2019 equity facility are similar to the previous equity facilities with aspire capital , and we issued 350,000 shares of our common stock to aspire capital as a commitment fee in november 2019. we registered for the resale of 31,000,000 shares of our common stock in connection with this facility . during the years ended december 31 , 2019 , 2018 and 2017 , we sold 14,475,000 , 8,708,582 and 9,400,000 shares , respectively , to aspire capital at average prices of $ 1.41 , $ 1.78 and $ 1.75 per share , respectively . in the first quarter of 2020 through march 13 , 2020 , we generated an additional $ 5.5 million in proceeds from the use of our equity purchase arrangement . story_separator_special_tag million and $ 0.8 million , respectively , and was comprised of interest income and expense , refundable foreign tax credits and foreign currency gains and losses . comparison of the years ended december 31 , 2018 and 2017 see the management discussion and analysis section of our annual report on form 10-k for the year ended december 31 , 2018 for a discussion of our results of operations for the year ended december 31 , 2018 compared to the year ended december 31 , 2017. liquidity and capital resources our sources of liquidity include our cash balances . at december 31 , 2019 , we had $ 35.0 million in cash and cash equivalents . we have primarily financed our operations through business collaborations , grant funding , and equity financings including through our equity facility . we conduct all of our operations through our subsidiary , abt holding company . consequently , our ability to fund our operations depends on abt holding company 's financial condition and its ability to make dividend payments or other cash distributions to us . there are no restrictions such as government regulations or material contractual arrangements that restrict the ability of abt holding company to make dividend and other payments to us . we incurred losses since inception of operations in 1995 and had an accumulated deficit of $ 417.6 million at december 31 , 2019 . our losses have resulted principally from costs incurred in research and development , clinical and preclinical product development , manufacturing and process development , acquisition and licensing costs , and general and administrative costs associated with our operations . we use all of our sources of capital to develop our technologies , to discover and develop therapeutic product candidates , to prepare for potential commercialization of our product candidates , develop business collaborations and to potentially acquire certain technologies and assets . 43 in the first quarter of 2019 , we received the final $ 2.5 million quarterly installment payment in connection with the june 2018 expansion of our collaboration with healios . we are also entitled to receive potential milestones payments , subject to certain credits , and royalties from healios under our licensed programs . we receive payments from healios for clinical product supply , other manufacturing-related services , and commercial supply . certain proceeds from healios may be used by healios to offset milestone payments that may become due in the future .
| results of operations since our inception , our revenues have consisted of license fees , contract revenues , royalties and milestone payments from our collaborators , and grant proceeds . we have not derived revenue from our commercial sale of therapeutic products to date since we are in clinical development . research and development expenses consist primarily of external clinical and preclinical study fees , manufacturing and process development costs , salaries and related personnel costs , legal expenses resulting from intellectual property prosecution processes , facility costs , and laboratory supply and reagent costs . we expense research and development costs as they are incurred . we expect to continue to make significant investments in research and development to enhance our technologies , advance clinical trials of our product candidates , expand our regulatory affairs and product development capabilities , conduct preclinical studies of our product , manufacture our product candidates and prepare for potential commercialization of our multistem cell therapy product . general and administrative expenses consist primarily of salaries and related personnel costs , professional fees and other corporate expenses . we expect to continue to incur substantial losses through at least the next several years . 42 year ended december 31 , 2019 compared to year ended december 31 , 2018 revenues . revenues decreased to $ 5.6 million for the year ended december 31 , 2019 from $ 24.3 million in 2018 . contract revenues from our collaboration with healios decreased $ 16.8 million period-over-period , as 2018 included the impact of the 2018 collaboration expansion and 2019 included reductions in variable consideration under our healios arrangement . grant revenue decreased by $ 0.4 million in the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , primarily due to the completion of grant-funded projects .
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during the modification process , the company recognizes revenue to the extent it incurs costs , provided that a contractual understanding has been reached . fixed-fee arrangements for phase i and phase ii ( a ) clinical services and bio-analytical services are short-term contracts for accounting purposes as these contracts are cancelable and the termination penalties for exiting these contracts are not substantive . the company generally bills for services on a milestone basis . the transaction price , representing the value of the services to be provided over the entire contract inclusive of all costs for which story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our “ selected financial data ” and the consolidated financial statements and the related notes included elsewhere in “ financial statements and supplementary data. ” some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business , includes forward‑looking statements that involve risks and uncertainties . you should read the “ risk factors ” section 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 one of the world 's leading global cros , by revenue , providing outsourced clinical development services to the biotechnology and pharmaceutical industries . we believe we are one of a select group of cros with the expertise and capability to conduct clinical trials across major therapeutic areas on a global basis . our therapeutic expertise includes areas that are among the largest in pharmaceutical development , and we focus in particular on oncology , immunology , central nervous system inflammation , respiratory , cardiometabolic and infectious diseases . we believe that we further differentiate ourselves from our competitors through our investments in medical informatics and clinical technologies designed to enhance efficiencies , improve study predictability and provide better transparency for our clients throughout their clinical development processes . our data solutions segment allows us to better serve our clients across their entire product lifecycle by ( i ) improving clinical trial design , recruitment , and execution ; ( ii ) creating real-world data solutions based on the use of medicines by actual patients in normal situations ; and ( iii ) increasing the efficiency of healthcare companies ' commercial organizations through enhanced analytics and outsourcing services . how we assess the performance of our business we are managed through two reportable segments , ( i ) clinical research and ( ii ) data solutions . our chief operating decision maker uses segment profit as the primary measure of each segment 's operating results in order to allocate resources and in assessing the company 's performance . in addition to our gaap financial measures , we review various financial and operational metrics . for our clinical research segment we review new business awards , cancellations , and backlog . our gross new business awards for the years ended december 31 , 2018 , 2017 and 2016 were $ 3,023.6 million , $ 2,779.8 million and $ 2,367.1 million , respectively . new business awards arise when a client selects us to execute its trial and is documented by written or electronic correspondence or for our strategic solutions offering when the amount of revenue expected to be recognized is measurable . the number of new business awards can vary significantly from year to year , and awards can have terms ranging from several months to several years . for our strategic solutions offering , the value of a new business award is the anticipated service revenue to be recognized in the corresponding quarter of the next fiscal year . for the remainder of our business , the value of a new award is the anticipated service revenue over the life of the contract , which does not include reimbursement activity or investigator fees . in the normal course of business , we experience contract cancellations , which are reflected as cancellations when the client provides us with written or electronic correspondence that the work should cease . during the years ended december 31 , 2018 , 2017 and 2016 we had $ 378.8 million , $ 366.0 million , and $ 290.6 million , respectively , of cancellations for which we received correspondence from the client . the number of cancellations can vary significantly from year to year . the value of the cancellation is the remaining amount of unrecognized service revenue , less the estimated effort to transition the work back to the client . our backlog consists of anticipated service revenue from new business awards that either have not started or are in process but have not been completed . backlog varies from period to period depending upon new business awards and contract modifications , cancellations , and the amount of service revenue recognized under existing contracts . our backlog at december 31 , 2018 , 2017 and 2016 was $ 4.2 billion , $ 3.5 billion , and $ 2.9 billion , respectively . industry trends isr estimated in its 2018 market report that the size of the worldwide cro market was approximately $ 34 billion in 2017 and will grow at a 7.5 % cagr to $ 49 billion in 2022. this growth will be driven by an increase in the amount of research and development expenditures and higher levels of clinical development outsourcing by biopharmaceutical companies . 39 sources of revenue total revenue is comprised of revenue from the provision of our services and revenue from reimbursed expenses , and effective january 1 , 2018 , also includes reimbursable investigator grants , that are incurred while providing our services . we do not have any material product revenue . story_separator_special_tag transaction-related costs transaction-related costs consist of expenses incurred with our secondary offerings , transaction-related stock-based compensation awards , revaluations of contingent consideration related to business combinations and other transaction costs , the closing of our accounts receivable financing agreement and the subsequent amendment to the agreement , fees associated with the incremental borrowing ( defined below ) , and our refinancing of the 2013 credit facilities ( defined below ) . loss on modification or extinguishment of debt the loss on modification or extinguishment of debt during the year ended december 31 , 2018 is related to previously capitalized unamortized debt financing costs that were expensed as a result of voluntary debt repayments made during the year . loss on modification or extinguishment of debt for the year ended december 31 , 2017 was associated with the september 2017 incremental borrowing under the 2016 credit facilities , or the incremental borrowing , redemption of our 9.5 % senior notes due 2023 , or senior notes , and the december 2017 amendment to the 2016 credit facilities , or the 2017 refinancing . loss on extinguishment of debt for the year ended december 31 , 2016 was associated with our cash tender offer on senior notes and the refinancing of our variable rate first lien term loan due 2020 , or 2013 first lien term loan , and revolving line of credit , or 2013 revolver , collectively known as the 2013 credit facilities . depreciation and amortization depreciation represents the depreciation charged on our fixed assets . the charge is recorded on a straight‑line method , based on estimated useful lives of three to seven years for computer hardware and software and five to seven years for furniture and equipment . leasehold improvements are depreciated over the lesser of the life of the lease term or the useful life of the improvements . amortization expense consists of amortization recorded on acquisition‑related intangible assets . customer relationships , backlog , databases and finite‑lived trade names are amortized on an accelerated basis , which coincides with the period of economic benefit we expect to receive . all other finite‑lived intangibles are amortized on a straight‑line basis . in accordance with gaap , we do not amortize goodwill and indefinite‑lived intangible assets . income taxes because we conduct operations on a global basis , our effective tax rate has and will continue to depend upon the geographic distribution of our pre‑tax earnings among several different taxing jurisdictions . our effective tax rate can also vary based on changes in the tax rates of the different jurisdictions . our effective tax rate is also impacted by tax credits and the establishment or release of deferred tax asset valuation allowances and tax reserves , as well as significant non‑deductible items such as portions of transaction‑related costs . foreign subsidiaries are taxed separately in their respective jurisdictions . we have foreign net operating loss carryforwards in some jurisdictions . the carryforward periods for these losses vary from four years to an indefinite carryforward period depending on the jurisdiction . our ability to offset future taxable income with the net operating loss carryforwards may be limited in certain instances , including changes in ownership . business combinations we have completed and will continue to consider strategic business combinations to enhance our capabilities and offerings in certain areas . in september 2017 , we acquired symphony health , which has enhanced our ability to serve customers throughout the clinical research process with technologies that provide data and analytics . additionally , in may 2017 , we acquired parallel 6 , inc. , or parallel 6 , which has allowed us to offer our customers technologies that provide improved efficiencies by reducing study durations and costs through integrated operational management . 41 these transactions were accounted for as business combinations and the acquired results of operations are included in our consolidated financial information since the acquisition date . see note 4 to our audited consolidated financial statements found elsewhere in this annual report on form 10-k for additional information with respect to these and other smaller acquisitions . joint ventures in june 2017 , we closed on a joint venture transaction with takeda pharmaceutical company ltd. , or takeda , that enables us to provide clinical trial delivery and pharmacovigilance services as a strategic partner of takeda japan . the joint venture was effectuated through the creation of a new legal entity , takeda pra development center kk , or tdc joint venture . the tdc joint venture is based in japan and is owned by us ( 50 % ) and takeda ( 50 % ) . see note 3 and note 4 to our audited consolidated financial statements found elsewhere in this annual report on form 10-k for additional information with respect to the joint ventures . exchange rate fluctuations the majority of our foreign operations transact in the euro , or eur , or british pound , or gbp . as a result , our revenue and expenses are subject to exchange rate fluctuations with respect to these currencies . we have translated these currencies into u.s. dollars using the following average exchange rates : replace_table_token_2_th 42 story_separator_special_tag style= '' vertical-align : top ; background-color : # cceeff ; padding-left:2px ; padding-top:2px ; padding-bottom:2px ; '' > 321,987 49,808 — 371,795 transaction-related costs 87,709 ( 51,892 ) — 35,817 depreciation and amortization 78,227 34,020 — 112,247 loss on disposal of fixed assets 358 ( 238 ) — 120 income from operations 176,225 100,419 4,668 281,312 interest expense , net ( 46,729 ) ( 10,670 ) — ( 57,399 ) loss on modification or extinguishment of debt ( 15,023 ) 14,071 — ( 952 ) foreign currency losses , net ( 39,622 ) 38,579 — ( 1,043 ) other expense , net ( 304 ) ( 67 ) — ( 371 ) income before income taxes and equity in income of unconsolidated joint ventures 74,547 142,332 4,668 221,547 ( benefit from ) provision for income taxes ( 12,623 ) 78,438 1,417 67,232 income before equity in income of
| results of operations consolidated results of operations for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 change year ended december 31 , 2017 $ change adoption of asc 606 ( 1 ) year ended december 31 , 2018 ( in thousands ) revenue service revenue $ 1,948,374 $ 348,475 $ — reimbursement revenue - out-of-pocket costs 311,015 ( 2,724 ) — total revenue 2,259,389 345,751 266,782 $ 2,871,922 operating expenses direct costs ( exclusive of depreciation and amortization ) 1,283,868 216,358 — 1,500,226 reimbursable out-of-pocket costs 311,015 ( 2,724 ) — 308,291 reimbursable investigator fees — — 262,114 262,114 selling , general and administrative < td colspan= '' 2 ''
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replace_table_token_45_th 64 a summary of temporarily impaired available-for-sale investments with continuous unrealized loss positions at december 31 , 2008 follows : replace_table_token_46_th based upon a review of the credit quality of these securities , the fact that the issuers are in compliance with the terms of the securities , the ability and intent to hold these securities for a period of time sufficient for a recovery of costs and the volatility of their market price , the impairments related to these securities were determined to story_separator_special_tag overview the company is a regional financial holding company with approximately $ 13.5 billion in assets headquartered in tupelo , mississippi . the company 's wholly-owned banking subsidiary has commercial banking operations in mississippi , tennessee , alabama , arkansas , texas , louisiana , florida , and missouri . the bank and its consumer finance , credit insurance , insurance agency and brokerage subsidiaries provide commercial banking , leasing , mortgage origination and servicing , insurance , brokerage and trust services to corporate customers , local governments , individuals and other financial institutions through an extensive network of branches and offices . the bank 's insurance agency subsidiary also operates an office in illinois . management 's discussion and analysis provides a narrative discussion of the company 's financial condition and results of operations for the previous three years . for a complete understanding of the following discussion , you should refer to the consolidated financial statements and related notes presented elsewhere in this report . this discussion and analysis is based on reported financial information , and certain amounts for prior years have been reclassified to conform with the current financial statement presentation . the information that follows is provided to enhance comparability of financial information between years and to provide a better understanding of the company 's operations . as a financial holding company , the financial condition and operating results of the company are heavily influenced by economic trends nationally and in the specific markets in which the company 's subsidiaries provide financial services . generally , during 2008 , the pressures of the national and regional economic cycle created a difficult operating environment for the financial services industry . the company is not immune to such pressures and their impact is reflected in the increases in its measures of credit quality , non-performing loans , net charge-offs and assessments of other-than-temporary impairments compared to 2007. while these measures have increased , management believes that the company is well positioned with respect to overall credit quality and strength of its allowance for credit losses to meet the challenges of the current economic cycle . management believes , however , that continued weakness in the economic environment could adversely affect the strength of the company 's credit quality and , therefore , management intends to move decisively in accordance with the company 's business strategies to address any emerging credit issues . most of the revenue of the company is derived from the operation of its principal operating subsidiary , the bank . the financial condition and operating results of the bank are affected by the level and volatility of interest rates on loans , investment securities , deposits and other borrowed funds , and the impact of economic downturns on loan demand and creditworthiness of existing borrowers . the financial services industry is highly competitive and heavily regulated . the company 's success depends on its ability to compete aggressively within its markets while maintaining sufficient asset quality and cost controls to generate net income . 28 the table below summarizes key indicators of the company 's financial performance for the years ended december 31 , 2008 , 2007 and 2006. replace_table_token_19_th the decrease in the company 's net income for 2008 when compared to 2007 was primarily attributable to the increase in the provision for credit losses which negatively impacted net income . the increase in the provision for credit losses for 2008 was primarily a result of the slowing economic environment as well as a result of the moderate loan growth experienced during 2008. consistent with the increase in the provision for credit losses , net charge-offs increased in 2008 to 0.40 % of average loans after remaining fairly stable at 0.14 % of average loans in 2007 and 0.15 % of average loans in 2006. because the company 's mortgage lending decisions are based on conservative lending policies , the company continues to have only nominal direct exposure to the credit issues affecting the sub-prime residential mortgage market . the primary source of revenue for the company is the amount of net interest revenue earned by the bank . net interest revenue is the difference between interest earned on loans and investments and interest paid on deposits and other obligations . net interest revenue for 2008 was $ 440.8 million , compared to $ 422.9 million for 2007 and $ 385.8 million for 2006. the increase in net interest revenue in 2008 compared to 2007 partially offset the decrease in net income resulting from the increase in the provision for credit losses in 2008 compared to 2007. net interest revenue is affected by the general level of interest rates , changes in interest rates and changes in the amount and composition of interest earning assets and interest bearing liabilities . the company 's long-term objective is to manage those assets and liabilities to maximize net interest revenue , while balancing interest rate , credit , liquidity and capital risks . while interest rates decreased during 2008 , the company 's net interest revenue was positively impacted by the smaller decrease in average rates earned on interest earning assets than the decrease in average rates paid on interest bearing liabilities . the company 's net interest revenue was also positively impacted by a moderate increase in loan demand throughout most of the bank 's markets and the company 's continued focus on funding this growth with maturing investment securities and lower-cost liabilities . story_separator_special_tag 156 accounting for servicing of financial assets an amendment of fasb statement no . 140. an estimate of the fair value of the company 's msrs is determined utilizing assumptions about factors such as mortgage interest rates , discount rates , mortgage loan prepayment speeds , market trends and industry demand . because the valuation is determined by using discounted cash flow models , the primary risk inherent in valuing the msrs is the impact of fluctuating interest rates on the estimated life of the servicing revenue stream . the use of different estimates or assumptions could also produce different fair values . the company does not hedge the change in fair value of msrs and , therefore , the company is susceptible to significant fluctuations in the fair value of its msrs in changing interest rate environments . at december 31 , 2008 , the company 's mortgage servicing asset was valued at $ 25.0 million . 30 pension and postretirement benefits accounting for pension and other postretirement benefit amounts is another area where the accounting guidance requires management to make various assumptions in order to appropriately value any related asset or liability . estimates that the company makes to determine pension-related assets and liabilities include actuarial assumptions , expected long-term rate of return on plan assets , rate of compensation increase for participants and discount rate . estimates that the company makes to determine asset and liability amounts for other postretirement benefits include actuarial assumptions and a discount rate . changes in these estimates could impact earnings . for example , lower expected long-term rates of return on plan assets could negatively impact earnings , as would lower estimated discount rates or higher rates of compensation increase . in estimating the projected benefit obligation , actuaries must make assumptions about such factors as mortality rate , turnover rate , retirement rate , disability rate and the rate of compensation increases . the company accounts for the over-funded or under-funded status of its defined benefit and postretirement plans as an asset or liability in its consolidated balance sheets and recognizes changes in that funded status in the year in which the changes occur through comprehensive income as required by sfas no . 158 employers ' accounting for defined benefit pension and other postretirement plans an amendment of sfas no . 87 , 88 , 106 and 132r which was adopted on december 31 , 2006. the adoption of sfas no . 158 had no material impact on the regulatory requirements for capital of the company . in accordance with sfas no . 87 , employers ' accounting for pensions , the company calculates the expected return on plan assets each year based on the balance in the pension asset portfolio at the beginning of the year and the expected long-term rate of return on that portfolio . in determining the reasonableness of the expected rate of return , the company considers a variety of factors including the actual return earned on plan assets , historical rates of return on the various asset classes of which the plan portfolio is comprised and current/prospective capital market conditions and economic forecasts . the company used an expected rate of return of 8 % on plan assets for 2008. the discount rate is the rate used to determine the present value of the company 's future benefit obligations for its pension and other postretirement benefit plans . the company determines the discount rate to be used to discount plan liabilities at the measurement date with the assistance of our actuary using the citigroup pension discount curve . the company developed a level equivalent yield using the expected cash flows from the bancorpsouth , inc. retirement plan ( the basic plan ) , the bancorpsouth , inc. restoration plan ( the restoration plan ) and the bancorpsouth , inc. supplemental executive retirement plan ( the supplemental plan ) based on the december 31 , 2008 citigroup pension discount curve . the citigroup pension discount curve is published on the society of actuaries website along with a background paper on this interest rate curve . based on this analysis , the company established its discount rate assumptions for determination of the projected benefit obligation at 6.25 % for the basic plan , 6.50 % for the restoration plan and 6.50 % for the supplemental plan based on a december 31 , 2008 measurement date . story_separator_special_tag unearned income ) . ( 3 ) includes taxable equivalent adjustments to interest of approximately $ 440,000 in 2008 using an effective tax rate of 35 % . ( 4 ) includes taxable equivalent adjustments to interest of approximately $ 4,368,000 , $ 4,445,000 and $ 4,304,000 in 2008 , 2007 and 2006 , respectively , using an effective tax rate of 35 % . ( 5 ) includes taxable equivalent adjustment to interest of approximately $ 2,265,000 , $ 2,168,000 and $ 2,706,000 in 2008 , 2007 and 2006 , respectively , using an effective tax rate of 35 % . 33 net interest revenue may also be analyzed by segregating the rate and volume components of interest revenue and interest expense . the table below presents an analysis of rate and volume change in net interest revenue from 2007 to 2008 and from 2006 to 2007. changes that are not solely a result of volume or rate have been allocated to volume . replace_table_token_21_th interest rate sensitivity the interest rate sensitivity gap is the difference between the maturity or repricing opportunities of interest sensitive assets and interest sensitive liabilities for a given period of time . a prime objective of asset/liability management is to maximize net interest margin while maintaining a reasonable mix of interest sensitive assets and liabilities .
| results of operations net interest revenue net interest revenue increased 4.2 % to $ 440.8 million in 2008 from $ 422.9 million in 2007 , which represented an increase of 9.6 % from $ 385.8 million in 2006. the increase in net interest revenue for 2008 and 2007 is related to the combination of growth in loans and the company 's continued focus on funding this growth with maturing investment securities and lower-cost liabilities . the increase in net interest revenue for 2007 was also attributed to the acquisition of the signature bank during the first quarter of 2007. net interest revenue is the difference between interest revenue earned on assets such as loans , leases and securities , and interest expense paid on liabilities such as deposits and borrowings , and continues to provide the company with its principal source of revenue . net interest revenue is affected by the general level of interest rates , changes in interest rates and changes in the amount and composition of interest earning assets and interest bearing liabilities . the company 's long-term objective is to manage interest earning assets and interest bearing liabilities to maximize net interest revenue , while balancing interest rate , credit , liquidity and capital risks . for purposes of the following discussion , revenue from tax-exempt loans and investment securities has been adjusted to a fully taxable equivalent basis , using an effective tax rate of 35 % .
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2020 executive overview net sales decreased by $ 58.2 million , or 3.9 % , in 2020 compared to 2019. the decrease was primarily driven by production disruptions during the first half of 2020 due to temporary closures of several of the company 's manufacturing facilities and reduced demand due to customer shutdowns , resulting from government directives due to the impact of covid-19 . this was partially offset by volume increases across all of the company 's businesses in the second half of 2020 , led by higher production levels , increased demand from work-from-home and stay-at-home trends , and higher demand in a number of other end markets that the company sells into , such as passenger vehicles , and $ 7.7 million or 0.5 % of favorable changes in foreign exchange rates . the company recognized net income of $ 130.0 million , or $ 5.29 per diluted share , in 2020 compared to net income of $ 139.1 million , or $ 5.60 per diluted share in 2019. the decrease in net income is primarily due to the second quarter goodwill impairment charge of $ 33.8 million , lower sales in the first half of 2020 driven by covid-19 production disruptions partially offset by a net increase in foreign exchange gains of $ 20.1 million and operating expense cost reductions . the company continues to take actions to improve its cost structure . the company expects to realize cost savings from the restructuring activities taken during 2019 and 2020 , including the reorganization of certain research and development , selling and administrative functions across all segments . the company is also in process of several restructuring activities across its manufacturing and supply chain footprint , including the consolidation of a manufacturing facility within the industrial segment , which is expected to be completed in the first half of 2021 . 20 net cash provided by operating activities was $ 258.0 million for the year ended december 26 , 2020 as compared to $ 245.3 million for the year ended december 28 , 2019. the increase in net cash provided by operating activities was primarily due to lower annual incentive payments and reductions in net working capital partially offset by lower earnings largely due to the impact of covid-19 . on april 3 , 2020 , the company amended the credit agreement to effect certain changes , including , among others : ( i ) eliminating the $ 200.0 million unsecured term loan credit facility , the remaining outstanding balance ( $ 140.0 million ) of which was repaid in full on april 3 , 2020 through the revolving credit facility ; ( ii ) making certain financial and non-financial covenants less restrictive on the company ; ( iii ) modifying performance-based interest rate margins and undrawn fees ; and ( iv ) extending the maturity date to april 3 , 2025. the amended credit agreement also allows the company to increase the size of the revolving credit facility or enter into one or more tranches of term loans if there is no event of default and the company is in compliance with certain financial covenants . the company made payments of $ 110.0 million on the amended revolving credit facility during the fiscal year ended december 26 , 2020. the balance under the facility was $ 130.0 million as of december 26 , 2020. on april 7 , 2020 , the company entered into a definitive agreement to purchase a group annuity contract , under which an insurance company will be required to directly pay and administer pension payments to certain of the company 's uk pension plan participants , or their designated beneficiaries . the purchase of this group annuity contract will reduce the company 's outstanding pension benefit obligation by approximately $ 55 million , representing approximately 37 % of the total obligations of the company 's qualified pension plans , and will be funded with pension plan assets and additional cash on hand . in connection with this transaction , the company will record a one-time non-cash settlement charge in the second half of 2021 currently estimated between $ 18 million and $ 22 million , reflecting the accelerated recognition of a portion of unamortized actuarial losses in the plan . the actual settlement charge could differ from this estimate due to final data and plan wind-up expenses . on january 28 , 2021 , the company acquired hartland controls , a manufacturer and leading supplier of electrical components used primarily in heating , ventilation , air conditioning ( hvac ) and other industrial and control systems applications with annualized sales of approximately $ 70 million . the cash purchase price for hartland controls was approximately $ 113 million and the operations of hartland controls will be included in the industrial segment . impact of covid-19 on business the company continued to manage through the covid-19 impacts throughout the year , with significant improvement to its financial results in the second half of 2020 compared to the first half of 2020. our manufacturing facilities generally operated at normal capacity levels during the second half of the year as production disruptions were minimal . the effects from covid-19 are continuing to drive increased costs , from spending on personal protective equipment ( `` ppe '' ) , additional personnel and employee transportation costs , and manufacturing inefficiencies , as well as an increase in freight costs for our products due to the transportation capacity constraints across the world . this was partially offset during 2020 by the receipt of cash subsidies from international government covid-19 relief programs . the company 's priorities continue to be first , on our associates , their families and the communities in which we operate ; second , our customers ; and third , long-term financial health of the company . story_separator_special_tag through cycles , the company targets double-digit long-term sales growth , split between 5-7 % average annual accelerated organic sales growth and 5-7 % average annual accelerated growth from strategic acquisitions , while targeting operating margins between 17 % and 19 % and double-digit earnings per share growth . cash flow from operations less capital expenditures is targeted to approximate or exceed net income but in any given year can be significantly impacted by the timing of non-recurring or infrequent expenditures . significant accounting policies and critical estimates critical accounting policies and estimates the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . the company 's most critical accounting policies are those that are most important to the portrayal of its financial condition and results of operations , and which require the company to make its most difficult and subjective judgments , often as a result of the need to make estimates of matters that are inherently uncertain . the company has identified the following as its most critical accounting policies and judgments . although management believes that its estimates and assumptions are reasonable , they are based upon information available when they are made , and therefore , actual results may differ from these estimates under different assumptions or conditions . the company has reviewed these critical accounting policies and related disclosures with the audit committee of its board of directors . significant accounting policies are more fully described in the notes to consolidated financial statements included elsewhere in this annual report . revenue recognition on december 31 , 2017 , the company adopted new guidance on revenue from contracts with customers using the modified retrospective method . the adoption did not have a significant impact on the company 's consolidated financial statements . revenue disaggregation the following table disaggregates the company 's revenue by primary business units for the fiscal years ended december 26 , 2020 and december 28 , 2019 : replace_table_token_5_th 23 replace_table_token_6_th during the fourth quarter of 2020 , the company transferred a business previously reported within the electronics-semiconductor reporting unit to the electronics-passive products and sensors reporting units . this transfer aligns with how this business will be managed and is complimentary with existing electronics passive products and sensors and markets into which they sell . the 2019 disaggregated revenue table has been reclassified to reflect this change . this transfer had no impact to the electronics segment results . see note 16 , segment information , for net sales by segment and countries . revenue recognition the company recognizes revenue on product sales in the period in which the company satisfies its performance obligation and control of the product is transferred to the customer . the company 's sales arrangements with customers are predominately short term in nature and generally provide for transfer of control at the time of shipment as this is the point at which title and risk of loss of the product transfers to the customer . at the end of each period , for those shipments where title to the products and the risk of loss and rewards of ownership do not transfer until the product has been received by the customer , the company adjusts revenues and cost of sales for the delay between the time that the products are shipped and when they are received by the customer . the amount of revenue recorded reflects the consideration to which the company expects to be entitled in exchange for goods and may include adjustments for customer allowance , rebates and price adjustments . the company 's sales channels are primarily through direct sales and independent third-party distributors . the company has elected the practical expedient under accounting standards codification ( `` asc '' ) 340-40-25-4 to expense commissions when incurred as the amortization period of the commission asset the company would have otherwise recognized is less than one year . revenue and billing the company generally accepts orders from customers through receipt of purchase orders or electronic data interchange based on written sales agreements and purchasing contracts . contract pricing and selling agreement terms are based on market factors , costs , and competition . pricing is often negotiated as an adjustment ( premium or discount ) from the company 's published price lists . the customer is invoiced when the company 's products are shipped to them in accordance with the terms of the sales agreement . as the company 's standard payment terms are less than one year , the company has elected the practical expedient under asc 606-10-32-18 to not assess whether a contract has a significant financing component . the company also elected the practical expedient provided in asc 606-10-25-18b to treat all product shipping and handling activities as fulfillment activities , and therefore recognize the gross revenue associated with the contract , inclusive of any shipping and handling revenue . ship and debit program some of the terms of the company 's sales agreements and normal business conditions provide customers ( distributors ) the ability to receive price adjustments on products previously shipped and invoiced . this practice is common in the industry and is referred to as a “ ship and debit ” program . this program allows the distributor to debit the company for the difference between the distributors ' contracted price and a lower price for specific transactions . under certain circumstances ( usually in a competitive situation or large volume opportunity ) , a distributor will request authorization for pricing allowances to reduce its price . when the company approves such a reduction , the distributor is authorized to “ debit ” its account for the difference between the contracted price and the lower approved price .
| cash flow overview operating cash inflows are largely attributable to sales of the company 's products . operating cash outflows are largely attributable to recurring expenditures for raw materials , labor , rent , interest , taxes and other operating activities . the following describes the company 's cash flows for the twelve months ended december 26 , 2020 and december 28 , 2019 : 37 replace_table_token_13_th cash flow from operating activities net cash provided by operating activities was $ 258.0 million for 2020 , compared to $ 245.3 million during 2019. the increase in net cash provided by operating activities was primarily due to lower annual incentive payments and favorable changes in net working capital partially offset by lower earnings largely due to the impact of covid-19 . cash flow from investing activities net cash used in investing activities was $ 51.4 million for 2020 , compared to $ 56.4 million during 2019. capital expenditures were $ 56.2 million , representing a decrease of $ 5.7 million compared to 2019. the company also received proceeds of $ 4.8 million and $ 6.2 million , respectively , in 2020 and 2019 primarily as a result of the sale of properties within the industrial segment . cash flow from financing activities net cash used in financing activities was $ 67.8 million for 2020 compared to $ 146.3 million for 2019. the company made principal payments of $ 5.0 million and $ 10.0 million on the term loan during fiscal year 2020 and 2019 , respectively . during fiscal year 2020 , the company borrowed $ 100.0 million from its revolving credit facility to preserve financial flexibility and enhance liquidity , given the increasing levels of uncertainty related to covid-19 . on april 3 , 2020 , the company amended the credit agreement to eliminate the $ 200.0 million unsecured term loan credit facility , with the remaining outstanding balance of $ 140.0
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the company elected to utilize a full yield curve approach in story_separator_special_tag 2018 vs. 2017 overview sales in 2018 increased by 15 percent from the prior year . the sales increase was led by acquisition related sales , as well as volume and price increases from all three segments . the impact of foreign currency translation decreased sales by about 1 percent . the company 's consolidated gross profit was $ 432.4 million for 2018 , an increase of $ 55.4 million or about 15 percent from 2017. the gross profit as a percent of net sales decreased 20 basis points to 33.3 percent in 2018 from 33.5 percent in 2017. the decline in gross profit margin percentage is primarily due to product and geographic sales mix shifts . for 2018 , diluted earnings per share were $ 2.23 , up from 2017 diluted earnings per share of $ 1.65. in 2017 , the company recorded a net tax expense of $ 10.2 million , or $ 0.21 in diluted earnings per share related to the enactment of the u.s. tax cuts and jobs act of 2017. for 2018 , diluted earnings per share were $ 2.23 , up from 2017 diluted earnings per share of $ 1.86 , before the impact of the u.s. tax cuts and jobs act of 2017 or an increase of about 20 percent . story_separator_special_tag were $ 1.6 million . the company wrote off its ownership share in a fueling systems joint venture in india . operating income operating income was $ 132.0 million in 2018 , up $ 24.8 million or 23 percent from $ 107.2 million in 2017. replace_table_token_8_th operating income-water systems water systems operating income was $ 112.9 million in 2018 compared to $ 102.0 million in 2017 , an increase of 11 percent . operating income margin for 2018 was 14.2 percent compared to 2017 operating income margin of 13.7 % . operating income margin increased in water systems primarily from leverage on fixed cost from higher sales volume and price . operating income-fueling systems fueling systems operating income was $ 70.4 million in 2018 compared to $ 60.0 million in 2017. the operating income margin was 24.4 percent of net sales in both years . the increase in operating income was primarily due to higher sales . 18 operating income-distribution distribution operating income was $ 3.4 million in 2018 and operating income margin was 1.3 percent . distribution operating income was $ 3.7 million in 2017 and operating income margin was 2.1 percent . the distribution segment 's operations are seasonal and product sales are significantly slower during the fourth and first quarters , i.e. , the winter months in north america . the 2017 results did not include the first quarter seasonality impact as the acquisitions of the distribution entities occurred after the first quarter of 2017. operating income-eliminations/other operating income-eliminations/other is composed primarily of inter-segment sales and profit eliminations and unallocated general and administrative expenses . the inter-segment profit elimination impact in 2018 was a $ 0.6 million gain or $ 6.1 million improvement to the prior year as the distribution segment decreased inventory of water systems products on hand . the intersegment elimination of operating income effectively defers the operating income on sales from water systems to distribution in the consolidated financial results until such time as the transferred product is sold from the distribution segment to its end third party customer . general and administrative expenses were higher by $ 2.3 million or about 4 percent to last year . interest expense interest expense for 2018 and 2017 was $ 9.8 million and $ 10.3 million , respectively . other income or expense other income or expense was a loss of $ 1.0 million in 2018. included in other income in 2018 was interest income of $ 0.6 million , primarily derived from the investment of cash balances in short-term securities . also included in other expense in 2018 was a loss of $ 0.3 million related to a tax indemnification write-off . other expense also included $ 0.4 million related to non-operational pension cost . other income or expense was income of $ 6.7 million in 2017. included in other income in 2017 was a gain of $ 5.2 million related to the acquisition of controlling interests in three distribution entities previously held as equity investments . also , included in other income in 2017 was minority income of $ 0.6 million and interest income of $ 0.9 million , primarily derived from the investment of cash balances in short-term securities . other expense also included $ 0.2 million related to non-operational pension cost . foreign exchange foreign currency-based transactions for 2018 was a loss of $ 0.7 million due to movements in several currencies relative to the u.s. dollar , with the turkish lira , south african rand , argentinian peso and mexican peso being the most significant . foreign currency-based transactions for 2017 was a gain of $ 1.0 million , due to movements in several currencies relative to the u.s. dollar , with the turkish lira being the most significant . income taxes the provision for income taxes in 2018 and 2017 was $ 14.9 million and $ 26.0 million , respectively . the effective tax rate for 2017 was about 25 percent both before and after the impact of discrete events . the effective tax rate for 2018 was about 12 percent and before the impact of discrete events was about 19 percent . the decrease in the effective tax rate was primarily affected by the u.s. tax cuts and jobs act of 2017 ( tax act ) , which reduced the u.s. federal corporate income tax rate from 35 percent to 21 percent effective january 1 , 2018. the tax rate was lower than the statutory rate of 21 percent primarily due to foreign earnings taxed at lower statutory rates , as well as recognition of the deduction for foreign derived intangible income , and certain discrete events . story_separator_special_tag selling , general and administrative ( “ sg & a ” ) selling , general , and administrative expenses were $ 265.7 million in 2017 and increased by $ 44.5 million or 20 percent in 2017 compared to $ 221.2 million last year . the increase in sg & a expenses from acquired businesses were $ 45.1 million . excluding the acquired entities , the company 's sg & a expenses in 2017 were $ 220.6 and decreased by $ 0.6 million or flat to last year . restructuring expenses restructuring expenses for 2017 were $ 4.3 million . restructuring expenses were $ 2.7 million in the water segment primarily related to the continuing brazilian manufacturing realignments . restructuring expenses were primarily severance expenses and other miscellaneous manufacturing realignment activities . the fueling segment restructuring expenses in 2017 were $ 1.6 million . the company wrote off its ownership share in a fueling systems joint venture in india . restructuring charges for 2016 resulted in a net gain of $ 0.6 million . restructuring expenses for 2016 included a gain of $ 2.0 million from the sale of land and building in brazil and $ 1.4 million in expenses related to severance , equipment transfers , freight and relocation cost related to the transfer of production activities and other restructuring costs from continued manufacturing realignments . operating income operating income was $ 107.2 million in 2017 , down $ 4.9 million or about 4 percent from $ 112.1 million in 2016. replace_table_token_10_th operating income-water systems water systems operating income was $ 102.0 million in 2017 , down $ 6.2 million or about 6 percent versus 2016 of $ 108.2 million and operating income margin was 13.6 percent in 2017 compared to the 15.0 percent in 2016. as mentioned above water systems operating income was negatively impacted by $ 2.7 million in restructuring expenses in 2017 and favorably impacted by $ 1.2 million in the prior year . water systems operating income before restructuring was $ 104.7 million in 2017 and $ 107.0 million in 2016 and operating income margin before restructuring was 14.0 percent compared to the 14.8 percent in 2016. the decline in operating income margin is primarily related to product and geographic sales mix shifts and higher raw material costs . operating income-fueling systems fueling systems operating income was $ 60.0 million in 2017 , up $ 3.7 million or about 7 percent compared to $ 56.3 million in 2016. the 2017 operating income margin was 24.4 percent compared to the 24.8 percent of net sales in 2016. as mentioned above fueling systems operating income was negatively impacted by $ 1.6 million in restructuring expenses in 2017 and impacted by $ 0.6 million in the prior year . fueling systems operating income before restructuring was $ 61.6 million in 2017 and $ 56.9 million in 2016 and operating income margin before restructuring was 25.1 percent in both 2017 and 2016. the increase in operating income was primarily due to higher sales . 21 operating income-distribution distribution operating income was $ 3.7 million in 2017 and the operating income margin was 2.1 percent . operating income-eliminations/other operating income-eliminations/other is composed primarily of inter-segment sales and profit eliminations and unallocated general and administrative expenses . the inter-segment profit elimination impact in 2017 was $ 5.5 million . the intersegment elimination of operating income effectively defers the operating income on sales from water systems to distribution in the consolidated financial results until such time as the transferred product is sold from the distribution segment to its end third party customer . general and administrative expenses were higher by $ 0.6 million or about 1 percent compared to 2016. interest expense interest expense for 2017 and 2016 was $ 10.3 million and $ 8.7 million , respectively . the increase in interest expense in 2017 is due to interest charges on prior years vat taxes as a result of an audit in an international jurisdiction and due to higher average borrowings resulting from the headwater acquisitions . other income or expense other income or expense was income of $ 6.7 million in 2017. included in other income in 2017 was a gain of $ 5.2 million related to the acquisition of controlling interests in three distribution entities previously held as equity investments . also , included in other income in 2017 was minority income of $ 0.6 million and interest income of $ 0.9 million , primarily derived from the investment of cash balances in short-term securities . other expense had $ 0.2 million related to non-operational pension cost . other income or expense for 2016 was a loss of $ 0.3 million . included in other income in 2016 was minority income $ 1.7 million and interest income of $ 1.0 million , primarily derived from the investment of cash balances in short-term securities . in 2016 , other expenses also included the reversal of an indemnification receivable related to a contingent tax liability for $ 1.9 million recorded at the time of a foreign acquisition . the contingent tax liability was for the same amount and was also reversed in 2016 and the benefit was recorded in the income tax provision . also , included in other expense in 2016 was $ 1.3 million related to non-operational pension cost . foreign exchange foreign currency-based transactions produced a gain for 2017 and 2016 of $ 1.0 million and $ 1.1 million , respectively . income taxes the provision for income taxes in 2017 and 2016 was $ 26.0 million and $ 24.8 million , respectively . the effective tax rate for 2016 was about 24 percent and , before the impact of discrete events , was about 26 percent . the effective tax rate for 2017 was about 25 percent , both before and after the impact of discrete events . the tax rate was lower than the statutory rate of 35 percent primarily due to foreign earnings taxed at lower statutory rates and the recognition of us incentives .
| results of operations net sales net sales in 2018 were $ 1,298.1 million , an increase of $ 173.2 million or about 15 percent compared to 2017 sales of $ 1,124.9 million . the incremental impact of sales from acquired businesses was $ 99.2 million or about 9 percent . sales revenue decreased by $ 13.1 million or about 1 percent in 2018 due to foreign currency translation . the sales change in 2018 , excluding acquisitions and foreign currency translation , was an increase of $ 87.1 million or about 8 percent . replace_table_token_7_th net sales-water systems water systems sales were $ 796.5 million in 2018 , an increase of $ 53.2 million or about 7 percent versus 2017. the incremental impact of sales from acquired businesses was $ 8.3 million or about 1 percent . foreign currency translation changes decreased sales $ 15.4 million , or about 2 percent , compared to sales in 2017. the water systems organic sales change in 2018 was an increase of $ 60.3 million or about 8 percent . water systems sales in the u.s. and canada increased by about 17 percent compared to 2017. sales revenue increased by $ 0.5 million or less than 1 percent in 2018 due to foreign currency translation . in 2018 , sales of pioneer branded dewatering equipment increased by about 90 percent when compared to the prior year due to strength in north american oil and gas markets and continued diversification of product sales channels and geographies . sales of groundwater pumping equipment increased by about 8 percent on stronger residential and agricultural system sales primarily to the headwater companies , versus 2017. sales of other surface pumping equipment increased by about 5 percent in part due to wet weather conditions in the upper midwest and canada .
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as a result of these acquisitions , our results of operations and md & a analysis for 2010 include one month of activity of seadrift and c/g , compared to a full year of operations for 2011. in february 2011 and october 2011 , we acquired micron research and fmi , respectively . they are included in our results of operations and md & a analysis for 2011 from their respective acquisition dates , compared to a full year of operations for 2012. while there was cautious optimism for the world economy coming into 2012 , the global outlook began to deteriorate during the end of the first quarter , with subsequent reductions to global gdp estimates by the imf throughout 2012 , as a result of the slower than expected economic recovery and continued uncertainty in the european markets . according to the world steel association and other published reports , global steel production , excluding china , declined 0.4 percent in 2012. steel production in the european union decreased 4.6 percent during the same period . as a result , our industrial materials segment saw a decline in sales of 9 % , despite increased pricing for graphite electrodes and needle coke products . our engineered solutions segment saw a continuation of the decline in the solar markets that began in 2011. this decline was more than offset , however , by growth in our advanced consumer electronics products line which , along with the incremental revenue from the micron research and fmi acquisitions made in 2011 , helped propel this segment to achieve record annual sales . we have seven major product categories : graphite electrodes , refractory products , needle coke products , advanced graphite materials , advanced composite materials , advanced electronics technology 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 technology , 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 2013 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 published industry accounts and statistics . based on current international monetary fund ( imf ) projections , the estimate for global gdp growth in 2013 is 3.5 % , a slight downward revision from imf 's last projection in october 2012. the imf notes that although global economies are expected to recover at a gradual pace , downside risks remain significant . the imf highlights that recessionary conditions in europe persist and that the euro region continues to pose the largest downside risk to the global outlook . emerging markets and developing economies are forecast to grow at a 5.5 % rate in 2013 , a gradual improvement from 2012. according to the world steel association and other published reports , global steel production is expected to increase 3.2 percent in 2013. however , steel customer confidence and profitability remains low due to the continued economic uncertainty , particularly in europe . overall , we expect higher volumes in our industrial materials segment 43 in 2013 due to a restocking of inventory and an improvement in steel production levels across our global customer base . the graphite electrode market has become increasingly competitive with the addition of approximately 100,000 metric tons of capacity coming on line over the past year , of which approximately 65,000 metric tons are located in china . an estimated 130,000 metric tons of additional graphite electrode capacity expansions have also been announced , of which approximately 100,000 metric tons are located in china , and are projected to be operational in 2013/2014 , although several of these announced projects may be postponed . these new additions have further exacerbated a challenging global graphite electrode industry , which already had excess capacity . in the needle coke market , additional supply has come on line with the restart of a major asian producer whose operations had been suspended for several months in 2012. this producer appears to be currently fully operational , resulting in additional available capacity in 2013 the graphite electrode and needle coke capacity additions described above are compounded further by a still recovering global economy and challenging steel market , in which many steel producers continue to struggle to achieve acceptable profitability levels . the modest improvement in the global economies and our steel end market , while encouraging , is not substantial enough to offset the negative impact of the graphite electrode and needle coke capacity additions . as a result , these factors are contributing to downward pricing pressure on both graphite electrodes and needle coke for 2013. looking forward , we believe that the excess graphite electrode capacity will be partially absorbed over time by growth in eaf steel production . based on cru international ( an independent market research firm ) and other estimates , it is anticipated that approximately 100 million metrics tons of new eaf capacity will come on line over the next five years . in light of current economic conditions , we are further reducing overhead expense by means of additional rightsizing initiatives , hiring restrictions , suspension of 2013 salary merit increases and reductions in travel and other discretionary expenses . we have also reduced targeted capital expenditures from 2012 levels given the difficult operating environment . in our industrial materials segment , at the mid-point of our guidance range , capital expenditures are expected to be approximately $ 60 million , $ 5 million of which will be invested in product innovation to grow our competitive advantages . story_separator_special_tag in addition , prior to november 15 , 2016 , the company may redeem some or all of the senior notes at a price equal to 100 % of the principal amount thereof , plus accrued and unpaid interest , if any , plus a “ make whole ” premium determined as set forth in the indenture . the company is also entitled to redeem up to 35 % of the aggregate principal amount of the senior notes before november 15 , 2015 with the net proceeds from certain equity offerings at a redemption price of 106.375 % of the principal amount plus accrued and unpaid interest , if any . if , prior to maturity , a change in control ( as defined in the indenture ) of the company occurs and thereafter certain downgrades of the ratings of the senior notes as specified in the indenture occur , the company will be required to offer to repurchase any or all of the senior notes at a repurchase price equal to 101 % of the aggregate principal amount of the senior notes , plus any accrued and unpaid interest . the indenture also contains covenants that , among other things , limit the ability of the company and certain of its subsidiaries to : ( i ) create liens or use assets as security in other transactions ; ( ii ) engage in certain sale/leaseback transactions ; and ( iii ) merge , consolidate or sell , transfer , lease or dispose of substantially all of their assets . the indenture also contains customary events of default , including ( i ) failure to pay principal or interest on the senior notes when due and payable , ( ii ) failure to comply with covenants or agreements in the indenture or the senior notes which failures are not cured or waived as provided in the indenture , ( iii ) failure to pay indebtedness of 45 the company , any subsidiary guarantor or significant subsidiary ( as defined in the indenture ) within any applicable grace period after maturity or acceleration and the total amount of such indebtedness unpaid or accelerated exceeds $ 50.0 million , ( iv ) certain events of bankruptcy , insolvency , or reorganization , ( v ) failure to pay any judgment or decree for an amount in excess of $ 50.0 million against the company , any subsidiary guarantor or any significant subsidiary that is not discharged , waived or stayed as provided in the indenture , ( vi ) cessation of any subsidiary guarantee to be in full force and effect or denial or disaffirmance by any subsidiary guarantor of its obligations under its subsidiary guarantee , and ( vii ) a default under the company 's senior subordinated notes . in the case of an event of default , the principal amount of the senior notes plus accrued and unpaid interest may be accelerated . the offering of the senior notes was not registered under the securities act of 1933 , as amended ( the “ securities act ” ) or any state securities laws or blue sky laws , but the company has agreed to file a registration statement under the securities act to permit the exchange of the senior notes for new registered notes of the company having terms substantially identical to the senior notes . under certain circumstances , the company may also be required to file a shelf registration statement under the securities act to register the resale of the notes by certain holders thereof . if the company fails to comply with certain of these obligations , the company will be required to pay additional interest to the holders of the senior notes until it does comply . on october 7 , 2011 , we successfully completed the refinancing of our principal revolving credit facility ( “ revolving facility ” ) . borrowers under the revolving facility were graftech finance inc. ( “ graftech finance ” ) and graftech switzerland s.a. ( “ swissco ” ) , both wholly-owned subsidiaries . 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 or rating ) . 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 or rating ) 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 , 2012 , we were in compliance with all financial and other covenants contained in the revolving facility , as applicable .
| results of operations and segment review 2012. while there was cautious optimism for the world economy coming into 2012 , the global outlook began to deteriorate during the first quarter , with subsequent reductions to global gdp estimates by the imf throughout 2012 , as a result of the slower than expected economic recovery and continued uncertainty in the european markets . according to the world steel association and other published reports , global steel production , excluding china , declined 0.4 percent in 2012. steel production in the european union decreased 4.6 percent during the same period . as a result , our industrial materials segment saw a decline in sales of 9 % , despite increased pricing for graphite electrodes and needle coke products . our engineered solutions segment saw a continuation of the decline in the solar markets that began in 2011. this decline was more than offset , however , by growth in our advanced consumer electronics products line which , along with the incremental revenue from the micron research and fmi acquisitions made in 2011 , helped propel this segment to achieve the highest net sales in our company 's history . 2011 . total steel production in 2011 peaked mid-year while the latter half of the year saw significant slowdowns . the world steel association reported fourth quarter 2011 total world steel production declined approximately 5 percent versus the third quarter of 2011 , with europe accounting for much of this slowdown . beginning in the third quarter of 2011 , there was a significant drop off in solar production which negatively impacted our engineered solutions segment . 2010. for most of 2010 , companies across the world demonstrated , to varying degrees , a gradual recovery from the reduced production levels experienced during the 2009 global economic downturn . in 2010 we achieved our second highest net sales in our engineered solutions segment in our company 's history as demand for our products increased .
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our only approved product candidate , afrezza , is a rapid-acting inhaled insulin t that was approved by the fda on june 27 , 2014 to improve glycemic control in adult patients with diabetes . 41 as of december 31 , 2014 , we had an accumulated deficit of $ 2.5 billion and a stockholders ' deficit of $ 73.8 million . we incurred net losses of approximately $ 198.4 million , $ 191.5 million , and $ 169.4 million in the years ended december 31 , 2014 , 2013 , and 2012 , respectively . through december 31 , 2014 , we have not generated any product revenues and have funded our operations through the sale of equity securities and convertible debt securities , borrowings under the facility agreement , and borrowings under the loan arrangement . as discussed below in liquidity and capital resources , if we are unable to obtain additional funding in the future , there could be substantial doubt about our ability to continue as a going concern . our business is subject to significant risks , including but not limited to our ability to support the commercialization of afrezza through our marketing partner , sanofi , by manufacturing sufficient quantities of afrezza to meet sanofi 's demands in a timely and cost-efficient manner , sanofi 's ability to successful market and sell afrezza , sanofi 's ability to obtain regulatory approval for afrezza outside of the united states , and the risks inherent in our ongoing clinical trials and the regulatory approval process . additional significant risks also include the results of our research and development efforts , competition from other products and technologies and uncertainties associated with obtaining and enforcing patent rights . research and development expenses historically our research and development expenses have consisted mainly of costs associated with manufacturing startup costs and the clinical trials of our product candidates that have not yet received regulatory approval for marketing and for which no alternative future use has been identified . this includes the salaries , benefits and stock-based compensation of research and development personnel , raw materials , such as insulin purchases , laboratory supplies and materials , facility costs , costs for consultants and related contract research , licensing fees , and depreciation of equipment . we track research and development costs by the type of cost incurred . we partially offset research and development expenses with the recognition of estimated amounts receivable from the state of connecticut pursuant to a program under which we can exchange qualified research and development income tax credits for cash . our research and development staff conducts our internal research and development activities , which include research , product development , clinical development , manufacturing and related activities . this staff is located in our facilities in valencia , california ; paramus , new jersey ; and danbury , connecticut . we expense research and development costs as we incur them . general and administrative expenses our general and administrative expenses are driven by salaries , benefits and stock-based compensation for administrative , finance , business development , human resources , legal and information systems support personnel . in addition , general and administrative expenses include professional service fees and business insurance costs . critical accounting policies we have based our discussion and analysis of our financial condition and results of operations on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses . we evaluate our estimates and judgments on an ongoing basis . we base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making estimates of expenses such as stock option expenses and judgments about the carrying values of assets and liabilities . actual results may differ from these estimates under different assumptions or conditions . the significant accounting policies that are critical to the judgments and estimates used in the preparation of our financial statements are described in more detail below . 42 license and collaboration agreements pursuant to the sanofi license agreement , we granted to sanofi exclusive , worldwide licenses to certain of our patents , trademarks and know-how for the development and commercialization of afrezza . the terms of the sanofi license agreement provide for consideration to us in the form of a non-refundable up-front payment , product sales , manufacturing , regulatory and sales milestone payments and profit and loss sharing . we analyze consideration received under the provisions of asc 605 , revenue recognition , to determine whether the consideration , or a portion thereof , could be recognized as revenue . asc 605 provides that revenue is recognized when there is persuasive evidence that an arrangement exists , delivery has occurred or services have been rendered , the price is fixed or determinable and collection is reasonably assured . in arrangements involving the delivery of more than one element , each required deliverable is evaluated to determine whether it qualifies as a separate unit of accounting . this determination is generally based on whether the deliverable has stand-alone value to the customer . the arrangement 's consideration that is fixed and determinable is then allocated to each separate unit of accounting based on the relative selling price of each deliverable . the estimated selling price of each deliverable is determined using the following hierarchy of values : ( i ) vendor-specific objective evidence of fair value , ( ii ) third-party evidence of selling price and ( iii ) best estimate of selling price ( besp ) . the besp reflects our best estimate of what the selling price would be if the deliverable was regularly sold by us on a stand-alone basis . story_separator_special_tag impairment of long-lived assets assessing long-lived assets for impairment requires us to make assumptions and judgments regarding the carrying value of these assets . we evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable . the assets are considered to be impaired if we determine that the carrying value may not be recoverable based upon our assessment of the following events or changes in circumstances : significant changes in our strategic business objectives and utilization of the assets ; a determination that the carrying value of such assets can not be recovered through undiscounted cash flows ; loss of legal ownership or title to the assets ; a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset ( asset group ) , including an adverse action or assessment by a regulator ; or the impact of significant negative industry or economic trends . if we believe our assets to be impaired , the impairment we recognize is the amount by which the carrying value of the assets exceeds the fair value of the assets . any write-downs would be treated as permanent reductions in the carrying amount of the asset and an operating loss would be recognized . in addition , we base the useful lives and related amortization or depreciation expense on our estimate of the useful lives of the assets . if a change were to occur in any of the above-mentioned factors or estimates , our reported results could materially change . 44 to date , we have had recurring operating losses , and the recoverability of our long-lived assets is contingent upon executing our business plan . if we are unable to execute our business plan , we may be required to write down the value of our long-lived assets in future periods . clinical trial expenses our clinical trial accrual process seeks to account for expenses resulting from our obligations under contract with vendors , consultants , and clinical site agreements in connection with conducting clinical trials . the financial terms of these contracts are subject to negotiations which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts . our objective is to reflect the appropriate trial expenses in our financial statements by matching period expenses with period services and efforts expended . we account for these expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial . we determine accrual estimates through discussions with internal clinical personnel and outside service providers as to the progress or state of completion of trials , or the services completed . service provider status is then compared to the contractual obligated fee to be paid for such services . during the course of a clinical trial , we adjust our rate of clinical expense recognition if actual results differ from our estimates . in the event that we do not identify certain costs that have begun to be incurred or we underestimate or overestimate the level of services performed or the costs of such services , our reported expenses for a period would be too low or too high . the date on which certain services commence , the level of services performed on or before a given date and the cost of the services are often judgmental . we make these judgments based upon the facts and circumstances known to us in accordance with generally accepted accounting principles . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting amounts that are too high or too low for any particular period . stock-based compensation we account for stock-based compensation in accordance with asc 718 compensation stock compensation . asc 718 requires all share-based payments to employees , including grants of stock options , restricted stock units , performance-based awards and the compensatory elements of employee stock purchase plans , to be recognized in the income statement based upon the fair value of the awards at the grant date . we use the black-scholes option valuation model to estimate the grant date fair value of employee stock options and the compensatory elements of employee stock purchase plans . option valuation models require the input of assumptions , including the expected life of the stock-based awards , the estimated stock price volatility , the risk-free interest rate , and the expected dividend yield . beginning in the third quarter of 2014 , we began to assess both historical and implied volatility in order to determine our estimated volatility rate . implied volatility is now considered due to the change in our business , which occurred with the approval for the sale of afrezza . the expected volatility assumption is based on an assessment of the historical volatility and the implied volatility of our common stock , derived from an analysis of historical traded and quoted options on our common stock . restricted stock units are valued based on the market price on the grant date . we evaluate stock awards with performance conditions as to the probability that the performance conditions will be met and estimate the date at which the performance conditions will be met in order to properly recognize stock-based compensation expense over the requisite service period . forward contracts in february and october 2012 , we entered into agreements with the mann group whereby we agreed to sell and the mann group agreed to purchase common stock and or warrants .
| results of operations years ended december 31 , 2014 and 2013 revenues during the years ended december 31 , 2014 and 2013 , we did not recognize any revenue . research and development expenses the following table provides a comparison of the research and development expense categories for the years ended december 31 , 2014 and 2013 ( dollars in thousands ) : replace_table_token_3_th the decrease in research and development expenses for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 was driven by a decrease in clinical trial related expenses of $ 14.8 million with the completion of two phase 3 clinical studies of afrezza in 2013. this decrease is offset by $ 4.4 million increased manufacturing spending due to supply purchases , increased headcount for commercial readiness and a $ 1.9 million increase in stock-based compensation resulting from the net effect of $ 10.4 million in increased stock-based compensation expense due to the modification and settlement of value during 2014 for certain performance awards . the foregoing increase in stock-based compensation in 2014 was partially offset by an overall decrease in stock-based compensation of $ 7.1 million due to the decreased recognition period in 2014 as a result of the achievement of milestones under company-wide performance-based grants in the second and third quarters of 2014 , in addition to a reduction of other option and award compensation of $ 1.4 million due to a reduction in force .
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the allocation of the purchase price based on fair value was as follows : replace_table_token_21_th ( 1 ) contractual purchase price of $ 19,750 and $ 16,325 for austin towneplace suites and summerville home2 suites , respectively . ( 2 ) all debt was drawn from the $ 150,000 secured revolving credit facility ( the “ credit facility ” ) at acquisition . ( 3 ) story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statement and notes thereto . this section includes discussion of financial information as of and for the year ended december 31 , 2019 and provides comparisons to the same information as of and for the year ended december 31 , 2018. comparisons of 2018 financial information to the same information for 2017 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 year ended december 31 , 2018 as filed with the securities and exchange commission on march 11 , 2019 . overview condor hospitality trust , inc. is a self-administered reit for federal income tax purposes that specializes in the investment and ownership of high-quality select-service , limited-service , extended stay , and compact full service hotels . substantially all of our opera tions are conducted through condor hospitality limited partnership , our operating partnership , for which we serve as story_separator_special_tag style= '' display : inline ; color : # 000000 ; font-size:10pt ; '' > acquisition costs typically consist of transfer taxes , legal fees , and other costs associated with acquiring a hotel property as well as transactions that were terminated during the year and expense incurred pursuing potential acquisitions . prior to january 1 , 2018 , hotel acquisition costs were expensed for both completed and potential acquisitions . beginning on january 1 , 2018 , with the implementation of asu no . 2017-01 , these costs are capitalized if they relate to completed hotel acquisitions accounted for as asset acquisitions and expensed only when related to potential acquisitions not subsequently pursued or terminated transactions , leading to the period over period decrease in these expenses . see further discussion of asu no . 2017-01 in note 1 , organization and summary of significant accounting policies , to our consolidated financial statements . in 2019 , $ 2,110 of expenses were recognized as equity transaction and strategic alternatives expenses which included the removal of previously capitalized costs related to the company 's shelf registration and at-the-market offering program and costs incurred related to the company 's strategic alternatives initiative . interest expense decreased by $ 350 between the periods , driven by a decrease in debt outstanding as a result of the smaller property portfolio . net gain ( loss ) on disposition of assets during the years ended december 31 , 2019 and 2018 , the company sold one hotel and four hotels , respectively , resulting in total gains of $ 62 and $ 5,707 , respectively . the net gains ( losses ) appearing in the financial statements also include net losses on disposals due to repairs , replacements , and other renovations . one of the properties sold in the first quarter of 2018 had been previously impaired and a recovery of impairment of $ 93 was recognized upon the sale . net gain ( loss ) on derivatives and convertible debt in 2019 , the net loss on derivatives and convertible debt was driven by increases in the company 's common stock price . the net gain on derivatives and convertible debt in 2018 was driven by changes in value of the company 's interest rate swap on its wells fargo debt which is adjusted to fair market value each period . non-gaap financial measures non-gaap financial measures are measures of our historical financial performance that are different from measures calculated and presented in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . we report funds from operations ( “ ffo ” ) , adjusted ffo ( “ affo ” ) , earnings before interest , taxes , depreciation , and amortization ( “ ebitda ” ) , ebitda for real estate ( “ ebitda re ” ) , adjusted ebitda re , and hotel ebitda as non-gaap measures that we believe are useful to investors as key measures of our operating results and which management uses to facilitate a periodic evaluation of our operating results relative to those of our peers . our non-gaap measures should not be considered as an alternative to u.s. gaap net earnings as an indication of financial performance or to u.s. gaap cash flows from operating activities as a measure of liquidity . additionally , these measures are not indicative of funds available to fund cash needs or our ability to make cash distributions as they have not been adjusted to consider cash requirements for capital expenditures , property acquisitions , debt service obligations , or other commitments . 31 ffo and affo we calculate ffo in accordance with the standards established by the national association of real estate investment trusts ( “ nareit ” ) , which defines ffo as net earnings or loss computed in accordance with gaap , excluding gains or losses from sales of real estate assets , impairment , and the depreciation and amortization of real estate assets . ffo is calculated both for the company in total and as ffo attributable to common shares and common units , which is ffo reduced by preferred stock dividends . story_separator_special_tag at decembe r 31 , 2019 , the company had $ 2.6 million of cash and cash equivalents , $ 5.8 million of restricted cash on hand , and $ 9.0 million of unused availability under its credit facility . as discussed further in the subsequent events footnote of the consolidated fi nancial statements , on march 30 , 2020 , our credit facility was amended to , among other things , remove the ability to reborrow in the future ( without lender approval ) . our short-term liquidity requirements consist primarily of operating expenses and other expenditures directly associated with our hotel properties , recurring maintenance and capital expenditures necessary to maintain our hotels in accordance with brand standards , interest expense and scheduled principal payments on outstanding indebtedness , restricted cash funding obligations , and the payment of dividends in accordance with the reit requirements of the code and as re quired in connection with our series e preferred stock . 34 we also presently expect to invest app roximately $ 0 .5 million to $ 1 .5 million in capital expenditures related to hotel properties we cur rently own through march 31 , 2021 . t o maintain our reit tax status , we generally must distribute at least 90 % of our taxable income to our shareholders annually . in addition , we are subject to a 4 % non-deductible excise tax if the actual amount distributed to shareholders in a calendar year is less than a minimum amount specified under the federal income tax laws . we have a general dividend policy of paying out approximately 100 % of annual reit taxable income . the actual amount of any future dividends will be determined by the board of directors based on our actual results of operations , economic conditions , capital expenditure requirements , and other factors that the board of directors deems relevant . our longer-term liquidity requirements consist primarily of the cost of acquiring additional hotel properties , renovations and other one-time capital expenditures that periodically are made related to our hotel properties , and scheduled debt payments , including maturing loans . possible sources of liquidity to fund debt maturities and acquisitions and to meet other obligations include additional secure d or unsecured debt financings , and proceeds from public or private issuances of debt or equity securiti es . prior to the consideration of any asset sales or our ability to refinance debt subsequent to december 31 , 2019 , contractual principal payments on our debt outstanding , including normal amortization , total ed $ 8 8 . 4 million through march 31 , 2021 , including the october 2020 maturity of our key bank credit facility . as discussed further in the subsequent events footnote of the consolidated financial statements , on march 30 , 2020 , the key bank credit facility was amended to , among other things , extend the maturity date of the facility to april 1 , 2021 , providing also for two extension options ( six months and five months ) . following this modificati o n , contractual principal payments on our debt outstanding at december 31 , 2019 through march 31 , 20 21 totaled $ 1.6 million . sources and uses of cash cash provided by operating activities . our cash provided by operations was $ 9.3 million and $ 10.7 million for the years ended december 31 , 2019 and 2018 , respectively , a decrease of $ 1.4 million . this change in operating cash flow was driven by a change in net income , after adjusting for non-cash items , which decreased by $ 3.0 million . this decrease was partially offset by differing changes in liabilities between the periods , driven most significantly by differences in the timing of the payment of property taxes . other changes in operating assets and liabilities between the periods discussed were individually insignificant . cash provided by ( used in ) investing activities . our cash provided by ( used in ) investing activities was $ 4.4 million and ( $ 16.5 million ) for the years ended december 31 , 2019 and 2018 , respectively , an increase of $ 20.9 million . the increase in these cash flows was driven by decreased cash spent on hotel acquisitions of $ 35.6 million , partially offset by a decrease in net proceeds from the sale of hotels of $ 15.5 million between the periods . cash provided by ( used in ) financing activities . our cash provided by ( used in ) financing activities was ( $ 14.4 million ) and $ 4.6 million for the years ended december 31 , 2019 and 2018 , respectively , a decrease of $ 19.0 million . the decrease was driven by decreased debt proceeds of $ 33.8 million due to a decrease in hotel acquisitions , partially offset by a decrease in repayments of debt of $ 15.0 million due to a decrease in hotel sales . outstanding indebtedness at december 31 , 2019 , we had long-term debt of $ 135.4 million with a weighted average term to maturity of 1.5 years and a weighted average interest rate of 4.22 % . of this total , at december 31 , 2019 , $ 22.9 million was fixed rate debt with a weighted average term to maturity of 2.3 years and a weight ed average interest rate of 4.41 % and $ 112.5 million was variable rate debt with a weighted average term to maturity of 1.2 years and a weight ed average interest rate of 4 . 18 % . at december 31 , 2018 , we had long-term debt of $ 138.0 million associated with assets held for use with a weighted average term to maturity of 2.1 years and a weighted average interest rate of 5.15 % .
| general p artner . as of december 31 , 2019 , the company owned 15 hotels , representing 1,908 rooms , in eight states , including one hotel owned through an 80 % interest in an unconsolidated joint venture . agreement and plan of merger on july 19 , 2019 , company parties and the nht parties entered into the merger agreement . closing of the acquisition did not occur on march 23 , 2020 , the contemplated closing date of the acquisition , and has not occurred as of the time of this filing . the company parties and the nht parties are in discussions concerning potential amendments to restructure the transaction , which will be disclosed if and when such amendments are agreed . there can be no assurance with respect to the outcome of such discussions , and the company continues reviewing its options and reserves all rights and remedies under the merger agreement . there can be no assurances that the acquisition of the company will be completed . hotel property portfolio activity acquisitions during the year ended december 31 , 2019 , there were no hotel acquisitions . subsequent to year end , on february 14 , 2020 , the company purchased o u r joint venture partner 's interest in the atlanta jv for $ 7.3 million . dispositions pursuant to our disposition strategy , the following h otel sales were completed in 2019 : date of sale location brand condor lender number of rooms gross proceeds ( in thousands ) 03/22/2019 solomons , md quality inn credit facility 59 $ 4,320 net proceeds , a fter the payment of related expenses , totale d $ 4.2 million in 2019 . the net proceeds were used to repay borrowings under the company 's credit facility .
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beliefs and expectations , are `` forward-looking statements '' within the meaning of federal securities laws and should be evaluated as such . forward-looking statements include information regarding industry outlook as well as possible or assumed future results of operations , including descriptions of our business plan , strategies and capital structure . these statements often include words such as `` anticipate , '' `` expect , '' `` suggests , '' `` plan , '' `` believe , '' `` intend , '' `` estimates , '' `` targets , '' `` projects , '' `` should , '' `` could , '' `` would , '' `` may , '' `` will , '' `` forecast '' and other similar expressions . we base these forward-looking statements or projections on our current expectations , plans and assumptions that we have made in light of our experience in the industry , as well as our perceptions of historical trends , current conditions , expected future developments and other factors we believe are appropriate under the circumstances and at such time . as you read and consider this annual report on form 10-k , you should understand that these statements are not guarantees of performance or results . the forward-looking statements and projections are subject to and involve risks , uncertainties and assumptions , including , but not limited to , the risks and uncertainties described in `` non-gaap financial measures '' and `` forward-looking statements , '' as well as `` risk factors '' and you should not place undue reliance on these forward-looking statements or projections . although we believe that these forward-looking statements and projections are based on reasonable assumptions at the time they are made , you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements and projections . factors that may materially affect such forward-looking statements and projections include : adverse developments in economic conditions and , particularly , in conditions in the automotive and transportation industries ; volatility in the capital , credit and commodities markets ; our inability to successfully execute on our growth strategy ; increased competition ; reduced demand for some of our products as a result of improved safety features on vehicles , insurance company influence , new business models or new methods of travel risks of the loss or change in purchasing levels of any of our significant customers or the consolidation of msos , distributors and or body shops ; our reliance on our distributor network and third-party delivery services for the distribution and export of certain of our products ; credit risk exposure from our customers ; price increases or business interruptions in our supply of raw materials ; failure to develop and market new products and manage product life cycles ; business disruptions , security threats and security breaches , including security risks to our information technology systems ; risks associated with our outsourcing strategies ; risks associated with our non-u.s. operations ; currency-related risks ; terrorist acts , conflicts , wars and natural disasters that may materially adversely affect our business , financial condition and results of operations ; risks associated with the united kingdom 's withdrawal from the european union ; failure to comply with the anti-corruption laws of the united states and various international jurisdictions ; 33 failure to comply with anti-terrorism laws and regulations and applicable trade embargoes ; risks associated with protecting data privacy ; significant environmental liabilities and costs as a result of our current and past operations or products , including operations or products related to our business prior to the acquisition ; transporting certain materials that are inherently hazardous due to their toxic nature ; litigation and other commitments and contingencies ; ability to recruit and retain the experienced and skilled personnel we need to compete ; unexpected liabilities under any pension plans applicable to our employees ; work stoppages , union negotiations , labor disputes and other matters associated with our labor force ; our ability to protect and enforce intellectual property rights ; intellectual property infringement suits against us by third parties ; our ability to realize the anticipated benefits of any acquisitions and divestitures ; our joint ventures ' ability to operate according to our business strategy should our joint venture partners fail to fulfill their obligations ; risk that the insurance we maintain may not fully cover all potential exposures ; risks associated with changes in tax rates or regulations , including unexpected impacts of the new u.s. tcja legislation , which may differ with further regulatory guidance and changes in our current interpretations and assumptions ; our substantial indebtedness ; our ability to obtain additional capital on commercially reasonable terms may be limited ; any statements of belief and any statements of assumptions underlying any of the foregoing ; other factors disclosed in this annual report on form 10-k and our other filings with the sec ; and other factors beyond our control . these cautionary statements should not be construed by you to be exhaustive and are made only as of the date of this annual report on form 10-k. we undertake no obligation to update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . overview we are a leading global manufacturer , marketer and distributor of high performance coatings systems . we have over a 150 -year heritage in the coatings industry and are known for manufacturing high-quality products with well-recognized brands supported by market-leading technologies and customer service . our diverse global footprint of 50 manufacturing facilities , four technology centers , 47 customer training centers and approximately 14,000 employees allows us to meet the needs of customers in over 130 countries . we serve our customers through an extensive sales force and technical support organization , as well as through approximately 4,000 independent , locally based distributors . story_separator_special_tag non-gaap financial measures reconciliation of net income to ebitda and adjusted ebitda to supplement our financial information presented in accordance with u.s. gaap , we use the following non-gaap financial measures to clarify and enhance an understanding of past performance : ebitda and adjusted ebitda . we believe that the presentation of these financial measures enhances an investor 's understanding of our financial performance . we further believe that these financial measures are useful financial metrics to assess our operating performance from period-to-period by excluding certain items that we believe are not representative of our core business . we define our core business as those operations relating to the company 's ongoing performance and the concept is used to make resource allocation and performance evaluation decisions . we use these financial measures for business planning purposes and in measuring our performance relative to that of our competitors . we utilize adjusted ebitda as the primary measure of segment performance . ebitda consists of net income before interest , taxes , depreciation and amortization . adjusted ebitda consists of ebitda adjusted for ( i ) non-cash items included within net income , ( ii ) items the company does not believe are indicative of ongoing operating performance or ( iii ) nonrecurring , unusual or infrequent items that have not occurred within the last two years or we believe are not reasonably likely to recur within the next two years . we believe that making such adjustments provides investors meaningful information to understand our operating results and ability to analyze financial and business trends on a period-to-period basis . we believe these financial measures are commonly used by investors to evaluate our performance and that of our competitors . however , our use of the terms ebitda and adjusted ebitda may vary from that of others in our industry . these financial measures should not be considered as alternatives to income before income taxes , net income , earnings per share or any other performance measures derived in accordance with u.s. gaap as measures of operating performance . ebitda and adjusted ebitda have important limitations as analytical tools and you should not consider them in isolation or as substitutes for analysis of our results as reported under u.s. gaap . some of these limitations are : ebitda and adjusted ebitda : do not reflect the significant interest expense on our debt , including the senior secured credit facilities and the new senior notes ; and eliminate the impact of income taxes on our results of operations ; although depreciation and amortization are non-cash charges , the assets being depreciated and amortized will often have to be replaced in the future , and ebitda and adjusted ebitda do not reflect any expenditures for such replacements ; and other companies in our industry may calculate ebitda and adjusted ebitda differently than we do , limiting their usefulness as comparative measures . we compensate for these limitations by using ebitda and adjusted ebitda along with other comparative tools , together with u.s. gaap measurements , to assist in the evaluation of operating performance . such u.s. gaap measurements include income before income taxes , net income , earnings per share and other performance measures . in evaluating these financial measures , you should be aware that in the future we may incur expenses similar to those eliminated in this presentation . our presentation of ebitda and adjusted ebitda should not be construed as an inference that our future results will be unaffected by the excluded items noted above . 38 the following table reconciles net income to the ebitda and adjusted ebitda measures discussed above for the periods presented : replace_table_token_5_th ( a ) during the years ended december 31 , 2018 , 2017 and 2016 we refinanced and restructured our term loans and senior notes , which resulted in losses of $ 9.5 million , $ 13.0 million and $ 88.0 million , respectively . in addition , during the years ended december 31 , 2017 and 2016 we prepaid outstanding principal on our term loans , resulting in non-cash losses on extinguishment of $ 0.4 million and $ 9.6 million , respectively . we do not consider these items to be indicative of our ongoing operating performance . ( b ) eliminates foreign exchange gains and losses resulting from the remeasurement of assets and liabilities denominated in foreign currencies , net of the impacts of our foreign currency instruments used to hedge our balance sheet exposures . exchange effects attributable to the remeasurement of our venezuelan subsidiary represented losses of $ 1.8 million and $ 23.5 million for the years ended december 31 , 2017 and 2016 , respectively . ( c ) eliminates the non-cash , non-service components of long-term employee benefit plans . ( d ) represents expenses and associated changes to estimates related to employee termination benefits and other employee-related costs , which includes axalta ceo recruitment fees . employee termination benefits are associated with axalta way initiatives . these amounts are not considered indicative of our ongoing operating performance . ( e ) represents fees paid to consultants , and associated true-ups to estimates , for professional services primarily related to our axalta way initiatives , which are not considered indicative of our ongoing operating performance . ( f ) represents integration costs and associated changes to estimates related to the 2017 acquisition of the industrial wood business that was a carve-out business from valspar . we do not consider these items to be indicative of our ongoing operating performance . ( g ) represents acquisition-related expenses , including changes in the fair value of contingent consideration , as well as $ 10.0 million of costs associated with contemplated merger activities during the three months ended december 31 , 2017 and costs associated with the 2016 secondary offerings of our common shares by carlyle , all of which are not considered indicative of our ongoing operating performance . ( h ) represents non-cash costs associated with stock-based compensation .
| business highlights general business highlights our net sales increased 7.3 % for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , driven by volume growth of 4.1 % , primarily within our performance coatings segment . acquisitions contributed to 3.5 % of the volume increase . average selling prices increased net sales by 2.6 % resulting from both end-markets within the performance coatings segment which were slightly offset by pricing concessions within the transportation coatings segment . favorable currency translation contributed to a further increase of net sales of 0.6 % due primarily to the impacts of the strengthening euro and chinese renminbi compared to the u.s. dollar . the following trends have impacted our segment and end-market sales performance : performance coatings : net sales increased 13.1 % compared to 2017 driven primarily by stronger volumes in our industrial end-market , including the impacts of acquisitions , as well as increases in average selling prices across both end-markets . transportation coatings : net sales decreased by 2.0 % compared to 2017 driven primarily by lower average selling prices within the light vehicle end-market , partially offset by increased organic sales volumes in our commercial vehicle end-market . our business serves four end-markets globally as follows : replace_table_token_4_th acquisitions highlights during the year ended december 31 , 2018 , we successfully completed seven strategic acquisitions ( `` 2018 acquisitions '' ) , including two based in asia pacific , two based in north america , and three based in europe , all of which benefited our performance coatings segment . see further detail at note 3 to the consolidated financial statements included elsewhere in this annual report on form 10-k. our 2018 aggregate spending for these 2018 acquisitions was $ 79.9 million .
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the component of oci related to discontinued cash flow hedges that are no longer highly effective story_separator_special_tag the following analysis discusses our financial condition as of december 31 , 2014 , compared with december 31 , 2013 , and our consolidated results of operations for the years ended december 31 , 2014 , 2013 and 2012 , and , where appropriate , factors that may affect our future financial performance . the discussion should be read in conjunction with our audited consolidated financial statements and the related notes to the financial statements and the other financial information included elsewhere in this form 10-k. forward-looking information our narrative analysis below contains forward-looking statements intended to enhance the reader 's ability to assess our future financial performance . forward-looking statements include , but are not limited to , statements that represent our beliefs concerning future operations , strategies , financial results or other developments , and contain words and phrases such as `` anticipate , '' `` believe , '' `` plan , '' `` estimate , '' `` expect , '' `` intend , '' and similar expressions . forward-looking statements are made based upon management 's current expectations and beliefs concerning future developments and their potential effects on us . such forward-looking statements are not guarantees of future performance . 33 actual results may differ materially from those included in the forward-looking statements as a result of risks and uncertainties . those risks and uncertainties include , but are not limited to the risk factors listed in item 1a . `` risk factors . '' overview we provide financial products and services through the following reportable segments : retirement and investor services is organized into the accumulation business , which includes full service accumulation , principal funds ( our mutual fund business ) , individual annuities and bank and trust services ; and the guaranteed business , which includes investment only and full service payout . we offer a comprehensive portfolio of asset accumulation products and services for retirement savings and investment : to businesses of all sizes with a concentration on small and medium-sized businesses , we offer products and services for defined contribution pension plans , including 401 ( k ) and 403 ( b ) plans , defined benefit pension plans , nonqualified executive benefit plans and esop consulting services . for more basic investment needs , we offer simple ira and payroll deduction plans ; to large institutional clients , we also offer investment-only products , including gics and funding agreements and to employees of businesses and other individuals , we offer the ability to accumulate savings for retirement and other purposes through mutual funds , individual annuities and bank products . principal global investors , which consists of our asset management operations , manages assets for sophisticated investors around the world , using a multi-boutique strategy that enables the segment to provide an expanded range of diverse investment capabilities including equity , fixed income , real estate and other alternative investments . principal global investors also has experience in asset allocation , stable value management and other structured investment strategies . principal international offers pension accumulation products and services , mutual funds , asset management , income annuities and life insurance accumulation products through operations in brazil , chile , china , hong kong sar , india , mexico and southeast asia . u.s. insurance solutions provides individual life insurance as well as specialty benefits insurance in the u.s. our individual life insurance products include universal and variable universal life insurance and traditional life insurance . our specialty benefits insurance products include group dental and vision insurance , individual and group disability insurance and group life insurance . corporate manages the assets representing capital that has not been allocated to any other segment . financial results of the corporate segment primarily reflect our financing activities ( including interest expense and preferred stock dividends ) , income on capital not allocated to other segments , inter-segment eliminations , income tax risks and certain income , expenses and other after-tax adjustments not allocated to the segments based on the nature of such items . economic factors and trends positive market performance and net customer cash flows led to increases in our retirement and investor services segment 's account values and our principal global investors segment 's aum . since account values and aum are the base by which these businesses generate revenues , the increase in account values and aum has contributed to the overall improvement of our profits . in our principal international segment , we continued to grow our business organically through our existing subsidiaries and joint ventures and through strategic acquisitions . local currency aum , a key indicator of earnings growth for the segment , increased significantly as a result of positive net customer cash flows and market performance . the financial results for the principal international segment are also impacted by fluctuations of the foreign currency to u.s. dollar exchange rates for the countries in which we have business . the u.s. insurance solutions segment has been impacted by lower interest rates for the past few years as well as decreases in our long-term interest rate assumptions . the current low interest rate environment has caused spread compression , whereas the decrease in long-term interest rate assumptions has led to higher reserves and lower profit margins in the segment . story_separator_special_tag these risks and uncertainties include : ( 1 ) the risk that our assessment of an issuer 's ability to meet all of its contractual obligations will change based on changes in the credit characteristics of that issuer ; ( 2 ) the risk that the economic outlook will be worse than expected or have more of an impact on the issuer than anticipated ; ( 3 ) the risk that our investment professionals are making decisions based on fraudulent or misstated information in the financial statements provided by issuers and ( 4 ) the risk that new information 35 obtained by us or changes in other facts and circumstances lead us to change our intent to not sell the security prior to recovery of its amortized cost . any of these situations could result in a charge to net income in a future period . at december 31 , 2014 , we had $ 7,877.6 million in afs fixed maturities with gross unrealized losses totaling $ 338.8 million . included in the gross unrealized losses are losses attributable to both movements in market interest rates as well as movement in credit spreads . net income would be reduced by approximately $ 338.8 million , on a pre-tax basis , if all the securities in an unrealized loss position were deemed to be other than temporarily impaired and our intent was to sell all such securities . mortgage loans . mortgage loans consist primarily of commercial mortgage loans on real estate . as of december 31 , 2014 , the carrying value of our commercial mortgage loans was $ 10,696.9 million . commercial mortgage loans on real estate are generally reported at cost adjusted for amortization of premiums and accrual of discounts , computed using the interest method and net of valuation allowances . commercial mortgage loans on real estate are considered impaired when , based on current information and events , it is probable that we will be unable to collect all amounts due according to contractual terms of the loan agreement . when we determine that a loan is impaired , a valuation allowance is established equal to the difference between the carrying amount of the mortgage loan and the estimated value reduced by the cost to sell . estimated value is based on either the present value of the expected future cash flows discounted at the loan 's effective interest rate , the loan 's observable market price or fair value of the collateral . subsequent changes in the estimated value are reflected in the valuation allowance . amounts on loans deemed to be uncollectible are charged off and removed from the valuation allowance . the change in the valuation allowance provision is included in net realized capital gains ( losses ) on our consolidated statements of operations . the valuation allowance is maintained at a level believed adequate by management to absorb estimated probable credit losses . management 's periodic evaluation and assessment of the valuation allowance adequacy is based on known and inherent risks in the portfolio , adverse situations that may affect a borrower 's ability to repay , the estimated value of the underlying collateral , composition of the loan portfolio , portfolio delinquency information , underwriting standards , peer group information , current economic conditions , loss experience and other relevant factors . the evaluation of our impaired loan component is subjective , as it requires the estimation of timing and amount of future cash flows expected to be received on impaired loans . for more detailed information concerning mortgage loan valuation allowances and impairments , see item 8 . `` financial statements and supplementary data , notes to consolidated financial statements , note 4 , investments mortgage loan valuation allowance . '' we have a large experienced commercial real estate staff centrally located in des moines , which includes commercial mortgage underwriters , loan closers , loan servicers , engineers , appraisers , credit analysts , research staff , legal staff , information technology personnel and portfolio managers . experienced commercial real estate senior management adheres to a disciplined process in reviewing all transactions for approval on a consistent basis . the typical new commercial mortgage loan at origination averages 51 % loan-to-value with a 2.6 times debt service coverage ratio and is internally rated a on a bond equivalent basis . our entire commercial mortgage loan portfolio , excluding mortgage loans held in our principal global investors segment , averages 48 % loan-to-value ratio with a 2.6 times debt service coverage ratio . the large equity cushion and strong debt service coverage in our commercial mortgage loan investments will help insulate us from stress during times of weak commercial real estate fundamentals . derivatives we primarily use derivatives to hedge or reduce exposure to market risks . the fair values of exchange-traded derivatives are determined through quoted market prices . the fair value of derivative instruments cleared through centralized clearinghouses are determined through market prices published by the clearinghouses . the fair values of non-cleared over-the-counter derivative instruments are determined using either pricing valuation models that utilize market observable inputs or broker quotes . on an absolute fair value basis , 74 % of our over-the-counter derivative assets and liabilities are valued using pricing valuation models , 6 % are valued using broker quotes , and the remaining 20 % are valued using clearinghouse prices . see item 8 . `` financial statements and supplementary data , notes to consolidated financial statements , note 14 , fair value measurements '' for further discussion . the fair values of our derivative instruments can be impacted by changes in interest rates , foreign exchange rates , credit spreads , equity indices and volatility , as well as other contributing factors . we also issue certain annuity contracts and other insurance contracts that include embedded derivatives that have been bifurcated from the host contract . they are valued using a combination of historical data and actuarial judgment . see item 8 .
| transactions affecting comparability of results of operations acquisitions we entered into acquisition agreements for the following businesses . axa hong kong pension business . on november 7 , 2014 , we announced we will acquire axa 's mpf and orso pension business in hong kong for approximately $ 335.0 million . as part of the transaction , we will enter into an exclusive 15-year distribution agreement with axa to provide co-branded pension products through axa 's extensive agency network in hong kong . the transaction is expected to close third quarter 2015 , subject to regulatory approvals . upon approval , we will more than double the aum in our hong kong pension business to $ 6.0 billion . columbus circle investors . on september 30 , 2014 , we acquired an additional 24.65 % interest in columbus circle investors from the minority shareholder partners . we now own 95 % of columbus circle investors and are contracted to purchase the remaining 5 % from the minority shareholder partners in two installments in march 2015 and march 2016. columbus circle investors is consolidated within our principal global investors segment . liongate capital management llp and liongate limited . on may 1 , 2013 , we finalized the purchase of a 55 % interest in liongate capital management llp and liongate limited ( `` liongate '' ) , a global alternative investment boutique based in london and new york . liongate is focused on managing portfolios of hedge funds . the purchase price was $ 44.0 million . liongate had $ 1.4 billion in aum at the time of acquisition and is accounted for on the equity method within the principal global investors segment . in the fourth quarter of 2014 , we impaired our investment in liongate . cuprum . on february 4 , 2013 , we finalized the purchase of cuprum , a premier pension manager in chile . as a result of the public tender offer , we initially acquired a 91.55
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the effectiveness of our internal control over financial reporting as of december 31 , 2014 , has been audited by pricewaterhousecoopers llp , the independent registered public accounting firm who also audited the company 's consolidated financial statements included in this annual report on form 10-k. pricewaterhousecoopers llp 's report on the company 's internal control over financial reporting is included as part of part ii , item 8 , financial statements and supplementary data in this annual report on form 10-k. changes in internal control over financial reporting there were no changes in internal controls over financial reporting during the fourth quarter ended december 31 , 2014 that have materially , or are reasonably likely to materially affect , the company 's internal control over financial reporting . item 9b . other information none . 67 part iii item 10. directors , executive officers , and corporate governance the information required by items 401 , 405 , 406 , 407 ( c ) ( 3 ) , ( d ) ( 4 ) and ( d ) ( 5 ) of regulation s-k will be included in the company 's proxy statement for its 2015 annual meeting of shareholders to be filed with the sec within 120 days after december 31 , 2014 ( the 2015 proxy statement ) , and is incorporated by reference in this annual report on form 10-k. the company 's code of business conduct and ethics is available on the company 's website at www.ithmines.com . item 11. executive compensation the information required by item 402 and paragraph ( e ) ( 4 ) and ( e ) ( 5 ) of item 407 of regulation s-k will be contained in the company 's 2015 proxy statement , and is incorporated by reference in this annual report on form 10-k. item 12. security ownership of certain beneficial owners and management and related stockholder matters the information required by item 201 ( d ) and item 403 of regulation s-k will be contained in the company 's 2015 proxy statement , and is incorporated by reference in this annual report on form 10-k. item 13. certain relationships and related transactions , and director independence the information required by item 404 and item 407 ( a ) of regulation s-k will be contained in the company 's 2015 proxy statement , and is incorporated by reference in this annual report on form 10-k. item 14. principal accounting fees story_separator_special_tag current business activities general livengood gold project developments during the year ended december 31 , 2014 and to the date of this report , the company progressed on a number of opportunities , including those identified in the september 2013 study and those subsequently developed by the company , for optimization and with the potential for reducing project costs . the 2014 work has developed an improved production schedule , as compared to the september 2013 study , and generated detailed work plans for 2015. during 2014 , in addition to the mine production scheduling and detailed metallurgical test work review , power supply alternatives were reviewed to determine how changing energy supply dynamics might impact the project assumptions regarding electrical generation . construction and operations camp alternatives were reviewed to better define the costs of supporting the manpower requirements for the project . the company has also continued to advance environmental baseline work in support of future permitting in order to better position the project for a construction decision when warranted by market conditions . the 2015 work plans will include additional metallurgical tests and engineering and focus on all aspects of the project , including confirmation of the flow sheet and optimizing the operating costs . once defined , these operating costs will then be used to evaluate and optimize the project configuration and capital costs , including determination of the optimum scale for the project . the company will also continue to advance environmental baseline work in support of future permitting and to evaluate alternatives for fresh water supply with potential to reduce project costs . financing during the fourth quarter of 2014 , the company closed a non-brokered private placement financing through the issuance of 18,245,000 common shares issued at c $ 0.46 per share for gross proceeds of $ 7,315,917. the financing closed on december 11 , 2014. total share issuance costs for this non-brokered private placement financing amounted to $ 24,828. this financing will allow the company to continue to pursue opportunities for project optimization with its 2015 work plan as further described below . management change in december 2014 , the company announced the resignation of tom yip , its chief financial officer , effective december 31 , 2014. mr. yip will provide transitional services to the company as a consultant to insure financial continuity and oversight for a period of three to six months after december 31 , 2014. the company is evaluating the most cost effective structure to fill the role of chief financial officer and is searching for a replacement for mr. yip . 2015 metallurgical , field , and engineering work plan a multi-phase metallurgical test work program is underway with the following objectives : · optimize the gravity circuit · optimize the grind size and power consumption · optimize the reagent consumption · optimize the leach retention time · confirm the overall recoveries by rock type · provide additional confirmation of the project head grades . review of the feasibility test work to date indicates that there is a potential that further optimization of the parameters noted above could result in capital and operating expenditure reductions for the project . however , until this multi-phase metallurgical program has been completed , there can be no assurance that the head grade 41 differences observed to date , or the potential process optimizations and cost savings opportunities identified , will in fact be realized . story_separator_special_tag as at december 31 , 2014 , the company reported cash and cash equivalents of $ 13,521,473 compared to $ 13,925,601 at december 31 , 2013. the decrease of approximately $ 0.4 million resulted mainly from expenditures on the livengood gold project of approximately $ 6.8 million and a negative foreign currency translation impact of approximately $ 0.9 million offset by net proceeds from financing of approximately $ 7.3 million . the company continues to utilize its cash resources to pursue opportunities identified in the september 2013 study and subsequently identified by the company , to fund environmental activities required for preservation of baseline database and future permitting as well as to complete corporate administrative requirements . investing activities during the year ended december 31 , 2014 comprised of solely the transfer of restricted cash to capitalized acquisition costs for land acquisitions that closed in january 2014. during the year ended december 31 , 2013 the investing activity was for the increase in restricted cash related to cash in escrow for the land acquisitions closed during january 2014. investing activities during the year ended december 31 , 2012 comprised primarily of mineral property acquisitions of $ 2,127,693. mineral property acquisitions during 2012 related to certain mining claims and related rights in the vicinity of the livengood gold project . financing activities during the year ended december 31 , 2014 provided proceeds of $ 7,291,089 from the closing of a non-brokered private placement of common shares in december 2014. total common shares issued in the financing were 18,245,000 at a price of c $ 0.46 for gross proceeds of $ 7,315,917. total share issuance costs were $ 24,828. the company had no cash flows from financing activities during the year ended december 31 , 2013. financing activities provided $ 29,214,249 during the year ended december 31 , 2012 on the issuance of common shares through a non-brokered private placement . during the third quarter of 2012 , the company closed a non-brokered private placement financing through the issuance of 11,384,719 common shares . the shares were issued in two stages . the first stage closed on august 3 , 2012 and consisted of 9,458,308 common shares issued at c $ 2.60 per share for gross proceeds of $ 24,626,029. the second stage of the offering closed on september 17 , 2012 and consisted of 1,926,411 common shares issued at c $ 2.5955 per share for gross proceeds of $ 5,142,500. the company paid a cash finder 's fee of 4 % of gross proceeds in connection with c $ 10,000,000 of the total offering . total share issuance costs for this non-brokered private placement financing amounted to $ 554,280. as at december 31 , 2014 , the company had working capital of $ 12,614,361 compared to working capital of $ 12,699,227 at december 31 , 2013. the company expects that it will operate at a loss for the foreseeable future , but believes the current cash and cash equivalents will be sufficient for it to complete its anticipated 2015 work plan at the livengood gold project and satisfy its currently anticipated general and administrative costs , through the 2015 fiscal year and well into 2016. to advance the livengood gold project towards permitting and development , the company anticipates maintaining certain essential development activities for the fiscal year ending december 31 , 2015. these essential activities include maintaining environmental baseline data that in its absence could materially delay future permitting of the livengood gold project . due to the potential importance of the 2014 head grade evaluation to the project , a significant multi-phase metallurgical test work program has begun in an attempt to validate the observed higher calculated head grades . the company anticipates spending approximately $ 10 million during fiscal year 2015 on metallurgicalwork and project engineering as well as to maintain the environmental baseline activity , and perform required general and administrative duties . the company will require significant additional financing to continue its operations ( including general and administrative expenses ) in connection with advancing activities at the livengood gold project , the contingent payment due in january 2017 and the development of any mine that may be determined to be built at the livengood gold project , and there is no assurance that the company will be able to obtain the additional financing required on acceptable terms , if at all . in addition , any significant delays in the issuance of required permits for the ongoing 45 work at the livengood gold project , or unexpected results in connection with the ongoing work , could result in the company being required to raise additional funds to advance permitting efforts . the company 's review of its financing options includes pursuing a future strategic alliance to assist in further development , permitting and future construction costs . despite the company 's success to date in raising significant equity financing to fund its operations , there is significant uncertainty that the company will be able to secure any additional financing in the current or future equity markets . see risk factors we will require additional financing to fund exploration and , if warranted , development and production . failure to obtain additional financing could have a material adverse effect on our financial condition and results of operation and could cast uncertainty on our ability to continue as a going concern. the quantity of funds to be raised and the terms of any proposed equity financing that may be undertaken will be negotiated by management as opportunities to raise funds arise . specific plans related to the use of proceeds will be devised once financing has been completed and management knows what funds will be available for these purposes .
| results of operations year ended december 31 , 2014 compared to year ended december 31 , 2013 the company had cash and cash equivalents of $ 13,521,473 at december 31 , 2014 compared to $ 13,925,601 at december 31 , 2013. the company incurred a net loss of $ 7,767,096 for the year ended december 31 , 2014 , compared to a net loss of $ 9,852,480 for the year ended december 31 , 2013. the following discussion highlights certain selected financial information and changes in operations between the year ended december 31 , 2014 and the year ended december 31 , 2013. mineral property exploration expenses for the year ended december 31 , 2014 totaled $ 2,631,974. during the year ended december 31 , 2013 total mineral property exploration expenses were $ 8,188,995. mineral property expenses during 2014 were comprised of costs related to environmental baseline data gathering , land maintenance payments and process engineering and metallurgical studies performed to progress the identified opportunities of the project . mineral property expenses during 2013 were comprised of costs related to process engineering and metallurgical studies performed to support the completion and filing of the september 2013 study and environmental baseline data gathering . share-based payment charges were $ 1,285,385 during the year ended december 31 , 2014 compared to $ 3,564,273 during the year ended december 31 , 2013. the decrease in share-based payment charges during the period was 42 mainly the result of stock option grants in 2014 at a lower fair value , cancellation of certain options during 2014 and vesting of prior stock option grants during 2013. the company granted 2,480,000 options during the year ended december 31 , 2014 compared to 613,000 options during the year ended december 31 , 2013. at december 31 , 2014 there was unrecognized compensation expense of $ 266,229 related to non-vested options outstanding .
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the retired officers ' bonus plan is not salary related , but rather is based primarily on years of service . in addition , the company provides postretirement healthcare story_separator_special_tag the following discussion and analysis is intended to help the reader understand our business , financial condition , results of operations , and liquidity and capital resources . you should read this discussion in conjunction with “ item 6. selected financial data , ” and our consolidated financial statements and the related notes contained elsewhere in this annual report . 41 the statements in this discussion regarding industry outlook , our expectations regarding our future performance , liquidity and capital resources , and other non-historical statements in this discussion are forward-looking statements . these forward-looking statements are subject to numerous risks and uncertainties , including , but not limited to , the risks and uncertainties described in “ item 1a . risk factors ” and “ introductory note — cautionary note regarding forward-looking statements ” . our actual results may differ materially from those contained in or implied by any forward-looking statements . our fiscal year ends march 31 and , unless otherwise noted , references to years or fiscal are for fiscal years ended march 31. see “ — results of operations. ” overview we are a leading provider of management and technology consulting services to the u.s. government in the defense , intelligence , and civil markets . we are further developing the scope and scale of our engineering service capabilities that we provide to our u.s. government clients . additionally , we provide our management and technology consulting services to major corporations , institutions , and not-for-profit organizations . as the needs of our clients have grown more complex , we have expanded beyond our management consulting foundation to develop deep expertise in technology , engineering , and analytics . our acquisition of the defense systems engineering and support , or dses , division of arinc incorporated , effective november 30 , 2012 , will further enhance our existing engineering capabilities and defense market position . subsequent to the acquisition , we changed the name of the acquired company to booz allen hamilton engineering services , or bes . leveraging our 99-year consulting heritage and a talent base of approximately 24,500 people , we deploy our deep domain knowledge , functional expertise , and experience to help our clients achieve their objectives . today , we serve substantially all of the cabinet-level departments of the u.s. government . our major clients include the department of defense , all branches of the u.s. military , the u.s. intelligence community , and civil agencies such as the department of homeland security , the department of energy , the department of health and human services , the department of the treasury , and the general services administration . we support these clients in addressing complex and pressing challenges such as combating global terrorism , improving cyber capabilities , transforming the healthcare system , improving efficiency and managing change within the government , and protecting the environment . in the commercial sector , we serve u.s. clients primarily in the financial services , healthcare , and energy markets , and international clients , primarily in the middle east . we have a collaborative culture , supported by our operating model , which helps our professionals identify and respond to emerging trends across the markets we serve and deliver enduring results for our clients . financial and other highlights revenue decreased 1.7 % from fiscal 2012 to fiscal 2013 . we continue to focus on cost reduction efforts and efficiency initiatives which includes effective management of our capacity and efficient management of our costs . capacity management and other cost reduction activities continued throughout the current period , and may influence future periods , due to the continuing trends of fiscal uncertainty and cost cutting in our principal markets . these efforts in fiscal 2013 have resulted in a net decline in our headcount , which has led to declines in billable hours and therefore a decline in our direct labor . each of these factors directly results in revenue declines . in this environment , we have also continued to focus on the effective deployment of our consulting staff to minimize the amount of time our staff spend on non-revenue producing activities , which has helped minimize the decline in revenue . this reduction in unbillable time along with efficient use of our indirect costs , contributes to lower indirect costs , and most importantly a lower ratio of indirect costs to direct labor . reductions in indirect costs have a direct correlation to a reduction of revenue recognized on our large portfolio of cost-reimbursable contracts . substantially all of our revenue and backlog continues to be derived from services and solutions provided to client organizations across the u.s. government , primarily by our consulting staff and , to a lesser extent , our subcontractors . the mix of revenue generated by our consulting staff and subcontractors affects our operating margin , as the portion of our operating income derived from fees we earn on services provided by our subcontractors is significantly less than the operating income derived from direct consulting staff labor . the decline in our revenue described above was partially offset by an increase in revenue of $ 100.1 million from our acquisition of dses that closed on november 30 , 2012. operating income grew 15.2 % to $ 446.2 million in fiscal 2013 from $ 387.4 million in fiscal 2012 , which reflects a 120 basis point increase in operating margin to 7.8 % from 6.6 % in the comparable periods . the improvement in operating margin was due to increased contract profitability due to disciplined cost management of indirect spending , as described above , as well as decreases in compensation related costs primarily due to the net decline in our headcount . story_separator_special_tag we prepare adjusted net income to eliminate the impact of items , net of tax , we do not consider indicative of ongoing operating performance due to their inherent unusual , extraordinary , or non-recurring nature or because they result from an event of a similar nature . 43 `` adjusted diluted eps '' represents diluted eps calculated using adjusted net income as opposed to net income . additionally , adjusted diluted eps does not contemplate any adjustments to net income as required under the two-class method as disclosed in the footnotes to the financial statements . `` free cash flow '' represents the net cash generated from operating activities less the impact of purchases of property and equipment . below is a reconciliation of adjusted operating income , adjusted ebitda , adjusted net income , adjusted diluted eps , and free cash flow to the most directly comparable financial measure calculated and presented in accordance with gaap . 44 replace_table_token_12_th ( a ) reflects stock-based compensation expense for options for class a common stock and restricted shares , in each case , issued in connection with the acquisition of our company by the carlyle group ( the acquisition ) under the officers ' rollover stock plan . also reflects stock-based compensation expense for equity incentive plan class a common stock options issued in connection with the acquisition under the equity incentive plan . ( b ) reflects amortization of intangible assets resulting from the acquisition . ( c ) reflects restructuring charges of approximately $ 15.7 million incurred during the three months ended march 31 , 2012 , net of approximately $ 4.5 million of revenue recognized on recoverable expenses , associated with the cost of a restructuring plan to reduce certain personnel and infrastructure costs . ( d ) fiscal 2013 reflects debt refinancing costs incurred in connection with the recapitalization transaction consummated on july 31 , 2012. fiscal 2011 reflects debt refinancing costs and prepayment fees incurred in connection with the 45 refinancing transaction as well as certain external administrative and other expenses incurred in connection with the initial public offering . ( e ) fiscal 2012 reflects the gain on sale of our state and local transportation business , net of the associated tax benefit of $ 1.6 million . ( f ) reflects the release of income tax reserves . ( g ) reflects tax effect of adjustments at an assumed marginal tax rate of 40 % . ( h ) excludes an adjustment of approximately $ 9.1 million of net earnings for fiscal 2013 associated with the application of the two-class method for computing diluted earnings per share . factors and trends affecting our results of operations our results of operations have been , and we expect them to continue to be , affected by the following factors , which may cause our future results of operations to differ from our historical results of operations discussed under “ — results of operations. ” business environment and key trends in our markets we believe that the following trends and developments in the u.s. government services industry and our markets may influence our future results of operations : budget deficits and the growing u.s. national debt increasing pressure on the u.s. government to reduce federal spending across all federal agencies together with associated uncertainty about the size and timing of those reductions ; changes in the relative mix of overall u.s. government spending and areas of spending growth , with lower spending on homeland security , intelligence and defense-related programs as overseas operations end , and continued increased spending on cyber-security , advanced analytics , technology integration and healthcare ; cost cutting and efficiency initiatives , budget reductions , congressionally mandated automatic spending cuts , and other efforts to reduce u.s. government spending , which could reduce or delay funding for orders for services especially in the current political environment ; continued uncertainty around the timing , extent and nature of congressional and other u.s. government action to address budgeting constraints and the u.s. government 's ability to incur indebtedness in excess of its current limit and the u.s. deficit , including , the required reductions under the budget control act of 2011 ( as amended by the american taxpayer relief act of 2012 ) , which provides for automatic spending cuts totaling approximately $ 1.2 trillion between 2013 and 2021 ; delays in the completion of the u.s. government 's budget process , which has in the past and could in the future delay procurement of the products , services , and solutions we provide ; existing and proposed fiscal constraints by the u.s. government and uncertainty about the size of future budget reductions may cause clients to invest appropriated funds on a less consistent or rapid basis , or not at all , particularly when considering long-term initiatives , not issue task orders in sufficient volume to reach current contract ceilings , and delay requests for new proposals and contract awards , relying on short-term extensions of current contracts instead ; the federal focus on refining the definition of “ inherently governmental ” work will continue to drive pockets of insourcing in various agencies , particularly in the intelligence market ; cost cutting and efficiency and effectiveness efforts by u.s. civilian agencies with a focus on increased use of performance measurement , “ program integrity ” efforts to reduce waste , fraud and abuse in entitlement programs , and renewed focus on improving procurement practices for and interagency use of it services , including through the use of cloud based options and data center consolidation ; u.s. government agencies awarding contracts on a technically acceptable/lowest cost basis , which could have a negative impact on our ability to win certain contracts ; a s a result of the u.s. governments efforts to reduce outlays for contractor costs , we may see a continuing shift toward placement of our consulting staff at client site locations instead of our facilities , which generally results in lower billing rates and could have a negative impact on our revenue .
| results of operations we completed our acquisition of dses on november 30 , 2012. the operating results of dses were included in our consolidated statements of operations from the date of closing through march 31 , 2013. the following table sets forth items from our consolidated statements of operations for the periods indicated : replace_table_token_15_th fiscal 2013 compared to fiscal 2012 revenue revenue decreased to $ 5,758.1 million from $ 5,859.2 million , or a 1.7 % decrease . the decrease was primarily driven by a decrease in revenue attributable to billable expenses and a net decline in our headcount , which has led to declines in billable hours and therefore a decline in our direct labor . each of these factors directly results in revenue declines . we also had a lower rate of indirect expenses period over period which has a direct correlation to the reduction of revenue on our large portfolio of cost reimbursable contracts . the decline in headcount and the lower rate of indirect expenses is primarily attributable to the cost reduction actions the company implemented in late fiscal 2012 and continued focus on effective capacity and cost management . the decrease in revenue was also due to the sale of our state and local transportation business in july 2011 ; however this was more than offset by an increase in revenue of $ 100.1 million from the company 's acquisition of dses . conversions to funded backlog during fiscal 2013 , totaled $ 5.4 billion in comparison to $ 6.4 billion for the comparable period , with the decrease due to challenging and uncertain market conditions which is contributing to a lower conversion of unfunded backlog to funded backlog , the reduced award of new contracts and task orders under which funding was appropriated , and the decline in exercise and subsequent funding of priced options .
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for story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements appearing elsewhere in this annual report on form 10-k.our management 's discussion and analysis of our financial condition and results of operations include the identification of certain trends and other statements that may predict or anticipate future business or financial results that are subject to important factors that could cause our actual results to differ materially from those indicated . see “ item 1a risk factors ” included elsewhere in this annual report on form 10-k. overview we are a medical technology company focused on the design , development , manufacturing and marketing of products for the surgical treatment of spine disorders . we have a comprehensive product portfolio and pipeline that addresses the cervical , thoracolumbar and intervertebral regions of the spine and covers a variety of major spinal disorders and surgical procedures . our principal product offerings are focused on the global market for orthopedic spinal disorder solutions . our “ physician-inspired culture ” enables us to respond to changing surgeon needs through collaboration with spinal surgeons to conceptualize , design and co-develop a broad range of products . we have a state-of-the-art , in-house manufacturing facility that provides us with a unique competitive advantage , and enables us to rapidly deliver solutions to meet surgeons ' and patients ' critical needs . we believe that our products and systems have enhanced features and benefits that make them attractive to surgeons and that our broad portfolio of products and systems provide a comprehensive solution for the safe and successful surgical treatment of spinal disorders . revenue and expense components the following is a description of the primary components of our revenues and expenses : revenues . we derive our revenues primarily from the sale of spinal surgery implants used in the treatment of spine disorders . spinal implant products include spine screws and complementary products , vertebral body replacement devices , plates , products to treat vertebral compression fractures and bone grafting materials . our revenues are generated by our direct sales force and independent distributors . our products are requested directly by surgeons and shipped and billed to hospitals and surgical centers . today we have existing subsidiaries and or affiliates in japan , germany , brazil , hong kong , italy and the u.k. through which we sell our products and independent distributors in over 50 countries throughout the world.a majority of our business is conducted with customers within markets in which we have experience and with payment terms that are customary to our business . if we offer payment terms greater than our customary business terms or begin operating in a new market , revenues are deferred until the earlier of when payments become due or cash is received from the related distributors . cost of revenues . cost of revenues consists of direct product costs , royalties , milestones , depreciation of our surgical instruments , and the amortization of purchased intangibles . we manufacture substantially all of the non-tissue-based implants that we sell . our product costs consist primarily of direct labor , manufacturing overhead , and raw materials and components . the product costs of certain of our biologics products include the cost of procuring and processing human tissue . we incur royalties related to the technologies that we license from others and the products that are developed in part by surgeons with whom we collaborate in the product development process . amortization of purchased intangibles consists of amortization of developed product technology . research and development . research and development expense consists of costs associated with the design , development , testing , and enhancement of our products . research and development expense also includes salaries and related employee benefits , research-related overhead expenses , fees paid to external service providers , and costs associated with our scientific advisory board and executive surgeon panels . in-process research and development , or ipr & d . ipr & d expense consists of acquired research and development assets that were not part of an acquisition of a business and were not technologically feasible on the date we acquired such technology , provided that such technology did not have any alternative future use at that date , or ipr & d assets acquired in connection with a business acquisition that are determined to have no alternative future use . at the time of acquisition , we expect all acquired ipr & d will reach technological feasibility in the future , but there can be no assurance that commercial viability of a product will be achieved . the nature of the efforts to develop the acquired technologies into commercially viable products consists principally of planning , designing , and obtaining regulatory clearances . the risks associated with achieving commercialization include , but are not limited to , delays or failures during the development process , delays or failures to obtain regulatory clearances , and delays or failures due to intellectual property rights of third parties . sales and marketing . sales and marketing expense consists primarily of salaries and related employee benefits , sales commissions and support costs , professional service fees , travel , medical education , trade show and marketing costs . 42 general and administrative . general and administrative expense consists primarily of salaries and related employee benefits , professional service fees , insurance and legal expenses . transaction related expenses . transaction related expenses consist of legal , accounting and financial advisory fees associated with acquisitions . restructuring expenses . restructuring expenses consist of severance , social plan benefits and related taxes , facility closing costs , manufacturing transfer costs and contract termination incurred in connection with the reorganization of the scient ' x operations in france . litigation settlement expenses . litigation settlement expenses consist of significant settlements of lawsuits . total other income ( expense ) . story_separator_special_tag we expect to complete all the activities associated with the restructuring activities by the end of the second quarter of 2014 , a substantial portion of which will be paid by then . litigation settlement expenses . litigation settlement expenses were $ 46.0 million for the year ended december 31 , 2013 . the 2013 amount relates to an accrual booked for litigation settlement in connection with the orthotec llc , litigation matter described in part 1 item 3 legal proceedings . interest income . interest income was $ 0.0 million for the years ended december 31 , 2013 compared to $ 0.1 million for the year ended december 31 , 2012 . interest income is earned on cash balances held in accounts invested in money market funds . interest expense . interest expense was $ 4.0 million for the year ended december 31 , 2013 compared to $ 6.1 million for the year ended december 31 , 2012 , representing a decrease of $ 2.1 million , or 35.2 % . interest expense for the year ended december 31 , 2013 consisted primarily of interest related to loan agreements and lines of credit and the associated amortization expenses related to debt issuance costs . interest expense for the year ended december 31 , 2012 included a loss on extinguishment of debt costs of $ 2.9 million related to the refinancing of the term note and revolving credit facility with silicon valley bank , which consisted of $ 2.3 million of early termination fees and $ 0.6 million for the write-off of capitalized deferred debt offering costs . other income ( expense ) , net . other income ( expense ) was an expense of $ ( 1.7 ) million for the year ended december 31 , 2013 compared to an expense of $ ( 0.8 ) million for the year ended december 31 , 2012 , representing an increase in expense of $ ( 0.9 ) million . the increase in expense was primarily due to unfavorable foreign currency exchange results realized in 2013 due to having u.s. denominated assets and liabilities on our foreign subsidiaries books as compared to 2012. income tax provision ( benefit ) . income tax provision ( benefit ) was a provision of $ 3.2 million for the year ended december 31 , 2013 compared to a benefit of $ ( 1.2 ) million for the year ended december 31 , 2012 , representing an increase of $ 4.3 million , or 374.3 % . the income tax provision in 2013 consists primarily of income tax provisions related to state income taxes , the tax effect of changes in deferred tax liabilities associated with tax deductible goodwill and operations in foreign jurisdictions where we operate . the income tax benefit in 2012 consists primarily of tax benefits related to operations in france and a settlement with the french tax authorities partially offset by a valuation allowance on the french deferred tax assets , income tax expense for various other foreign jurisdictions , state income taxes and the tax effect of changes in deferred tax liabilities associated with tax deductible goodwill . 45 year ended december 31 , 2012 compared to the year ended december 31 , 2011 revenues . revenues were $ 196.3 million for the year ended december 31 , 2012 compared to $ 197.7 million for the year ended december 31 , 2011 , representing a decrease of $ 1.4 million , or 0.7 % . the decrease was a result of an increase in the international region of $ 1.9 million , offset by a decrease in the u.s. of $ 3.3 million . u.s. revenues were $ 130.5 million for the year ended december 31 , 2012 compared to $ 133.8 million for the year ended december 31 , 2011 , representing a decrease of $ 3.3 million , or 2.5 % . the decrease was due to a decrease in the sales of instruments and implants ( $ 9.4 million ) , offset by an increase in sales of biologics ( $ 4.8 million ) and the acquisition of phygen ( $ 1.3 million ) . international revenues were $ 65.8 million for the year ended december 31 , 2012 compared to $ 63.9 million for the year ended december 31 , 2011 , representing an increase of $ 1.9 million , or 3.0 % . the growth was due to increased sales of alphatec products ( $ 7.8 million ) , offset by a decrease in scient ' x products ( $ 5.9 million ) . the revenue from alphatec product continues to grow as products in the aging scient ' x product portfolio are substituted with alphatec products . the increase in revenues is inclusive of $ 2.6 million in negative exchange rate effect . cost of revenues . cost of revenues was $ 70.8 million for the year ended december 31 , 2012 compared to $ 79.2 million for the year ended december 31 , 2011 , representing a decrease of $ 8.4 million , or 10.6 % . the decrease was primarily related to lower product costs as a result of a decrease in sales volume and variation in product mix ( $ 0.6 million ) , favorable manufacturing and absorption variances ( $ 6.5 million ) , a reduction to inventory adjustments ( $ 5.2 million ) , a reduction in instrument depreciation expense ( $ 0.5 million ) , a reduction in royalty and milestone expenses due to the cancellation of certain agreements , lower sales volumes and an adjustment to accruals ( $ 2.3 million ) , and a decrease in inventory step-up expense related primarily to the scient ' x acquisition ( $ 0.6 million ) , offset by an increase in the reserve for excess and obsolete inventory ( $ 3.1 million ) and the amortization expenses associated with the settlement agreement we entered into in december 2011 with biomet related to royalties on the sales of our polyaxial screws ( $ 4.2 million ) . amortization of acquired intangible assets .
| results of operations the first table below sets forth our statements of operations data for the periods presented . our historical results are not necessarily indicative of the operating results that may be expected in the future . replace_table_token_4_th 43 year ended december 31 , 2013 compared to the year ended december 31 , 2012 revenues . revenues were $ 204.7 million for the year ended december 31 , 2013 compared to $ 196.3 million for the year ended december 31 , 2012 , representing an increase of $ 8.4 million , or 4.3 % . the increase was comprised of $ 4.4 million related to sales in the united states and $ 4.0 million related to international sales . u.s. revenues were $ 135.0 million for the year ended december 31 , 2013 compared to $ 130.5 million for the year ended december 31 , 2012 , representing an increase of $ 4.5 million , or 3.4 % . the increase was due to growth in the sales of implants and instruments ( $ 8.2 million ) and biologics ( $ 2.1 million ) , offset by a decline in the sales of puregen due to the voluntary removal from the market ( $ 5.8 million ) . international revenues were $ 69.8 million for the year ended december 31 , 2013 compared to $ 65.8 million for the year ended december 31 , 2012 , representing an increase of $ 4.0 million , or 6.0 % . the increase was due to sales of alphatec implants and instruments ( $ 6.5 million ) , offset by a reduction in the sales of scient ' x products ( $ 2.5 million ) . the increase in revenue is inclusive of $ 5.9 million in unfavorable exchange rate effect . cost of revenues . cost of revenues was $ 78.7 million for the year ended december 31 , 2013 compared to $ 70.8 million for the year ended december 31 , 2012 , representing an increase of $ 7.9 million , or 11.2 % .
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based on the belief that healthy food should be affordable , sprouts ' welcoming environment and knowledgeable team members continue to drive its growth . sprouts offers a complete shopping experience that includes an array of fresh produce in the heart of the store , a deli with prepared entrees and side dishes , the butcher shop , the fish market , an expansive vitamins and supplements department and more . since our founding in 2002 , we have grown rapidly , significantly increasing our sales , store count and profitability . with 285 stores in 15 states as of december 31 , 2017 , we are one of the largest specialty retailers of fresh , natural and organic food in the united states . as of february 20 , 2018 , we have grown to 289 stores in 15 states . at sprouts , we believe healthy living is a journey and every meal is a choice . the cornerstones of our business are fresh , natural and organic products at compelling prices ( which we refer to as “ healthy living for less ” ) , an attractive and differentiated shopping experience featuring a broad selection of innovative healthy products , and knowledgeable team members who we believe provide best-in-class customer engagement and product education . our heritage in 2002 , we opened the first sprouts farmers market store in chandler , arizona . from our founding in 2002 through december 31 , 2017 , we continued to open new stores while successfully rebranding 43 henry 's farmers market and 39 sunflower farmers market stores added in 2011 and 2012 , respectively , through acquisitions to the sprouts banner . these three businesses all trace their lineage back to henry 's farmers market and were built with similar store formats and operations including a strong emphasis on value , produce and service in smaller , convenient locations . the consistency of these formats and operations was an important factor that allowed us to rapidly and successfully rebrand and integrate each of these businesses under the sprouts banner and on a common platform . outlook we are pursuing a number of strategies designed to continue our growth , including expansion of our store base , continuing positive comparable store sales and growing the sprouts brand . we intend to continue expanding our store base by pursuing new store openings in our existing markets , expanding into adjacent markets and penetrating new markets . although we plan to expand our store base primarily through new store openings , we may grow through strategic acquisitions if we identify suitable targets and are able to negotiate acceptable terms and conditions for acquisition . we intend to open 30 new stores in 2018 , of which four have opened through february 20 , 2018 , and approximately 30 new stores per year for the near term . 38 we also believe we can continue to deliver positive comparable store sales growth by enhancing our core value proposition and distinctive customer-oriented shopping experience , as well a s through expanding and refining our fresh , natural and organic product offerings , our targeted and personalized marketing efforts and our in-store and digital customer engagement . we are committed to growing the sprouts brand by supporting our stores , pro duct offerings and corporate partnerships , including the expansion of innovative marketing and promotional strategies through print , digital and social media platforms . components of operating results we report our results of operations on a 52- or 53-week fiscal year ending on the sunday closest to december 31 , with each fiscal quarter generally divided into three periods consisting of two four-week periods and one five-week period . fiscal 2017 was a 52-week year ending on december 31 , 2017. fiscal 2016 was a 52-week year ending on january 1 , 2017 and fiscal 2015 was a 53-week year ending on january 3 , 2016. in the discussion below , we discuss the impact of the 53 rd week of fiscal 2015 on our financial results . net sales we recognize sales revenue at the point of sale , with discounts provided to customers reflected as a reduction in sales revenue . proceeds from sales of gift cards are recorded as a liability at the time of sale , and recognized as sales when they are redeemed by the customer . in 2015 , we determined that we had sufficient data to estimate gift card breakage . we do not include sales taxes in net sales . we monitor our comparable store sales growth to evaluate and identify trends in our sales performance . our practice is to include sales from a store in comparable store sales beginning on the first day of the 61st week following the store 's opening and to exclude sales from a closed store from comparable store sales on the day of closure . this practice may differ from the methods that other retailers use to calculate similar measures . we use comparable store sales to calculate pro forma comparable store sales growth , when applicable . our net sales have increased as a result of new store openings and comparable store sales growth . factors that influence comparable store sales growth and other sales trends include : general economic conditions and trends , including levels of disposable income and consumer confidence ; product price inflation or deflation ; our competition , including competitive store openings in the vicinity of our stores and competitor pricing and merchandising strategies ; consumer preferences and buying trends ; our ability to identify market trends , and to source and provide product offerings that promote customer traffic and growth in average ticket ; the number of customer transactions and average ticket ; the prices of our products , including the effects of inflation and deflation ; opening new stores in the vicinity of our existing stores ; and advertising , in-store merchandising and other marketing activities . story_separator_special_tag interest expense replace_table_token_16_th the increase in interest expense is due to higher principal balances on credit facility and additional capital and financing leases recorded during 2017. income tax provision replace_table_token_17_th 44 income tax provision decreased to $ 47.1 million for 2017 from $ 74.3 million for 2016 and our effective income tax rat e decreased to 22.9 % in 2017 from 37.4 % in 2016. the decrease in the income tax provision and effective income tax rate are primarily related to a one-time tax benefit of $ 18.7 million associated with the reduction in the corporate federal income tax rate from 35 % to 21 % as a result of the enactment of the tax act , combined with the recognition of $ 9.9 million excess tax benefits related to the exercise or vesting of equity based awards in the income tax provision resulting from the adoption of asu 2016-09. see note 3 , “ significant accounting policies ” and note 17 , “ income taxes. ” net income replace_table_token_18_th net income increased $ 34.4 million as a result of higher sales and gross profit , combined with a lower income tax provision discussed above . net income as a percentage of net sales increased due to the lower effective tax rate , partially offset by lower gross margin and higher compensation and benefits costs . diluted earnings per share replace_table_token_19_th earnings per share for 2017 included a benefit of $ 0.14 per share for the 2017 effect of the tax act . earnings per share included a benefit of $ 0.04 per share for 2017 and $ 0.03 per share for 2016 related to the share repurchase program . 45 comparison of fiscal 2016 to fiscal 2015 net sales replace_table_token_20_th net sales during 2016 totaled $ 4.0 billion , increasing 13 % over the prior fiscal year . sales growth was primarily driven by solid performance in new stores opened . comparable stores contributed approximately 88 % of total sales for 2016 and approximately 85 % for the prior fiscal year . sales growth was negatively impacted by the benefit of the 53 rd week in the prior year . cost of sales , buying and occupancy and gross profit replace_table_token_21_th gross profit increased during 2016 compared to 2015 by $ 130.4 million , of which $ 132.7 million was as a result of increased sales volume , partially offset by $ 2.3 million related to decreased margin . the gross margin decrease primarily reflects cycling both the positive impact in 2015 from the 53 rd week of approximately 20 basis points and higher margins due to deflation in the prior year without the corresponding promotional environment , as well as higher occupancy costs . direct store expenses replace_table_token_22_th direct store expenses increased $ 122.9 million , including $ 80.3 million related to stores opened since 2015 , and $ 42.6 million related to stores operated prior to 2016. direct store expenses , as a percentage of net sales , increased 80 basis points , reflecting deleverage of fixed costs associated with lower comparable store sales growth , higher payroll expense from planned increases in wages and training costs implemented at the beginning of the year and cycling the positive impact in 2015 from the 53 rd week . selling , general and administrative expenses replace_table_token_23_th 46 the increase in selling , general and administrative expenses included $ 3.0 million for costs associated with the executive chairman of the board 's retirement and $ 4.9 million for increases in stock compensation costs , primarily related to executive changes . excluding these items , the increase in selling , general and administrative expense was $ 12.6 million or 11.8 % . store pre-opening costs replace_table_token_24_th store pre-opening costs in 2016 included $ 11.9 million related to opening 36 stores during 2016 and $ 1.1 million associated with stores expected to open subsequent to year end . store pre-opening costs in 2015 included $ 7.2 million related to opening 27 stores during that period and $ 1.4 million associated with stores opened after 2015. store closure and other costs store closure and other costs were $ 0.2 million for 2016 and $ 1.8 million for 2015. store closure and other costs for 2015 included $ 1.1 million for the relocation of our support office and adjustments for prior reserves . loss on extinguishment of debt in 2015 , we recorded a loss on extinguishment of debt totaling $ 5.5 million related to the write-off of deferred financing costs and issue discount in the april 2015 refinancing . interest expense replace_table_token_25_th the decrease in interest expense is due to the lower principal balances on both the current credit facility and former revolving credit facility combined with the lower interest rate on our credit facility after the april 2015 refinancing . 47 income tax provision income tax provision decreased to $ 74.3 million for 2016 from $ 77.0 million for 2015 , primarily related to a decrease in income before income taxes . our effective income tax rate increased to 37.41 % in 2016 from 37.38 % in 2015 primarily due to a slight decrease in tax credits and enhanced charitable food contribution deduction . net income replace_table_token_26_th net income growth was attributable to growth in net sales driven by comparable store sales , performance of new stores opened , loss on extinguishment of debt in the prior year and reduced interest expense . net income growth was negatively impacted by the $ 4.1 million benefit of the 53 rd week in 2015. excluding the 53 rd week , net income remained flat from prior year . diluted earnings per share fiscal 2016 fiscal 2015 change ( shares in thousands ) diluted earnings per share $ 0.83 $ 0.83 $ — diluted weighted average shares outstanding 149,653 155,877 ( 6,224 ) earnings per share for 2016 included a benefit of $ 0.03 per share related to the share repurchase program .
| ity of results of operations additional week in 2015 fiscal 2015 consisted of 53 weeks . the 53 rd week resulted in additional sales and expenses as further discussed in “ —comparison of fiscal 2016 to fiscal 2015 ” below . april 2015 refinancing in april 2015 , we completed a transaction in which we refinanced our debt ( referred to as the “ april 2015 refinancing ” ) , as further discussed in “ —liquidity and capital resources ” below . the april 2015 refinancing resulted in decrease in borrowings , a reduction in interest rate and the recording of a loss on extinguishment of debt . adoption of asu no . 2016-09 , “ compensation – stock compensation ( topic 718 ) ” as a result of the adoption , we recognized excess tax benefits related to the exercise of stock options in our income tax provision during fiscal 2017 ( see note 17 , “ income taxes ” ) . prior to the adoption , these items were recorded in additional paid-in capital . during 2017 , excess tax benefits were classified as an operating activity in the consolidated statement of cash flows , along with other income tax cash flows . prior to adoption , excess tax benefits were classified as a financing activity . we have made a policy election to account for forfeitures as they occur . this election was adopted using a modified retrospective approach resulting in no cumulative effect on retained earnings at the beginning of the period . prior to the adoption , forfeitures were accounted for using an estimated forfeiture rate ( see note 3 , “ significant accounting policies ” ) . 2017 tax cuts and jobs act on december 22 , 2017 , the legislation commonly referred to as the tax cuts and jobs act ( the “ tax act ” ) was enacted into law , which changes various corporate income tax provisions within the existing internal revenue code .
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( 4 ) securities held-to-maturity the following is a comparative summary of mortgage-backed securities held-to-maturity at december 31 2012 and 2011 ( in thousands ) : replace_table_token_41_th replace_table_token_42_th the company did not sell any held-to-maturity securities during the years ended december 31 , 2012 , 2011 and 2010. the fair values of our investment securities could decline in the future if the underlying performance of the collateral for the collateralized mortgage obligation or other securities story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements of northfield bancorp , inc. and the notes thereto included elsewhere in this report ( collectively , the financial statements ) . overview on january 24 , 2013 , northfield bancorp , inc. , a delaware corporation , completed its conversion from the mutual holding company to the stock holding company form of organization . a total of 35,558,927 shares of common stock were sold in the subscription and community offerings at a price of $ 10.00 per share . as part of the conversion , each existing share of northfield-federal common stock held by public shareholders was converted into the right to receive 1.4029 shares of northfield-delaware common stock . the exchange ratio ensured that , after the conversion and offering , the public shareholders of northfield-federal maintained approximately the same ownership interest in northfield-delaware as they owned previously . net income was $ 16.0 million , or $ 0.30 per basic and $ 0.29 per diluted common share for 2012 , as compared to $ 16.8 million , or $ 0.30 per basic and diluted common share for 2011. net income in 2011 included an after-tax bargain purchase gain of $ 3.6 million , or $ 0.06 per share , related to an fdic-assisted transaction completed in october 2011 , as well as a charge of $ 2.4 million , or $ 0.04 per common share , for the transfer of $ 7.5 million of loans to held-for-sale . our assets grew by 18.4 % to $ 2.81 billion at december 31 , 2012 , from $ 2.38 billion at december 31 , 2011. the increase in total assets was primarily attributable to a $ 168.9 million , or 16.1 % , increase in net loans held-for-investment , a $ 176.9 million increase in securities available-for-sale and a $ 63.5 million increase in cash and cash equivalents . this increase in assets was funded by a $ 463.3 million increase in deposits to $ 1.96 billion at december 31 , 2012 , from $ 1.49 billion at december 31 , 2011. the increase in deposits was attributable to growth in transaction accounts , savings accounts and certificates of deposit . borrowed funds decreased $ 62.8 million to $ 419.1 million at december 31 , 2012 , from $ 481.9 million at december 31 , 2011. critical accounting policies critical accounting policies are defined as those that involve significant judgments and uncertainties , and could potentially result in materially different results under different assumptions and conditions . we believe that the most critical accounting policies upon which our financial condition and results of operation depend , and which involve the most complex subjective decisions or assessments , are the following : allowance for loan losses , impaired loans , and other real estate owned . the allowance for loan losses is the estimated amount considered necessary to cover probable and reasonably estimable credit losses inherent in the loan portfolio at the balance sheet date . the allowance is established through the provision for loan losses that is charged against income . in determining the allowance for loan losses , we make significant estimates and judgments . the determination of the allowance for loan losses is considered a critical accounting policy by management because of the high degree of judgment involved , the subjectivity of the assumptions used , and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses . the allowance for loan losses has been determined in accordance with gaap . we are responsible for the timely and periodic determination of the amount of the allowance required . we believe that our allowance for loan losses is adequate to cover identifiable losses , as well as estimated losses inherent in our portfolio for which certain losses are probable but not specifically identifiable . management performs a formal quarterly evaluation of the adequacy of the allowance for loan losses . the analysis of the allowance for loan losses has a component for originated and acquired held-for-investment impaired loan losses , and a component for general loan losses , including unallocated reserves . 50 management has defined an originated impaired loan to be a loan for which it is probable , based on current information , that we will not collect all amounts due in accordance with the contractual terms of the loan agreement . we have defined the population of originated held-for-investment impaired loans to be all originated and acquired non-accrual loans held-for-investment with an outstanding balance of $ 500,000 or greater , and all originated and acquired loans subject to a troubled debt restructuring . impaired loans are individually assessed to determine that the loan 's carrying value is not in excess of the estimated fair value of the collateral ( less cost to sell ) , if the loan is collateral dependent , or the present value of the expected future cash flows , if the loan is not collateral dependent . management performs a detailed evaluation of each originated impaired loan and generally obtains updated appraisals as part of the evaluation . in addition , management adjusts estimated fair values down to appropriately consider recent market conditions , our willingness to accept a lower sales price to effect a quick sale , and costs to dispose of any supporting collateral . determining the estimated fair value of underlying collateral ( and related costs to sell ) can be difficult in illiquid real estate markets and is subject to significant assumptions and estimates . story_separator_special_tag the asset is recorded at the lower of cost or estimated fair value , establishing a new cost basis . holding costs and declines in estimated fair value result in charges to expense after acquisition . purchased credit-impaired loans . purchased credit-impaired loans , or pci loans , are subject to our internal credit review . if and when credit deterioration occurs at the loan pool level subsequent to the acquisition date , a provision for credit losses for pci loans will be charged to earnings for the full amount of the decline in expected cash flows for the pool . under the accounting guidance of asc topic 310-30 , for acquired credit impaired loans , the allowance for loan losses on pci loans is measured at each financial reporting date based on future expected cash flows . this assessment and measurement is performed at the pool level and not at the individual loan level . accordingly , decreases in expected cash flows resulting from further credit deterioration , on a pool basis , as of such measurement date compared to those originally estimated are recognized by recording a provision and allowance for credit losses on pci loans . subsequent increases in the expected cash flows of the loans in each pool would first reduce any allowance for loan losses on pci loans ; and any excess will be accreted prospectively as a yield adjustment . the analysis of expected cash flows for pools incorporates updated pool level expected prepayment rates , default rates , and delinquency levels , and loan level loss severity given default assumptions . the expected cash flows are estimated based on factors which include loan grades established in northfield bank 's ongoing credit review program , likelihood of default based on observations of specific loans during the credit review process as well as applicable industry data , loss severity based on updated evaluation of cash flows from available collateral , and the contractual terms of the underlying loan agreement . actual cash flows could differ from those expected , and others provided with the same information could draw different reasonable conclusions and calculate different expected cash flows . goodwill and other intangibles . we record all assets and liabilities in acquisitions , including goodwill and other intangible assets , at fair value as of the acquisition date , and expense all acquisition related costs as incurred as required by asc topic 805 , business combinations. goodwill totaling $ 16.2 million at december 31 , 2012 , is not amortized but is subject to annual tests for impairment or more often if 52 events or circumstances indicate it may be impaired . other intangible assets , such as core deposit intangibles , are amortized over their estimated useful lives and are subject to impairment tests if events or circumstances indicate a possible inability to realize the carrying amount . such evaluation of other intangible assets is based on undiscounted cash flow projections . the initial recording of goodwill and other intangible assets requires subjective judgments concerning estimates of the fair value of the acquired assets and assumed liabilities . the goodwill impairment analysis is generally a two-step test . however , we may , under accounting standards update ( asu ) no . 2011-08 , testing goodwill for impairment , first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test . under this new asu , we are not required to calculate the fair value of our reporting unit if , based on a qualitative assessment , we determine that it was more likely than not that the unit 's fair value was not less than its carrying amount . during 2012 , we elected to perform step one of the two-step goodwill impairment test for our reporting unit , but ( under the asu ) we will be permitted to perform the optional qualitative assessment in future periods . the first step compares the fair value of the reporting unit with its carrying amount , including goodwill . if the fair value of the reporting unit exceeds its carrying amount , goodwill of the reporting unit is considered not impaired ; however , if the carrying amount of the reporting unit exceeds its fair value , an additional step must be performed . that additional step compares the implied fair value of the reporting unit 's goodwill with the carrying amount of that goodwill . the implied fair value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business combination , i.e. , by measuring the excess of the estimated fair value of the reporting unit , as determined in the first step above , over the aggregate estimated fair values of the individual assets , liabilities , and identifiable intangibles , as if the reporting unit was being acquired in a business combination at the impairment test date . an impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value . the loss establishes a new basis in the goodwill and subsequent reversal of goodwill impairment losses are not permitted . securities valuation and impairment . our securities portfolio is comprised of mortgage-backed securities and to a lesser extent corporate bonds , agency bonds , and mutual funds . our available-for-sale securities portfolio is carried at estimated fair value , with any unrealized gains or losses , net of taxes , reported as accumulated other comprehensive income or loss in stockholders ' equity . our trading securities portfolio is reported at estimated fair value . our held-to-maturity securities portfolio , consisting of debt securities for which we have a positive intent and ability to hold to maturity , is carried at amortized cost . we conduct a quarterly review and evaluation of the available-for-sale and held-to-maturity securities portfolios to determine if the estimated fair value of any security has declined below its amortized cost , and whether such decline is other-than-temporary .
| general . maintaining loan quality historically has been , and will continue to be , a key element of our business strategy . we employ conservative underwriting standards for new loan originations and maintain sound credit administration practices while the loans are outstanding . in addition , substantially all of our loans are secured , predominantly by real estate . during current economic conditions , we have experienced decreases in 61 delinquent and non-performing loans . at december 31 , 2012 , our non-performing loans totaled $ 35.6 million or 2.92 % of total loans held-for-investment . at the same time , net charge-offs have remained low at 0.36 % of average loans outstanding for the year ended december 31 , 2012 , 0.78 % for the year ended december 31 , 2011 , and 0.47 % for the year ended december 31 , 2010. net charge-offs in 2012 include $ 1.3 million related to the transfer of $ 1.6 million of loans from held-for-investment to held-for-sale and $ 4.0 million related to the transfer of $ 7.4 million of loans held-for-investment to held-for-sale in 2011. delinquent loans and non-performing loans . non-performing loans decreased $ 8.3 million , or 18.9 % , to $ 35.6 million at december 31 , 2012 from $ 43.9 million at december 31 , 2011. the following table details non-performing loans at december 31 , 2012 and 2011. at december 31 , 2012 , the table includes $ 3.8 million of one-to-four family non-accruing loans held-for-sale and $ 823,000 of other real estate owned associated with the merger ( in thousands ) .
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pursuant to this strategy , each prospective drilling location is evaluated by its estimated rate of return . this strategy is intended to enhance the generation of cash flow and earnings from each unit of production on a cost-effective basis , allowing eog to deliver long-term growth in shareholder value and maintain a strong balance sheet . eog implements its strategy primarily by emphasizing the drilling of internally generated prospects in order to find and develop low-cost reserves . maintaining the lowest possible operating cost structure , coupled with efficient and safe operations and robust environmental stewardship practices and performance , is integral in the implementation of eog 's strategy . eog realized a net loss of $ 605 million during 2020 as compared to net income of $ 2,735 million for 2019. at december 31 , 2020 , eog 's total estimated net proved reserves were 3,220 million barrels of oil equivalent ( mmboe ) , a decrease of 109 mmboe from december 31 , 2019. during 2020 , net proved crude oil and condensate and natural gas liquids ( ngls ) reserves decreased by 108 million barrels ( mmbbl ) , and net proved natural gas reserves decreased by 9 billion cubic feet or 1 mmboe , in each case from december 31 , 2019. recent developments commodity prices . the covid-19 pandemic and the measures being taken to address and limit the spread of the virus have adversely affected the economies and financial markets of the world , resulting in an economic downturn that has negatively impacted , and may continue to negatively impact , global demand and prices for crude oil and condensate , ngls and natural gas . see item 1a , risk factors for further discussion . in early march 2020 , due to the failure of the members of the organization of the petroleum exporting countries and russia ( opec+ ) to reach an agreement on individual crude oil production limits , saudi arabia unilaterally reduced the sales price of its crude oil and announced that it would increase its crude oil production . the combination of these actions , and the effects of the covid-19 pandemic on crude oil demand , resulted in significantly lower commodity prices in march and april 2020. in april 2020 , the members of opec+ reached an agreement to cut crude oil production beginning in may 2020 and extending through april 2022 with the quantity of the production cuts decreasing over time . subsequent indications of conformity with these agreed-upon production cuts by opec+ , combined with the evolving impacts of covid-19 on crude oil demand , have resulted in gradually-improving market conditions . in the second half of 2020 , crude oil prices increased , but remain significantly below average prices in 2019 , as a result of the continuing rebalancing of crude oil supply resulting from the actions of opec+ and the continuing effect of the covid-19 pandemic on global demand . in addition , ngl and natural gas prices have recovered to pre-pandemic levels . in response to the commodity price environment in 2020 , eog reduced activity across its operating areas and decreased its total capital expenditures . eog also elected to reduce crude oil production , by delaying initial production from new wells and shutting-in or otherwise curtailing existing production . in early 2021 , the members of opec+ met and agreed to taper off certain of their production curtailments ( agreed to in april 2020 ) through march 2021. subsequent to the meeting , saudi arabia announced that it would unilaterally cut its production by an additional one million barrels per day in february 2021 and march 2021. these announcements have had a positive impact on crude oil prices . as a result of the many uncertainties associated with ( i ) the world economic environment , ( ii ) the covid-19 pandemic and its continuing effect on the economies and financial markets of the world and ( iii ) any future actions by the members of opec+ , and the effect of these uncertainties on worldwide supplies of , and demand for , crude oil and condensate , ngls and natural gas , eog is unable to predict what changes may occur in crude oil and condensate , ngls and natural gas prices in the future . however , prices for crude oil and condensate , ngls and natural gas have historically been volatile , and this volatility is expected to continue . for related discussion , see item 1a , risk factors . eog will continue to monitor future market conditions and adjust its capital allocation strategy and production outlook accordingly in order to maximize shareholder value while maintaining its strong financial position . 33 2020 election . in november 2020 , joseph r. biden jr. was elected president of the united states . on january 27 , 2021 , president biden issued executive order 14008 entitled `` tackling the climate crisis at home and abroad , '' directing the secretary of the interior , to the extent consistent with applicable law and in consultation with other agencies and stakeholders , to ( i ) pause approval of new oil and natural gas leases on federal lands or in offshore waters pending completion of a comprehensive review and reconsideration of federal oil and gas permitting and leasing practices and ( ii ) consider whether to adjust royalties associated with oil and gas resources extracted from federal lands and offshore waters to account for corresponding climate costs . in addition , new or revised rules , regulations and policies may be issued , and new legislation may be proposed , during the current administration that could impact the oil and gas exploration and production industry . story_separator_special_tag on june 1 , 2020 , eog repaid upon maturity the $ 500 million aggregate principal amount of its 4.40 % senior notes due 2020. on february 1 , 2021 , eog repaid upon maturity the $ 750 million aggregate principal amount of its 4.100 % senior notes due 2021. during 2020 , eog funded $ 4.0 billion ( $ 386 million of which was non-cash ) in exploration and development and other property , plant and equipment expenditures ( excluding asset retirement obligations ) , repaid $ 1.0 billion aggregate principal amount of long-term debt and paid $ 821 million in dividends to common stockholders , primarily by utilizing net cash provided from its operating activities , net proceeds of $ 1.48 billion from the issuance of the notes and net proceeds of $ 192 million from the sale of assets . total anticipated 2021 capital expenditures are estimated to range from approximately $ 3.7 billion to $ 4.1 billion , excluding acquisitions and non-cash transactions . the majority of 2021 expenditures will be focused on united states crude oil drilling activities . eog has significant flexibility with respect to financing alternatives , including borrowings under its commercial paper program , bank borrowings , borrowings under its senior unsecured revolving credit facility , joint development agreements and similar agreements and equity and debt offerings . management continues to believe eog has one of the strongest prospect inventories in eog 's history . when it fits eog 's strategy , eog will make acquisitions that bolster existing drilling programs or offer incremental exploration and or production opportunities . 35 story_separator_special_tag third-party crude oil , ngls and natural gas , as well as fees associated with gathering third-party natural gas and revenues from sales of eog-owned sand . purchases and sales of third-party crude oil and natural gas may be utilized in order to balance firm transportation capacity with production in certain areas and to utilize excess capacity at eog-owned facilities . eog sells sand in order to balance the timing of firm purchase agreements with completion operations and to utilize excess capacity at eog-owned facilities . marketing costs represent the costs to purchase third-party crude oil , natural gas and sand and the associated transportation costs , as well as costs associated with eog-owned sand sold to third parties . gathering , processing and marketing revenues less marketing costs in 2020 decreased $ 124 million compared to 2019 , primarily due to lower margins on crude oil and condensate marketing activities . the margin on crude oil marketing activities in 2020 was negatively impacted by the price decline for crude oil in inventory awaiting delivery to customers and eog 's decision early in the second quarter of 2020 to reduce commodity price volatility by selling may and june 2020 deliveries under fixed price arrangements . 2019 compared to 2018. wellhead crude oil and condensate revenues in 2019 increased $ 96 million , or 1 % , to $ 9,613 million from $ 9,517 million in 2018 , due primarily to an increase in production ( $ 1,351 million ) ; partially offset by a lower composite average wellhead crude oil and condensate price ( $ 1,255 million ) . eog 's composite wellhead crude oil and condensate price for 2019 decreased 11 % to $ 57.72 per barrel compared to $ 65.21 per barrel in 2018. wellhead crude oil and condensate production in 2019 increased 14 % to 456 mbbld as compared to 400 mbbld in 2018. the increased production was primarily in the permian basin and the eagle ford . ngls revenues in 2019 decreased $ 343 million , or 30 % , to $ 784 million from $ 1,127 million in 2018 primarily due to a lower composite average wellhead ngls price ( $ 518 million ) , partially offset by an increase in production ( $ 175 million ) . eog 's composite average wellhead ngls price decreased 40 % to $ 16.03 per barrel in 2019 compared to $ 26.60 per barrel in 2018. ngl production in 2019 increased 16 % to 134 mbbld as compared to 116 mbbld in 2018. the increased production was primarily in the permian basin . wellhead natural gas revenues in 2019 decreased $ 118 million , or 9 % , to $ 1,184 million from $ 1,302 million in 2018 , primarily due to a lower composite wellhead natural gas price ( $ 280 million ) , partially offset by an increase in natural gas deliveries ( $ 162 million ) . eog 's composite average wellhead natural gas price decreased 18 % to $ 2.38 per mcf in 2019 compared to $ 2.92 per mcf in 2018. natural gas deliveries in 2019 increased 12 % to 1,366 mmcfd as compared to 1,219 mmcfd in 2018. the increase in production was primarily due to higher deliveries in the united states resulting from increased production of associated natural gas from the permian basin and higher natural gas volumes in south texas . 38 during 2019 , eog recognized net gains on the mark-to-market of financial commodity derivative contracts of $ 180 million , which included net cash received for settlements of crude oil and natural gas financial derivative contracts of $ 231 million . during 2018 , eog recognized net losses on the mark-to-market of financial commodity derivative contracts of $ 166 million , which included net cash paid for settlements of crude oil and natural gas financial derivative contracts of $ 259 million . gathering , processing and marketing revenues less marketing costs in 2019 decreased $ 18 million compared to 2018 , primarily due to lower margins on crude oil and condensate marketing activities , partially offset by higher margins on natural gas marketing activities . operating and other expenses 2020 compared to 2019 .
| results of operations the following review of operations for each of the three years in the period ended december 31 , 2020 , should be read in conjunction with the consolidated financial statements of eog and notes thereto beginning on page f-1 . operating revenues and other during 2020 , operating revenues decreased $ 6,348 million , or 37 % , to $ 11,032 million from $ 17,380 million in 2019. total wellhead revenues , which are revenues generated from sales of eog 's production of crude oil and condensate , ngls and natural gas , decreased $ 4,291 , or 37 % , to $ 7,290 million in 2020 from $ 11,581 million in 2019. revenues from the sales of crude oil and condensate and ngls in 2020 were approximately 89 % of total wellhead revenues compared to 90 % in 2019. during 2020 , eog recognized net gains on the mark-to-market of financial commodity derivative contracts of $ 1,145 million compared to net gains of $ 180 million in 2019. gathering , processing and marketing revenues decreased $ 2,777 million during 2020 , to $ 2,583 million from $ 5,360 million in 2019. net losses on asset dispositions of $ 47 million in 2020 were primarily due to the sales of proved properties and non-cash property exchanges of unproved leasehold in texas and new mexico and the disposition of the marcellus shale assets compared to net gains on asset dispositions of $ 124 million in 2019 . 36 wellhead volume and price statistics for the years ended december 31 , 2020 , 2019 and 2018 were as follows : replace_table_token_14_th ( 1 ) thousand barrels per day or million cubic feet per day , as applicable . ( 2 ) other international includes eog 's united kingdom , china and canada operations . the united kingdom operations were sold in the fourth quarter of 2018 . ( 3 ) dollars per barrel or per thousand cubic feet , as applicable .
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adoption of the new standard resulted in the recording of operating right-of-use assets and lease liabilities of $ 39 million and $ 41 million , respectively , as of the first day of our fiscal first quarter of 2019. the difference between the right-of-use assets and lease liabilities relates to the deferred rent liability balance as of the end of fiscal 2018 associated with the leases capitalized . the deferred rent liability , which was the difference between the straight-line lease expense and cash paid , reduced the right-of-use asset upon adoption . our accounting for finance leases remained substantially unchanged . the standard did not materially impact our consolidated statements of story_separator_special_tag , found in part ii of the annual report on form 10-k for the fiscal year ended december 30 , 2018 for discussion of fiscal 2018 story_separator_special_tag style= '' font-family : inherit ; font-size:9pt ; '' > represents the difference between the self-insured reserves and collateral commitments . our workers ' compensation reserve is established using estimates of the future cost of claims and related expenses , which are discounted to their estimated net present value . we discount our workers ' compensation liability as we believe the estimated future cash outflows are readily determinable . our workers ' compensation reserve for deductible and self-insured claims is established using estimates of the future cost of claims and related expenses that have been reported but not settled , as well as those that have been incurred but not reported . reserves are estimated for claims incurred in the current year , as well as claims incurred during prior years . management evaluates the adequacy of the workers ' compensation reserves in conjunction with an independent quarterly actuarial assessment . factors considered in establishing and adjusting these reserves include , among other things : changes in medical and time loss ( “ indemnity ” ) costs ; changes in mix between medical only and indemnity claims ; regulatory and legislative developments impacting benefits and settlement requirements ; type and location of work performed ; page - 32 management 's discussion and analysis the impact of safety initiatives ; and positive or adverse development of claims . our workers ' compensation claims reserves are discounted to their estimated net present value using discount rates based on returns of “ risk-free ” u.s. treasury instruments with maturities comparable to the weighted average lives of our workers ' compensation claims . at december 29 , 2019 , the weighted average discount rate was 2.0 % . the claim payments are made over an estimated weighted average period of approximately 5 years . our workers ' compensation reserves include estimated expenses related to claims above our self-insured limits ( “ excess claims ” ) , and a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance carriers . we discount this reserve and corresponding receivable to its estimated net present value using the discount rates based on average returns of “ risk-free ” u.s. treasury instruments available during the year in which the liability was incurred . at december 29 , 2019 , the weighted average rate was 2.4 % . the claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 16 years . the discounted workers ' compensation reserve for excess claims was $ 45 million and $ 48 million as of december 29 , 2019 and december 30 , 2018 , respectively . the discounted receivables from insurance companies , net of valuation allowance , were $ 45 million as of december 29 , 2019 and december 30 , 2018 . the following table provides an analysis of changes in our workers ' compensation claims reserves : replace_table_token_15_th ( 1 ) payments made against self-insured claims are made over a weighted average period of approximately 5 years at december 29 , 2019 . ( 2 ) changes in reserve estimates are reflected in cost of services on the consolidated statement of operations and comprehensive income in the period when the changes are made . ( 3 ) the discount is amortized over the estimated weighted average life . in addition , any changes to the estimated weighted average lives and corresponding discount rates for actual payments made are reflected in cost of services on the consolidated statement of operations and comprehensive income in the period when the changes in estimates are made . ( 4 ) changes to our excess claims are discounted to its estimated net present value using the risk-free rates associated with the actuarially determined weighted average lives of our excess claims . certain workers ' compensation insurance companies with which we formerly did business are in liquidation and have failed to pay a number of excess claims to date . we have recorded a valuation allowance against all of the insurance receivables from the insurance companies in liquidation . we continue to actively manage workers ' compensation cost through the safety of our contingent workers with our safety programs and actively control costs with our network of service providers . these actions have had a positive impact creating favorable adjustments to workers ' compensation liabilities recorded in the current and prior periods . continued favorable adjustments to our workers ' compensation liabilities are dependent on our ability to continue to aggressively lower accident rates and costs of our claims . we expect diminishing favorable adjustments to our workers ' compensation liabilities as the opportunity for significant reduction to frequency and severity of accident rates diminishes . future outlook we believe we are in a strong financial position to fund working capital needs for growth opportunities . as of december 29 , 2019 , we had cash and cash equivalents of $ 38 million and $ 257 million available under our revolving credit facility for total liquidity of $ 295 million . page - 33 management 's discussion and analysis we continue to return cash to shareholders through our share repurchase program . story_separator_special_tag a 5 % change in one or more of the above factors would result in a change to workers ' compensation cost of approximately $ 4 million . our reserve balances have been positively impacted primarily by the success of our accident prevention programs . in the event that we are not able to further reduce our accident rates , the positive impacts to our reserve balance will diminish . allowance for doubtful accounts we establish an allowance for doubtful accounts for estimated probable losses resulting from the failure of our clients to make required payments . the allowance for doubtful accounts is determined based on historical write-off experience , expectations of future write-offs , and current economic data , and represents our best estimate of the amount of probable credit losses . the allowance for doubtful accounts is reviewed quarterly and past due balances are written-off when it is likely the receivable will not be collected . if the financial condition of our clients were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances may be required . business combinations we account for our business acquisitions using the acquisition method of accounting . the purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition . we determine the estimated fair values after review and consideration of relevant information including discounted cash flows , quoted market prices and estimates made by management . determining the fair value of an acquired company is judgmental in nature and involves the use of significant estimates and assumptions . the significant judgments include estimation of future cash flows , which is dependent on forecasts ; estimation of the long-term rate of growth ; estimation of the useful life over which cash flows will occur ; and determination of a weighted average cost of capital , which is risk-adjusted to reflect the specific risk profile of the business being purchased . intangible assets that arise from contractual/legal rights , or are capable of being separated , are measured and recorded at fair value and amortized over the estimated useful life . if practicable , assets acquired and liabilities assumed arising from contingencies are measured and recorded at fair value . if not practicable , such assets and liabilities are measured and recorded when it is probable that a gain or loss has occurred and the amount can be reasonably estimated . the residual balance of the purchase price , after fair value allocations to all identified assets and liabilities , represents goodwill . goodwill acquired in business combinations is assigned to the reporting unit ( s ) expected to benefit from the combination as of the acquisition date . acquisition-related costs are expensed as incurred . our acquisitions may include contingent consideration , which require us to recognize the fair value of the estimated liability at the time of the acquisition . subsequent changes in the estimate of the amount to be paid under the contingent consideration arrangement are recognized on the consolidated statements of operations and comprehensive income . cash payments for contingent or deferred consideration are classified within cash flows from investing activities for the purchase price fair value of the contingent consideration while amounts paid in excess are classified within cash flows from operating activities on the consolidated statements of cash flows . page - 35 management 's discussion and analysis goodwill and indefinite-lived intangible assets we evaluate goodwill and indefinite-lived intangible assets for impairment on an annual basis as of the first day of our fiscal second quarter , and whenever events or circumstances make it more likely than not that an impairment may have occurred . these events or circumstances could include a significant change in the business climate , legal factors , operating performance indicators , competition , client engagement , or sale or disposition of a significant portion of a reporting unit . we monitor the existence of potential impairment indicators throughout the fiscal year . goodwill we test for goodwill impairment at the reporting unit level . we consider our operating segments to be our reporting units for goodwill impairment testing . as of december 29 , 2019 , our operating segments are peopleready , centerline , staff management , simos , peoplescout , and peoplescout msp . the impairment test involves comparing the fair value of each reporting unit to its carrying value , including goodwill . fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit . if the fair value exceeds the carrying value , we conclude that no goodwill impairment has occurred . if the carrying value of the reporting unit exceeds its fair value , we recognize an impairment loss in an amount equal to the excess , not to exceed the carrying value of the goodwill . determining the fair value of a reporting unit involves the use of significant estimates and assumptions to evaluate the impact of operational and macroeconomic changes on each reporting unit . the fair value of each reporting unit is a weighted average of the income and market valuation approaches . the income approach applies a fair value methodology based on discounted cash flows . this analysis requires significant estimates and judgments , including estimation of future cash flows , which is dependent on internal forecasts , estimation of the long-term rate of growth for our business , estimation of the useful life over which cash flows will occur , and determination of our weighted average cost of capital , which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested . we also apply a market approach , which identifies similar publicly traded companies and develops a correlation , referred to as a multiple , to apply to the operating results of the reporting units .
| compared to fiscal 2017 . page - 30 management 's discussion and analysis capital resources revolving credit facilit y see note 8 : long-term debt , to our consolidated financial statements found in item 8 of this annual report on form 10-k , for details on our revolving credit facility . restricted cash and investments restricted cash and investments consist principally of collateral that has been provided or pledged to insurance carriers for workers ' compensation and state workers ' compensation programs . our insurance carriers and certain state workers ' compensation programs require us to collateralize a portion of our workers ' compensation obligation . we have agreements with certain financial institutions that allow us to restrict cash and cash equivalents and investments for the purpose of providing collateral instruments to our insurance carriers to satisfy workers ' compensation claims . at december 29 , 2019 , we had restricted cash and investments totaling $ 231 million . the majority of our collateral obligations are held in a trust at the bank of new york mellon ( “ trust ” ) . see note 4 : restricted cash and investments , to our consolidated financial statements found in item 8 of this annual report on form 10-k , for details on our restricted cash and investments . we established investment policy directives for the trust with the first priority to preserve capital , second to ensure sufficient liquidity to pay workers ' compensation claims , third to diversify the investment portfolio and fourth to maximize after-tax returns . trust investments must meet minimum acceptable quality standards . the primary investments include u.s. treasury securities , u.s. agency debentures , u.s. agency mortgages , corporate securities and municipal securities .
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