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we also own 100 % of the interests of our taxable reit subsidiary , sunstone hotel trs lessee , inc. , which , directly or indirectly , leases all of our hotels from the operating partnership , and engages independent third-parties to manage our hotels . we own hotels that we consider to be ltrr® in the united states , specifically hotels in urban and resort locations that benefit from significant barriers to entry by competitors and diverse economic drivers . as of december 31 , 2018 , we had interests in 21 hotels held for investment ( the “ 21 hotels ” ) . of the 21 hotels , we classify 18 as upper upscale , two as upscale and one as luxury as defined by str , inc. all but two ( the boston park plaza and the oceans edge resort & marina ) of our 21 hotels are operated under nationally recognized brands such as marriott , hilton and hyatt , which are among the most respected and widely recognized brands in the lodging industry . our two unbranded hotels are located in top urban and resort markets that have enabled them to build awareness with both group and transient customers . as of december 31 , 2018 , the hotels comprising our 21 hotel portfolio average 513 rooms in size . story_separator_special_tag style= '' width : 17.00pt ; '' valign= '' top '' > · other operating revenue , which includes ancillary hotel revenue and other items primarily driven by occupancy such as telephone/internet , parking , spa , facility fees , entertainment and other guest services . additionally , this category includes , among other things , attrition and cancellation revenue , tenant revenue derived from hotel space leased by third parties and any business interruption proceeds or performance guarantee payments received . expenses . our expenses consist of the following : · room expense , which is primarily driven by occupancy and , therefore , has a significant correlation with room revenue ; · food and beverage expense , which is primarily driven by food and beverage sales and banquet and catering bookings and , therefore , has a significant correlation with food and beverage revenue ; · other operating expense , which includes the corresponding expense of other operating revenue , advertising and promotion , repairs and maintenance , utilities , and franchise costs ; · property tax , ground lease and insurance expense , which includes the expenses associated with property tax , ground lease and insurance payments , each of which is primarily a fixed expense , however property tax is subject to regular revaluations based on the specific tax regulations and practices of each municipality ; · other property-level expenses , which includes our property-level general and administrative expenses , such as payroll , benefits and other employee-related expenses , contract and professional fees , credit and collection expenses , employee recruitment , relocation and training expenses , consulting fees , management fees and other expenses ; · corporate overhead expense , which includes our corporate-level expenses , such as payroll , benefits and other employee-related expenses , amortization of deferred stock compensation , business acquisition and due diligence expenses , legal expenses , association , contract and professional fees , board of director expenses , entity-level state franchise and minimum taxes , travel expenses , office rent and other customary expenses ; 39 · depreciation and amortization expense , which includes depreciation on our hotel buildings , improvements and ff & e , along with amortization on our franchise fees and certain intangibles . additionally , this category includes depreciation and amortization related to ff & e for our corporate office ; and · impairment loss , which includes the charges we have recognized to reduce the carrying values of the houston hotels on our balance sheet to their fair values in association with our impairment evaluations . other revenue and expense . other revenue and expense consists of the following : · gain on sale of assets , which includes the gains we recognized on our hotel sales that do not qualify as discontinued operations ; · interest and other income , which includes interest we have earned on our restricted and unrestricted cash accounts , as well as any energy or other rebates or property insurance proceeds we have received , miscellaneous income or any gains or losses we have recognized on sales or redemptions of assets other than real estate investments ; · interest expense , which includes interest expense incurred on our outstanding fixed and variable-rate debt and capital lease obligations , gains or losses on interest rate derivatives , amortization of deferred financing costs , and any loan fees incurred on our debt ; · loss on extinguishment of debt , which includes losses recognized on amendments or early repayments of mortgages or other debt obligations from the accelerated amortization of deferred financing costs , along with any other costs incurred ; · income tax ( provision ) benefit , net which includes federal and state income taxes related to continuing operations charged to the company net of any refunds received , any adjustments to deferred tax assets , liabilities or valuation allowance , and any adjustments to unrecognized tax positions , along with any related interest and penalties incurred ; · income from discontinued operations , which includes the results of operations for any hotels or other real estate investments sold during the reporting period that qualify as a discontinued operation , along with the gain or loss realized on the sale of these assets and any extinguishments of related debt or income tax provisions ; · income from consolidated joint venture attributable to noncontrolling interest , which includes net income attributable to a third-party 's 25.0 % ownership interest in the joint venture that owns the hilton san diego bayfront ; and · preferred stock dividends and redemption charge , which includes dividends accrued on our series d cumulative redeemable preferred stock ( “ series d preferred stock ” ) until its redemption in april 2016 , story_separator_special_tag additionally , an increase in the supply of vacation rental or sharing services such as airbnb also affects the ability of existing hotels to drive revpar and profits . · revenues and expenses . we believe that marginal improvements in revpar index , even in the face of declining revenues , are a good indicator of the relative quality and appeal of our hotels , and our operators ' effectiveness in maximizing revenues . similarly , we also evaluate our operators ' effectiveness in minimizing incremental operating expenses in the context of increasing revenues or , conversely , in reducing operating expenses in the context of declining revenues . with respect to improving revpar index , we continually work with our hotel operators to optimize revenue management initiatives while taking into consideration market demand trends and the pricing strategies of competitor hotels in our markets . we also develop capital investment programs designed to ensure each of our hotels is well renovated and positioned to appeal to groups and individual travelers fitting target guest profiles . increased capital investment in our properties may lead to short-term revenue disruption and negatively impact revpar index . our revenue management initiatives are generally oriented towards maximizing adr even if the result may be lower occupancy than may be achieved through lower adr . increases in revpar attributable to increases in adr may be accompanied by minimal additional expenses , while increases in revpar attributable to higher occupancy may result in higher variable expenses such as housekeeping , guest supplies , labor and utilities expense . our comparable portfolio revpar index increased 80 basis points in 2018 as compared to 2017. the increase in our comparable portfolio revpar index was primarily due to increases in the revpar index at the wailea beach resort post-repositioning , at the oceans edge resort & marina as the hotel ramped up after its january 2017 opening and at both the embassy suites la jolla and the hilton san diego bayfront due to strong group bases that allowed the hotels to increase rates . these increases were partially offset by decreases in the revpar index at three of the four renovation hotels , at the courtyard by marriott los angeles due to new supply and recently renovated area hotels and at the hilton new orleans st. charles due to a weak market . excluding the oceans edge resort & marina , our comparable portfolio revpar index increased 210 basis points in 2017 as compared to 2016. the increase was due in part to increased rates at our boston park plaza and wailea beach resort post-repositioning . these increases were partially offset by decreased rates at our courtyard by marriott los angeles and renaissance los angeles airport due to increased competition from area hotels that were newly constructed or under renovation during 2016. we continue to work with our operators to identify operational efficiencies designed to reduce expenses while minimally affecting guest experience and hotel employee satisfaction . key asset management initiatives include optimizing hotel staffing levels , increasing the efficiency of the hotels , such as installing energy efficient management and inventory control systems , and selectively combining certain food and beverage outlets . our operational efficiency initiatives may be difficult to implement , as most categories of variable operating expenses , such as utilities and housekeeping labor costs , fluctuate with changes in occupancy . furthermore , our hotels operate with significant fixed costs , such as general and administrative expense , insurance , property taxes , and other expenses associated with owning hotels , over which our operators have little control . we have experienced , either currently or in the past , increases in hourly wages , employee benefits , utility costs and property insurance , which have negatively affected our operating margins . moreover , there are limits to how far our operators can reduce expenses without affecting brand standards or the competitiveness of our hotels . 42 operating results . the following table presents our operating results for our total portfolio for the years ended december 31 , 2018 and 2017 , including the amount and percentage change in the results between the two periods . replace_table_token_2_th 43 the following table presents our operating results for our total portfolio for the years ended december 31 , 2017 and 2016 , including the amount and percentage change in the results between the two periods . replace_table_token_3_th operating statistics . the following tables include comparisons of the key operating metrics for our comparable portfolio . because the oceans edge resort & marina was not open in 2016 , the following table also includes the 2016 and 2017 key operating metrics for our comparable portfolio , excluding the oceans edge resort & marina . operating statistics for our comparable portfolio include prior ownership 2017 results for the oceans edge resort & marina , acquired by us in july 2017. replace_table_token_4_th replace_table_token_5_th summary of operating results . the year-over-year comparability of our operations is affected by changes in our portfolio resulting from hotel acquisitions , dispositions or renovations . during the three years ended december 31 , 2018 , we acquired one hotel , the oceans edge resort & marina in july 2017. during the same period we sold nine hotels : six hotels in 2018 ; two hotels in 2017 ( together with the 2018 hotels sold , the “ eight sold hotels ” ) ; and one hotel in 2016 ( together with the 2017 hotels sold , the “ three sold hotels ” ) . in addition , the four renovation hotels negatively impacted our operating results in 2018. while 2017 experienced no significant renovation disruption , 2016 was negatively impacted by significant renovations at the boston park plaza and the wailea beach resort ( the “ two renovation hotels ” ) . 44 room revenue .
| 2018 highlights in january 2018 , we sold the marriott philadelphia and the marriott quincy for net proceeds of $ 137.0 million , and recognized a net gain on the sale of $ 15.7 million . neither sale represented a strategic shift that had a major impact on our business plan or our primary markets ; therefore , neither of these sales qualified as a discontinued operation . in may 2018 , we paid $ 18.4 million , including closing costs , to acquire the exclusive perpetual rights to use portions of the renaissance washington dc building that we had previously leased from an unaffiliated third party ( the “ element ” ) . the acquisition of the element eliminates approximately $ 1.3 million of annual rent expense . in july 2018 , we sold the hyatt regency newport beach for net proceeds of $ 94.0 million , and recognized a net gain on the sale of $ 53.1 million . the sale of the hotel did not represent a strategic shift that had a major impact on our business plan or our primary markets ; therefore , the sale did not qualify as a discontinued operation . also in july 2018 , we purchased the land underlying the jw marriott new orleans for $ 15.1 million , including closing costs . prior to this purchase , we leased the land from an unaffiliated third party . the acquisition of the land eliminates approximately $ 0.6 million of annual ground lease expense . in october 2018 , we sold the hilton north houston and the marriott houston ( the “ houston hotels ” ) for net proceeds of $ 32.4 million , and recognized a net gain on the sale of $ 0.3 million . the sale of the hotels did not represent a strategic shift that had a major impact on our business plan or our primary markets ; therefore , the sale did not qualify as a discontinued operation .
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we generally identify forward-looking statements by words such as `` expect , '' `` anticipate , '' `` project , '' `` will , '' `` should , '' `` believe , '' `` intend , '' `` plan , '' `` estimate , '' “ predict , ” “ believe , ” “ seek , ” “ continue , ” “ outlook , ” “ may , ” “ might , ” “ should , ” “ can have , ” “ likely , ” or the negative version of these words or comparable words . factors that can cause actual results to differ materially from those reflected in the forward-looking statements include , among others , those discussed in part i , item 1a.—risk factors and elsewhere in this 2016 annual report . we urge you not to place undue reliance on these forward-looking statements , which reflect management 's analysis , judgment , belief or expectation only as of the date hereof . we undertake no obligation to update or revise any forward-looking statement , whether as a result of new information , future events or otherwise . historical results are not necessarily indicative of the results expected for any future period . overview we are a global and diversified producer of high technology specialty chemical products . our chemistry combines a number of ingredients to produce proprietary formulations . utilizing our strong industry insight , process know-how and creative research and development , we partner with our customers to provide innovative and differentiated solutions that are integral to their finished products . we are present in a wide variety of attractive niche markets across multiple industries , including automotive , agriculture , animal health , electronics , graphic arts , and offshore oil and gas production and drilling , and we believe that the majority of our operations hold strong positions in the product markets they serve . our product innovations and product extensions are expected to continue to drive sales growth in both new and existing markets while also expanding margins by continuing to offer high customer value propositions . as our name implies , platform is also an acquisition vehicle with a strategy of acquiring and maintaining leading positions in niche segments of high-growth markets . as such , we continually seek opportunities to act as an acquirer and consolidator of specialty chemical businesses on a global basis , particularly those meeting our “ asset-lite , high-touch ” philosophy , which involves prioritizing resources to research and development and offering highly technical sales and customer service , while managing conservatively our investments in fixed assets and capital expenditures . we regularly review acquisition opportunities and may acquire businesses that meet our acquisition criteria when we deem it to be financially prudent . as of december 31 , 2016 , we have completed the following acquisitions : the macdermid acquisition on october 31 , 2013 , the agriphar acquisition on october 1 , 2014 , the cas acquisition on november 3 , 2014 , the arysta acquisition on february 13 , 2015 , the omg acquisition on october 28 , 2015 , the alent acquisition on december 1 , 2015 , and the omg malaysia acquisition on january 31 , 2016. story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 6,363,636 shares sold to the underwriters upon exercise in full of their option to purchase additional shares . the september 2016 equity offering resulted in gross proceeds to platform of approximately $ 402.5 million , before underwriting discounts and commissions and offering expenses of $ 11.9 million . in july 2016 , we filed with the sec a shelf registration statement on form s-3 under which we may issue up to $ 1.00 billion of securities , including common stock , preferred stock and debt securities . the shelf registration statement was declared effective by the sec on july 26 , 2016. in january 2016 , we completed the omg malaysia acquisition for approximately $ 124 million , net of acquired cash and closing working capital adjustments . this acquisition is expected to further enhance our performance solutions business segment in which it is included . as previously disclosed in our 2015 annual report , in connection with the implementation of our internal controls , policies and procedures at arysta , following our acquisition of that business in february 2015 , we discovered certain payments made to third-party agents in connection with arysta 's government tender business in west africa which may be illegal or otherwise inappropriate . we have engaged outside counsel and an outside accounting firm to conduct an internal investigation to review the legality of these and other payments made in arysta 's west africa tender business , including arysta 's compliance with the fcpa . we contacted the sec and the u.s. department of justice to voluntarily inform them of this matter and fully cooperate with their review of the matter . the sec has advised that they have closed out the matter , and the u.s. department of justice has advised that they have no further requests at this time . our internal investigation is largely complete . management does not believe that the amount of the payments in question , or any revenue or operating income related to those payments , are material to our business , results of operations , financial condition or liquidity . acquisitions consistent with our acquisition strategy , to the extent we pursue future acquisitions , we intend to focus on businesses with product offerings that provide geographic or product diversification , or expansion into related categories that can be marketed through our existing distribution channels or provide us with new distribution channels for our existing products , thereby increasing marketing and distribution efficiencies . furthermore , we expect that acquisition candidates would demonstrate a combination of attractive margins , strong cash flow characteristics , niche leading positions and products that generate recurring revenue . story_separator_special_tag 38 agriphar acquisition -- on october 1 , 2014 , we completed the agriphar acquisition for a purchase price of approximately 300 million ( $ 370 million ) , consisting of $ 350 million in cash , net of acquired cash and certain post-closing working capital and other adjustments , and 711,551 restricted shares of our common stock , which will become unrestricted beginning january 2 , 2018 , unless agreed otherwise in accordance with the terms of the acquisition agreement . legacy agriphar was a european crop protection group supported by a team of researchers and regulatory experts which provided a wide range of fungicides , herbicides and insecticides with end markets primarily across europe . we financed the agriphar acquisition with proceeds from the incremental amendment no . 1 and available cash on hand . our business platform , incorporated in delaware in january 2014 , is a global diversified producer of high-technology specialty chemical products . our chemistry combines a number of ingredients to produce proprietary formulations . we are present in a wide variety of attractive niche markets across multiple industries , including automotive , agricultural , animal health , electronics , graphic arts , and offshore oil and gas production and drilling . we believe that the majority of our operations hold strong positions in the product markets they serve . our product innovations and product extensions are expected to continue to drive sales growth in both new and existing markets while also expanding margins by continuing to offer high customer value propositions . we generate revenue through the formulation and sale of our dynamic chemistries and by providing highly technical service to our customers through our extensive global network of specially trained service personnel . our personnel work closely with our customers to ensure that the intricate chemical composition and function of our products are maintained as intended while ensuring that these products are applied safely and effectively by users globally . for example , a customer in our performance solutions segment will engage us to provide a multi-step technological process solution for circuit boards that they are producing for end use in the automotive supply chain . another example from our agricultural solutions segment is our “ aplique bem ” stewardship program which focuses on teaching growers to apply agrochemicals safely and efficiently . this program started in brazil in partnership with the institute of agriculture , campinas ( ic ) and rapidly expanded into latin america , africa and asia . this high quality customer service and stewardship program is also supported by our local technical teams and our local infrastructure , such as our field research stations , enabling the development of unique solutions to unmet grower needs . our specialty chemicals and processes , together with our field technical and sales staff , are seen as integral to our customer 's product performance . utilizing our strong industry insight , process know-how and creative research and development , we also partner with our customers to provide innovative and differentiated solutions that are integral to the functionality of their finished products . we leverage these close customer relationships to execute our growth strategy and identify opportunities for new products . these new products are developed and created by drawing upon our significant intellectual property portfolio and technical expertise . we believe that our customers place significant value on our brands , which we capitalize on through innovation , product leadership and customer service . we manage our business in two reportable segments : performance solutions and agricultural solutions . performance solutions – our performance solutions segment formulates and markets dynamic chemistry solutions that are used in electronics , automotive production , offshore oil and gas production and drilling , and commercial packaging and printing . our products include surface and coating materials , water-based hydraulic control fluids and photopolymers . in conjunction with the sale of these products , we provide extensive technical service and support when necessary to ensure superior performance of their application . while our dynamic chemistries typically represent only a small portion of our customers ' costs , we believe that they are critical to our customers ' manufacturing processes and overall product performance . further , operational risks and switching costs make it difficult for our customers to change suppliers and allow us to retain customers and maintain our market positions . the regional sales mix in this segment has shifted over the past several years from more industrialized nations towards emerging markets , such as asia and south america . we employ approximately 4,350 personnel which operate mainly in the americas , asia/pacific region and europe . in addition , we have 13 manufacturing facilities in asia and remain focused on further increasing our presence in the region . agricultural solutions – our agricultural solutions segment is based on a solutions-oriented business model that focuses on product innovation to address an ever-increasing need for higher crop yield and quality . we offer to growers diverse crop protection solutions from weeds ( herbicides ) , insects ( insecticides ) and diseases ( fungicides ) , in foliar and seed treatment applications . we also offer a wide variety of proven biosolutions , including biostimulants , innovative nutrition and biocontrol products . we emphasize farmer economics and food safety by combining , when possible , biosolutions with crop protection and seed treatment agrochemicals . our global value added portfolio , or gvap , consists of agrochemicals in the herbicides , insecticides , fungicides 39 and seed treatment categories , based on patented or proprietary off-patent ais . our global biosolutions portfolio , or gbp , includes biostimulants , innovative nutrition and biocontrol products . we consider our gvap and gbp to be key pillars for our sustainable growth . in addition , we offer regional off-patent ais and certain non-crop products , including animal health products , such as honey bee protective miticides and certain veterinary vaccines .
| summary of significant 2016 activities in december 2016 , in accordance with the settlement agreement and release described below , as amended , we elected to exercise the alternative settlement mechanism and settled all of our obligations with respect to our series b convertible preferred stock and the related make whole payment obligation , as described in the settlement agreement , in exchange for a cash payment of $ 460 million and the issuance of 5,500,000 shares of our common stock upon conversion of the corresponding shares of series b convertible preferred stock in accordance with the terms of the certificate of designation of the series b convertible preferred stock . the remaining shares of series b convertible preferred stock were subsequently canceled and retired . as of december 31 , 2016 , none of the shares of series b convertible preferred stock remain outstanding . in december 2016 , we completed the repricing of $ 1.35 billion of existing terms loans by entering into amendment no . 6 to the amended and restated credit agreement . this amendment provided for the prepayment in full of previously existing usd and eur term loan tranches , which were not subject to the october 2016 repricing and extension ( see below ) , with the aggregate proceeds of a new $ 610 million usd term loan tranche and a new eur term loan tranche in the aggregate principal amount of 700 million . this repricing resulted in a 100 basis point reduction in the interest rate for the new usd term loan tranche and a 125 basis point reduction in the interest rate for the new eur term loan tranche , and is expected to reduce annual interest payments by approximately $ 15.0 million . this transaction also shifted $ 425 million from usd term loans to eur term loans further complementing platform 's business profile and optimizing its foreign currency exposure .
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for the year ended december 31 , 2020 , our new vehicle revenue brand mix consisted of 41 % imports , 39 % luxury , and 20 % domestic brands . our revenues are derived primarily from : ( i ) the sale of new vehicles ; ( ii ) the sale of used vehicles to individual retail customers ( `` used retail '' ) and to other dealers at auction ( `` wholesale '' ) ( the terms `` used retail '' and `` wholesale '' collectively referred to as `` used '' ) ; ( iii ) repair and maintenance services , including collision repair , the sale of automotive replacement parts , and the reconditioning of used vehicles ( collectively referred to as `` parts and service '' ) ; and ( iv ) the arrangement of third-party vehicle financing and the sale of a number of vehicle protection products ( defined below and collectively referred to as `` f & i '' ) . we evaluate the results of our new and used vehicle sales based on unit volumes and gross profit per vehicle sold , our parts and service operations based on aggregate gross profit , and our f & i business based on f & i gross profit per vehicle sold . our gross profit margin varies with our revenue mix . sales of new vehicles generally result in a lower gross profit margin than used vehicle sales , sales of parts and service , and sales of f & i products . as a result , when used vehicle , parts and service , and f & i revenue increase as a percentage of total revenue , we expect our overall gross profit margin to increase . selling , general , and administrative ( `` sg & a '' ) expenses consist primarily of fixed and incentive-based compensation , advertising , rent , insurance , utilities , and other customary operating expenses . a significant portion of our cost structure is variable ( such as sales commissions ) or controllable ( such as advertising ) , which we believe allows us to adapt to changes in the retail environment over the long-term . we evaluate commissions paid to salespeople as a percentage of retail vehicle gross profit , advertising expense on a per vehicle retailed ( `` pvr '' ) basis , and all other sg & a expenses in the aggregate as a percentage of total gross profit . our continued organic growth is dependent upon the execution of our balanced automotive retailing and service business strategy , the continued strength of our brand mix , and the production and allocation of desirable vehicles from the automobile manufacturers whose brands we sell . our vehicle sales have historically fluctuated with product availability as well as local and national economic conditions , including consumer confidence , availability of consumer credit , fuel prices , and employment levels . our vehicle sales may also be impacted by manufacturer imposed stop-sales or open safety recalls . in addition , our ability to sell certain new and used vehicles can be negatively impacted by a number of factors , some of which are outside of our control . as a result of the covid-19 global pandemic , certain vehicle manufacturers have needed to slow or temporarily halt assembly lines for the safety of their workers . manufacturers have also been hampered by the lack of availability of parts and key components from suppliers such as semi-conductor chips , which has also caused disruption to production . we can not predict with any certainty how long the automotive retail industry will continue to be subject to these production slowdowns or when normalized production will resume at these manufacturers . further , governmental actions , such as travel restrictions imposed in response to national emergencies or the imposition of tariffs or trade restrictions on imported goods may adversely affect vehicle sales and depress demand . although we can not adequately predict the ongoing impact of covid-19 on our business , we continue to believe that any future negative trends in new vehicle sales caused by lack of inventory availability would be partially mitigated by ( i ) the expected relative stability of our parts and service operations over the long-term , ( ii ) the variable nature of significant components of our cost structure , and ( iii ) our diversified brand and geographic mix . park place acquisition on december 11 , 2019 , the company entered into ( 1 ) an asset purchase agreement ( the `` 2019 asset purchase agreement '' ) with certain members of the park place dealership family of entities , park place mid-cities , ltd. , a texas limited partnership , and the identified principal ( collectively , `` park place '' ) and ( 2 ) a real estate purchase agreement ( the `` real estate purchase agreement '' and , together with the 2019 asset purchase agreement , the `` transaction agreements '' ) with certain members of the park place dealership family of entities to acquire substantially all of the assets of , and certain real property related to , the park place business . the 2019 asset purchase agreement included the purchase of 19 franchises ( 3 mercedes-benz , 3 sprinter , 2 lexus , 2 jaguar , 2 land rover , 1 porsche , and 1 volvo and 5 ultra luxury brands including 1 bentley , 1 rolls royce , 1 mclaren , 1 maserati and 1 karma ) , two collision centers and an auto auction . on march 24 , 2020 , asbury delivered notice to the sellers terminating the transaction agreements pursuant to the terms thereof in exchange for the 35 payment of $ 10.0 million of liquidated damages . please refer to liquidity and capital resources for additional details regarding the impact on financing transactions . story_separator_special_tag many of our stores are also offering complimentary pick-up and delivery services to our customers , and we continue to offer online purchasing of new and used vehicles with delivery to the customer . critical accounting policies and significant estimates preparation of financial statements in conformity with accounting principles generally accepted in the united states of america , requires management to make estimates and assumptions , that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities , as of the date of the financial statements , and reported amounts of revenues and expenses during the periods presented . on an ongoing basis , management evaluates their estimates and assumptions and the effects of any such revisions are reflected in the financial statements , in the period in which they are determined to be necessary . actual outcomes could differ materially from those estimates in a manner that could have a material effect on our consolidated financial statements . set forth below are the policies and estimates that we have identified as critical to our business operations and understanding our results of operations , based on the high degree of judgment or complexity in their application . goodwill and manufacturer franchise rights— goodwill represents the excess cost of an acquired business over the fair market value of its identifiable assets and liabilities . we have determined , based on how we integrate acquisitions into our business , how the components of our business share resources and interact with one another , and how we review the results of our operations , that we have several geographic market-based operating segments . we have determined the dealerships in each of our operating segments are components that are aggregated into several geographic market-based reporting units for the purpose of testing goodwill for impairment , as they ( i ) have similar economic characteristics , ( ii ) offer similar products and services ( all of our franchised dealerships offer new and used vehicles , parts and service , and arrange for third-party vehicle financing and the sale of insurance products ) , ( iii ) have similar customers , ( iv ) have similar distribution and marketing practices ( all of our dealerships distribute products and services through dealership facilities that market to customers in similar ways ) and ( v ) operate under similar regulatory environments . our only other significant identifiable intangible assets are our rights under franchise agreements with manufacturers , which are recorded at an individual franchise level . the fair value of our manufacturer franchise rights are determined at the acquisition date , by discounting the projected cash flows specific to each franchise . we have determined that manufacturer franchise rights have an indefinite life as there are no economic , contractual or other factors that limit their useful lives , and they are expected to generate cash flows indefinitely due to the historically long lives of the manufacturers ' brand names . furthermore , to the extent that any agreements evidencing our manufacturer franchise rights would expire , we expect that we would be able to renew those agreements in the ordinary course of business . as a result of the covid-19 pandemic , we performed quantitative impairment tests as of march 31 , 2020 , and identified eleven dealerships with franchise rights carrying values that exceeded their fair values , and as a result , recorded non-cash impairment charges of $ 23.0 million . no additional franchise right impairments were identified in 2020. we do not amortize goodwill and other intangible assets that are deemed to have indefinite lives . we review goodwill and manufacturer franchise rights for impairment annually as of october 1 st , or more often if events or circumstances indicate that any impairment may have occurred . we are subject to financial statement risk to the extent that goodwill becomes impaired due to decreases in the fair value of our automotive retail business or manufacturer franchise rights become impaired due to decreases in the fair value of our individual franchises . f & i chargeback reserves — we receive commissions from third-party lending and insurance institutions for arranging customer financing and from the sale of vehicle service contracts , guaranteed asset protection ( known as `` gap '' ) debt cancellation , and other insurance to customers ( collectively `` f & i '' ) . f & i commissions are recorded at the time the associated vehicle is sold . we may be charged back for f & i commissions in the event a contract is prepaid , defaulted upon , or terminated ( `` chargebacks '' ) . f & i commissions , net of estimated future chargebacks , are included in finance and insurance , net in the accompanying consolidated statements of income . we reserve for chargebacks on finance , insurance , or vehicle service contract commissions received . the reserve is established based on historical operating results and the termination provisions of the applicable contracts and is evaluated on a product-by-product basis . our f & i cash chargebacks for the year ended december 31 , 2020 , 2019 , and 2018 were $ 38.0 million , $ 40.6 million , and $ 37.5 million , respectively . our chargeback reserves were $ 47.3 million and $ 48.2 million as of december 31 , 2020 and december 31 , 2019 , respectively . total chargebacks as a percentage of f & i commissions for the year ended december 31 , 2020 , 2019 , and 2018 , were 12 % , 13 % , and 13 % , respectively . a 100 basis point change in our estimated reserve rate for future 37 chargebacks , would change our finance and insurance chargeback reserve by approximately $ 3.2 million as of december 31 , 2020. insurance reserves— we are self-insured for employee medical claims and maintain stop loss insurance for large-dollar individual claims . we have large deductible insurance programs for workers compensation , property and general liability claims .
| results of operations the year ended december 31 , 2019 compared to the year ended december 31 , 2018 replace_table_token_14_th 48 replace_table_token_15_th total revenue during 2019 increased by $ 335.9 million ( 5 % ) compared to 2018 , due to a $ 74.6 million ( 2 % ) increase in new vehicle revenue , a $ 159.2 million ( 8 % ) increase in used vehicle revenue , a $ 78.4 million ( 10 % ) increase in parts and service revenue and a $ 23.7 million ( 8 % ) increase in f & i revenue . the $ 65.9 million ( 6 % ) increase in gross profit during 2019 was the result of a $ 4.4 million ( 3 % ) increase in used vehicle gross profit , a $ 23.7 million ( 8 % ) increase in f & i gross profit and a $ 43.5 million ( 8 % ) increase in parts and service gross profit , partially offset by a $ 5.7 million ( 3 % ) decrease in new vehicle gross profit . our total gross profit margin increased 20 basis points from 16.0 % in 2018 to 16.2 % in 2019. income from operations during 2019 increased by $ 14.1 million ( 5 % ) compared to 2018 , primarily due to a $ 65.9 million ( 6 % ) increase in gross profit , partially offset by a $ 44.0 million ( 6 % ) increase in selling , general , and administrative expenses , a $ 3.4 million increase in franchise rights impairment , a $ 2.5 million ( 7 % ) increase in depreciation and amortization expenses , and a $ 1.9 million increase in other operating expenses ( income ) , net .
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our core portfolio consists of those properties either 100 % owned , or partially owned through joint venture interests by the operating partnership , or subsidiaries thereof , not including those properties owned through our funds . these 143 properties primarily consist of street and urban retail , and dense suburban shopping centers . the properties we operate are located primarily in markets within the united states ' top ten metropolitan areas . there are 87 properties in our core portfolio totaling approximately 5.4 million square feet . fund i has three remaining properties comprising approximately 0.1 million square feet . fund ii has five properties , three of which ( representing 0.3 million square feet ) are currently operating , one is under construction , and one is in the design phase . fund iii has 13 properties , 10 of which ( representing 1.6 million square feet ) are currently operating and three of which are in the design phase . fund iv has 35 properties , nine of which ( representing 0.9 million square feet ) are operating and 26 are under development . the majority of our operating income is derived from rental revenues from operating properties , including expense recoveries from tenants , offset by operating and overhead expenses . as our rcp venture invests in operating companies , we consider these investments to be private-equity style , as opposed to real estate , investments . since these are not traditional investments in operating rental real estate but investments in operating businesses , the operating partnership typically invests in these through a taxable reit subsidiary ( `` trs '' ) . our primary business objective is to acquire and manage commercial retail properties that will provide cash for distributions to shareholders while also creating the potential for capital appreciation to enhance investor returns . we focus on the following fundamentals to achieve this objective : 36 own and operate a core portfolio of high-quality retail properties located primarily in high-barrier-to-entry , densely-populated metropolitan areas and create value through accretive redevelopment and re-tenanting activities coupled with the acquisition of high-quality assets that have the long-term potential to outperform the asset class as part of our core asset recycling and acquisition initiative . generate additional external growth through an opportunistic yet disciplined acquisition program within our funds . we target transactions with high inherent opportunity for the creation of additional value through : ◦ value-add investments in street retail properties , located in established and `` next generation '' submarkets , with re-tenanting or repositioning opportunities , ◦ opportunistic acquisitions of well-located real-estate anchored by distressed retailers , and ◦ other opportunistic acquisitions which may include high-yield acquisitions and purchases of distressed debt . these may also include joint ventures with private equity investors for the purpose of making investments in operating retailers with significant embedded value in their real estate assets . maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to sufficient capital to fund future growth . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > ( loss ) income attributable to noncontrolling interests - continuing operations and discontinued operations primarily represents the noncontrolling interests ' share of all the funds variances discussed above . comparison of the year ended december 31 , 2013 ( `` 2013 '' ) to the year ended december 31 , 2012 ( `` 2012 '' ) replace_table_token_21_th rental income in the core portfolio increased $ 34.2 million primarily as a result of additional rents of ( i ) $ 16.5 million following the consolidation of our brandywine investment formerly presented under the equity method ( `` consolidation of brandywine '' ) , ( ii ) $ 11.4 million related to the acquisitions of 1520 milwaukee avenue , 330-340 river street , our chicago street retail portfolio , 930 rush street , 28 jericho turnpike , rhode island shopping center , 83 spring street , 60 orange street , 181 main street , connecticut avenue and 639 west diversey ( `` 2012 core acquisitions '' ) , ( iii ) $ 5.1 million related to 2013 core acquisitions and ( iv ) $ 1.1 million as a result of re-anchoring and leasing activities at bloomfield town square and branch plaza ( `` core re-tenanting '' ) . rental income in the funds increased $ 4.5 million primarily as a result of additional rents of ( i ) $ 2.9 million related to 3780-3858 nostrand avenue , paramus plaza , 1151 third avenue , lake montclair center , and 938 w. north avenue ( `` 2013 fund acquisitions '' ) , and ( ii ) $ 0.7 million related to the acquisitions of 640 broadway , lincoln park centre and 3104 m street ( `` 2012 fund acquisitions '' ) . interest income increased $ 3.8 million as a result of the origination of two notes during december 2012. this was partially offset by the repayment of four notes during 2012 and 2013. expense reimbursements in the core portfolio increased $ 6.3 million primarily as a result of ( i ) $ 2.9 million from the consolidation of brandywine , ( ii ) $ 1.5 million from 2012 core acquisitions and ( iii ) $ 0.6 million from 2013 core acquisitions . expense reimbursements in the funds increased $ 1.7 million as a result of 2013 and 2012 fund acquisitions . other income in the funds increased $ 3.3 million primarily as a result of the 2013 collection of a note receivable originated in 2010 , which had been written off prior to 2013. replace_table_token_22_th property operating expenses for the core portfolio increased $ 3.2 million as a result of $ 2.0 million from ( i ) the consolidation of brandywine and ( ii ) $ 1.2 million from 2013 and 2012 core acquisitions . 39 real estate tax expense in the core portfolio increased $ 3.1 million as a result of ( i ) $ 1.4 million from the consolidation of brandywine and ( ii ) $ 1.7 million from 2013 and 2012 core acquisitions . story_separator_special_tag ffo does not represent cash generated from operations as defined by generally accepted accounting principles ( `` gaap '' ) and is not indicative of cash available to fund all cash needs , including distributions . it should not be considered as an alternative to net income for the purpose of evaluating our performance or to cash flows as a measure of liquidity . consistent with the nareit definition , we define ffo as net income ( computed in accordance with gaap ) , excluding gains ( losses ) from sales of depreciated property and impairment of depreciable real estate , plus depreciation and amortization , and after adjustments for unconsolidated partnerships and joint ventures . liquidity and capital resources uses of liquidity our principal uses of liquidity are ( i ) distributions to our shareholders and op unit holders , ( ii ) investments which include the funding of our capital committed to the funds and property acquisitions and redevelopment/re-tenanting activities within our core portfolio , ( iii ) distributions to our fund investors and ( iv ) debt service and loan repayments . distributions in order to qualify as a reit for federal income tax purposes , we must currently distribute at least 90 % of our taxable income to our shareholders . for the year ended december 31 , 2014 , we paid dividends and distributions on our common shares and common op units totaling $ 56.4 million , which were funded from the operating partnership 's share of operating cash flow . distributions of $ 132.1 million were made to noncontrolling interests in fund iii during the year ended december 31 , 2014. of this , $ 95.0 million was from proceeds following the disposition of property , $ 29.1 million resulted from financing proceeds and $ 8.0 million was made from operating cash flows . distributions of $ 73.8 million were made to noncontrolling interests in fund iv during the year ended december 31 , 2014. of this , $ 71.3 million was from the proceeds following the disposition of property and $ 2.5 million resulted from financing proceeds . 43 distributions to other noncontrolling interests within fund joint ventures totaled $ 9.3 million for the year ended december 31 , 2014. investments fund i and mervyns i fund i and mervyns i have returned all invested capital and accumulated preferred return thus triggering our promote in all future fund i and mervyns i earnings and distributions . as of december 31 , 2014 , $ 86.6 million has been invested in fund i and mervyns i , of which the operating partnership contributed $ 19.2 million . as of december 31 , 2014 , fund i currently owned , or had ownership interests in three remaining assets comprising approximately 0.1 million square feet . in addition , we , along with our fund i investors , have invested in mervyns as discussed in note 4 to the consolidated financial statements of this form 10-k. fund ii and mervyns ii to date , fund ii 's primary investment focus has been in investments involving significant redevelopment activities and the rcp venture . as of december 31 , 2014 , $ 300.0 million has been invested in fund ii and mervyns ii , of which the operating partnership contributed $ 60.0 million . during september of 2004 , through fund ii , we launched our new york urban/infill redevelopment initiative . fund ii , together with an unaffiliated partner , formed acadia urban development llc ( `` acadia urban development '' ) for the purpose of acquiring , constructing , redeveloping , owning , operating , leasing and managing certain retail or mixed-use real estate properties in the new york city metropolitan area . the unaffiliated partner agreed to invest 10 % of required capital up to a maximum of $ 2.2 million and fund ii , the managing member , agreed to invest the balance to acquire assets in which acadia urban development agreed to invest . of the eight properties acquired by acadia urban development , three have been sold . of the remaining five assets , two are currently at , or near , stabilization , one is under contract for disposition , one is currently under construction and one is in the pre-construction phase as previously discussed in `` -investing activities- redevelopment activities '' in item 1. of this form 10-k. redevelopment costs incurred during 2014 by acadia urban development in connection with the new york urban/infill redevelopment initiative totaled $ 84.7 million . anticipated additional costs for the property currently under construction are currently estimated to range between ( $ 14.2 ) and $ 15.8 million . these amounts are net of anticipated contributions from the proceeds of residential tower sales and the sale of air rights . rcp venture see note 4 in the notes to consolidated financial statements , for a table summarizing the rcp venture investments from inception through december 31 , 2014 . fund iii during 2007 , we formed fund iii with 14 institutional investors , including all of the investors from fund i and a majority of the investors from fund ii with $ 502.5 million of committed discretionary capital . during 2012 , the committed capital amount was reduced to $ 475.0 million . as of december 31 , 2014 , $ 381.6 million has been invested in fund iii , of which the operating partnership contributed $ 75.9 million . the remaining $ 93.4 million of unfunded capital will be used to fund current redevelopment projects . fund iii has invested in three redevelopment projects as previously discussed in `` —investing activities-redevelopment activities '' in item 1. of this form 10-k. remaining anticipated costs for the three projects currently owned by fund iii that can be estimated aggregate between $ 74.2 million and $ 94.2 million .
| results of operations see note 3 in the notes to consolidated financial statements for an overview of our three reportable segments . a discussion of the significant variances and primary factors contributing thereto within the results of operations for the years ended december 31 , 2014 , 2013 and 2012 are addressed below : comparison of the year ended december 31 , 2014 ( `` 2014 '' ) to the year ended december 31 , 2013 ( `` 2013 '' ) replace_table_token_18_th rental income in the core portfolio increased $ 11.9 million primarily as a result of additional rents of ( i ) $ 9.0 million related to 2014 core portfolio property acquisitions as detailed in note 2 in the notes to consolidated financial statements ( `` 2014 core acquisitions '' ) and ( ii ) $ 4.8 million following the acquisitions of 664 n. michigan avenue , 8-12 east walton , 3200-3204 m street , 868 broadway , 313-315 bowery and 120 west broadway ( `` 2013 core acquisitions '' ) . these increases were partially offset by a $ 1.7 million reduction in rental income following the disposition of walnut hill plaza . rental income in the funds increased $ 10.5 million primarily as a result of additional rents of ( i ) $ 6.0 million related to 2014 fund portfolio property acquisitions as detailed in note 2 in the notes to consolidated financial statements ( `` 2014 fund acquisitions '' ) and ( ii ) $ 4.3 million as a result of re-anchoring and leasing activities within the fund portfolio ( `` fund re-tenanting '' ) . expense reimbursements in the core portfolio increased $ 3.0 million primarily as a result of ( i ) $ 1.4 million related to 2014 core acquisitions , ( ii ) $ 0.7 million related to reimbursement of higher winter related operating costs in 2014 and ( iii ) $ 0.6 million related to 2013 core acquisitions .
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recoverability of an asset or asset group is measured by comparison of its carrying amount to the expected future undiscounted cash flows that the asset or asset group is expected to generate . if it is determined that the 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 and with part i , item 1a , “ risk factors. ” please refer to the cautionary language at the beginning of part i of this annual report on form 10-k regarding forward-looking statements . business overview we continue to focus on executing our system design enablement strategy to deliver the tools necessary for our customers to develop complete and functional electronic products . our growing core electronic design automation business is at the heart of our strategy and is complemented by our business in intellectual property , system interconnect and analysis , system level design and hardware-software development . our business serves customers that are driven by end-user demand for electronics systems , integrated circuits and devices that are smaller , use less power and provide more functionality . we must keep pace with our customers ' technical developments , satisfy industry standards and meet our customers ' increasingly demanding performance , productivity , quality and predictability requirements . we offer innovative solutions to help our customers meet these demands and our future performance depends on our ability to innovate , commercialize newly developed solutions and enhance and maintain our current products . we have identified certain items that management uses as performance indicators to manage our business , including revenue , certain elements of operating expenses and cash flow from operations , and we describe these items further below under the headings “ results of operations ” and “ liquidity and capital resources. ” story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; color : # 000000 ; text-decoration : none ; '' > 2016 , 2015 and 2014 : replace_table_token_11_th cost of product and maintenance cost of product and maintenance includes costs associated with the sale and lease of our emulation and prototyping hardware and licensing of our software and ip products , certain employee salary and benefits and other employee-related costs , cost of our customer support services , amortization of technology-related and maintenance-related acquired intangibles , costs of technical documentation and royalties payable to third-party vendors . costs associated with our emulation and prototyping hardware products include materials , assembly , applicable reserves and overhead . these hardware manufacturing costs make our cost of emulation and prototyping hardware product higher , as a percentage of revenue , than our cost of software and ip products . a summary of cost of product and maintenance for fiscal 2016 , 2015 and 2014 is as follows : replace_table_token_12_th cost of product and maintenance depends primarily on our hardware product sales in any given period . cost of product and maintenance is also affected by employee salary and benefits and other employee-related costs , as well as the timing and extent to which we acquire intangible assets , acquire or license third-parties ' intellectual property or technology and sell our products that include such acquired or licensed intellectual property or technology . 31 the changes in product and maintenance-related costs were due to the following : replace_table_token_13_th emulation and prototyping hardware costs increased during fiscal 2016 , as compared to fiscal 2015 , primarily due to higher emulation hardware volume and an increase in charges for reserves on inventory during fiscal 2016 as we approach the end of the product life cycle of palladium xp , a previous generation of our palladium hardware platform . emulation and prototyping hardware costs decreased during fiscal 2015 , as compared to fiscal 2014 , primarily because charges for inventory reserves were higher during fiscal 2014. gross margins on our hardware products will fluctuate based on customer pricing strategies , product mix , product competition and product life cycle . amortization of acquired intangibles included in cost of product and maintenance increased during fiscal 2016 , as compared to fiscal 2015 , primarily due to the increase in amortization of intangible assets associated with our fiscal 2016 acquisitions . amortization of acquired intangibles included in cost of product and maintenance increased during fiscal 2015 , as compared to fiscal 2014 , primarily due to the increase in amortization of intangible assets associated with our fiscal 2014 acquisitions . for an additional description of our expected amortization of intangible assets , see note 8 of the notes to consolidated financial statements . cost of services cost of services primarily includes employee salary , benefits and other employee-related costs to perform work on revenue-generating projects , costs to maintain the infrastructure necessary to manage a services organization , and provisions for contract losses , if any . cost of services will fluctuate from period to period based on our utilization of design services engineers on revenue-generating projects or on internal development projects . cost of services decreased during fiscal 2016 , as compared to fiscal 2015 , and increased during fiscal 2015 , as compared to fiscal 2014 , primarily due to variation in the number of personnel dedicated to deliver and support our services and custom ip offerings . operating expenses our operating expenses include marketing and sales , research and development and general and administrative expenses . factors that cause our operating expenses to fluctuate include changes in the number of employees due to hiring and acquisitions , restructuring activities , foreign exchange rates , stock-based compensation and the impact of our variable compensation programs that are driven by overall operating results . many of our operating expenses are transacted in various foreign currencies . we recognize lower expenses in periods when the united states dollar strengthens in value against other currencies and we recognize higher expenses when the united states dollar weakens against other currencies . story_separator_special_tag a significant amount of our foreign earnings is generated by our subsidiaries organized in ireland and hungary . our future effective tax rates may be adversely affected if our earnings were to be lower in countries where we have lower statutory tax rates or if we were to repatriate certain foreign earnings on which united states taxes have not been previously accrued . we currently expect that our fiscal 2017 effective tax rate will be similar to our fiscal 2016 effective tax rate . for additional discussion about how our effective tax rate could be affected by various risks , see part i , item 1a , “ risk factors. ” for further discussion regarding our income taxes , see note 10 in the notes to consolidated financial statements . liquidity and capital resources replace_table_token_24_th cash , cash equivalents and short-term investments as of december 31 , 2016 , our principal sources of liquidity consisted of $ 468.3 million of cash , cash equivalents and short-term investments , as compared to $ 711.2 million as of january 2 , 2016 . our primary sources of cash , cash equivalents and short-term investments during fiscal 2016 were cash generated from operations , proceeds from borrowings , proceeds from the sale and maturity of available-for-sale securities , proceeds from the exercise of stock options and proceeds from stock purchases under our employee stock purchase plan . our primary uses of cash , cash equivalents and short-term investments during fiscal 2016 were payments related to salaries and benefits , repurchases of our common stock , other employee-related costs and operating expenses , payments on our revolving credit facility , purchases of property , plant and equipment , acquisitions , and tax payments . approximately 63 % of our cash , cash equivalents and short-term investments were held by our foreign subsidiaries as of december 31 , 2016 . our intent is to indefinitely reinvest our earnings from certain foreign operations . we do not anticipate we will need to repatriate dividends from foreign operations that are indefinitely reinvested in order to fund our domestic operations . in the event that dividends from foreign operations that are currently indefinitely reinvested are needed to fund united states liquidity , we could be required to accrue and pay additional taxes in order to repatriate these funds . for further discussion regarding our income taxes , see note 10 in the notes to consolidated financial statements . we expect that current cash , cash equivalents and short-term investment balances , cash flows that are generated from operations and cash borrowings available under our revolving credit facility will be sufficient to meet our domestic and international working capital needs , and other capital and liquidity requirements , including acquisitions and share repurchases for at least the next 12 months . net working capital net working capital is comprised of current assets less current liabilities , as shown on our consolidated balance sheets . the decrease in our net working capital as of december 31 , 2016 , as compared to january 2 , 2016 , is primarily due to a net decrease in cash , cash equivalents and short-term investments resulting from financing activities , including repurchases of our common stock . 36 cash flows from operating activities cash flows from operating activities during fiscal 2016 , 2015 and 2014 were as follows : replace_table_token_25_th cash flows from operating activities include net income , adjusted for certain non-cash items , as well as changes in the balances of certain assets and liabilities . our cash flows from operating activities are significantly influenced by business levels and the payment terms set forth in our customer agreements . the increase in cash flows from operating activities during fiscal 2016 , as compared to fiscal 2015 , was primarily due to the timing of cash receipts from customers and disbursements made to vendors . the increase in cash flows from operating activities during fiscal 2015 , as compared to fiscal 2014 , was primarily due to improved profitability and the timing of cash receipts from customers and disbursements made to vendors . we expect that cash flows from operating activities will fluctuate in future periods due to a number of factors , including our operating results , the timing of our billings , collections , disbursements and tax payments . cash flows from investing activities cash flows provided by ( used for ) investing activities during fiscal 2016 , 2015 and 2014 were as follows : replace_table_token_26_th the increase in cash flows provided by investing activities during fiscal 2016 , as compared to fiscal 2015 , was primarily due to an increase in proceeds resulting from the sale and maturity of our available-for-sale securities , partially offset by an increase in cash used for business combinations and asset acquisitions . the decrease in cash flows used for investing activities during fiscal 2015 , as compared to fiscal 2014 , was primarily due to the decrease in cash paid for business combinations because we did not complete any acquisitions during fiscal 2015. we expect to continue our investing activities , including purchasing property , plant and equipment , purchasing intangible assets , business combinations , purchasing software licenses , and making long-term equity investments . cash flows from financing activities cash flows provided by ( used for ) financing activities during fiscal 2016 , 2015 and 2014 were as follows : replace_table_token_27_th the decrease in cash used for financing activities during fiscal 2016 , as compared to fiscal 2015 , was primarily due to proceeds from the 2019 term loan and our revolving credit facility and a decrease in payments made to settle outstanding borrowings , offset by an increase in payments made to repurchase shares of our common stock . the increase in cash used for financing activities during fiscal 2015 , as compared to fiscal 2014 , was primarily due to payments made to settle the principal value of the 2015 notes and an increase in payments made to repurchase shares of our common stock .
| results of operations financial results for fiscal 2016 , as compared to fiscal 2015 and 2014 , reflect the following : increased product and maintenance revenue , primarily because of increased demand for our emulation and prototyping hardware and digital ic product offerings ; continued investment in research and development activities focused on creating and enhancing our products to maintain the pace of innovation required by our customers ; increased stock-based compensation included in operating expenses ; and restructuring activities . our fiscal year ends on the saturday closest to december 31. fiscal 2016 and fiscal 2015 were 52-week years , whereas fiscal 2014 was a 53-week year . revenue and expenses included in the results of operations for fiscal 2014 were impacted by the additional week . revenue we primarily generate revenue from licensing our software and ip , selling or leasing our emulation and prototyping hardware technology , providing maintenance for our software , hardware and ip , providing engineering services and earning royalties generated from the use of our ip . the timing of our revenue is significantly affected by the mix of software , hardware and ip products generating revenue in any given period and whether the revenue is recognized in a recurring manner over multiple periods or up front , upon completion of delivery . approximately 90 % of our revenue is recurring in nature , and the remainder of the resulting revenue is recognized up front , upon completion of delivery . recurring revenue includes revenue from our time-based software arrangements , certain ip license arrangements where revenue is recognized over multiple periods , services , royalties from certain ip arrangements , maintenance on perpetual software licenses and hardware , and operating leases of hardware . upfront revenue is primarily generated by our sales of emulation and prototyping hardware and perpetual software and certain ip licenses .
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the primary investment objectives include maximization of return story_separator_special_tag the following discussion provides an analysis of our financial condition and results of operations and should be read in conjunction with the consolidated financial statements and notes thereto included in item 8 of this annual report on form 10-k. selected relationships within the consolidated statements of operations replace_table_token_4_th overview benefitting from having the operating results of neptco , which was acquired in june 2012 , included for the full fiscal year , the company set record highs in fiscal 2013 for both revenues and net income . additionally , favorable product mix and our continued efforts to consolidate production facilities , streamline operations and reduce overhead costs have improved our profitability . revenues from the industrial materials segment exceeded prior year results primarily due to the inclusion of sales from neptco as well as increased sales from our electronic coatings , laminated durable paper , and wire and cable products . these favorable sales were partially offset by a reduction in our product sales to our aerospace and transportation markets compared to those realized in the prior year . revenues from our construction materials segment were slightly down from the prior year primarily due to decreased project demand earlier in the fiscal year from our pipeline coatings products produced at our uk facility . these decreases were partially offset by increased sales of our pipeline products and coating and lining systems , as well as increased demand for our private label products , which are all manufactured domestically . additionally , in the fourth quarter of fiscal 2013 , we started to see increased order activity for certain middle east infrastructure project work that was previously delayed . in the upcoming fiscal year , we will continue with our integration of neptco operations , as well as our global erp system implementation which was initiated in fiscal 2013 and will continue through december 2014. additionally , consolidation efforts will remain a priority and other key strategies will include targeted marketing initiatives supported by new product development , as well as continued emphasis on identifying potential acquisition targets . our balance sheet continues to remain strong , with cash on hand of $ 30.0 million and a current ratio of 3.1. our $ 15.0 million line of credit is fully available , while the balance of our term debt is $ 64.4 million . 15 the company has two reportable segments summarized below : segment product lines manufacturing focus and products industrial materials wire and cable materials electronic coatings custom products neptco products protective coatings and tape products including insulating and conducting materials for wire and cable manufacturers , moisture protective coatings for electronics and printing services , laminated durable papers , flexible composites and laminates for the packaging and industrial laminate markets , pulling and detection tapes used in the installation , measurement and location of fiber optic cables , water and natural gas lines , and cover tapes essential to delivering semiconductor components via tape and reel packaging ; the joint venture also produces fiber optic strength elements designed to allow fiber optic cables to withstand mechanical and environmental strain and stress ( see note 15 to the consolidated financial statements included in this report for further details regarding the joint venture ) . construction materials pipeline coatings construction products coating & lining systems private label protective coatings and tape products including coating and lining systems for use in liquid storage and containment applications , protective coatings for pipeline and general construction applications , high performance polymeric asphalt additives , and expansion and control joint systems for use in the transportation and architectural markets . 16 story_separator_special_tag > cost of products and services sold in our construction materials segment was $ 35,984,000 for the fiscal year ended august 31 , 2013 compared to $ 36,710,000 in fiscal 2012. as a percentage of revenues , cost of products and services sold in the construction materials segment decreased slightly due to a positive sales mix earlier in the fiscal year as we had increased sales of higher margin products coupled with decreased sales of lower margin products . in fiscal 2012 , cost of products and services sold increased $ 20,932,000 or 26 % to $ 101,249,000 for the fiscal year ended august 31 , 2012 compared to $ 80,317,000 in fiscal 2011. as a percentage of revenues , cost of products and services sold increased to 68 % in fiscal 2012 compared to 65 % for fiscal 2011. cost of products and services sold in our industrial materials segment was $ 64,539,000 for the fiscal year ended august 31 , 2012 compared to $ 48,474,000 in fiscal 2011. as a percentage of revenues , cost of products and services sold in this segment increased due to the fair value inventory step up related to the neptco acquisition , the moving expenses related to our plant transitions to oxford and winnersh , the accrued transition costs related to our randolph plant , and supplier inconsistencies , each of which is noted above . cost of products and services sold in our construction materials segment was $ 36,710,000 for the fiscal year ended august 31 , 2012 compared to $ 31,843,000 in fiscal 2011. as a percentage of revenues , cost of products and services sold in the construction materials segment increased primarily due to higher raw material costs , increased sales of lower margin products , and decreased sales of higher margin products . story_separator_special_tag additionally , net income in the prior year period was negatively impacted by the following : ( a ) $ 3,206,000 in acquisition related expenses ; ( b ) expenses of $ 828,000 in inventory fair value step up related to the neptco acquisition ; ( c ) plant transition and moving expenses of $ 874,000 ; and ( d ) accelerated pension settlement charges of $ 550,000 resulting from the timing of lump sum distributions . net income in fiscal 2012 decreased $ 1,593,000 or 15 % to $ 9,338,000 compared to $ 10,931,000 in fiscal 2011. the decrease in net income in fiscal 2012 was a result of the following factors : ( a ) $ 3,206,000 in acquisition related expenses ; ( b ) expenses of $ 828,000 in inventory fair value step up related to the neptco acquisition ; and ( c ) acceleration of defined benefit plan settlement costs of $ 550,000 resulting from the timing of lump sum distributions to participants . in addition , there was an increase in plant transition and moving expenses of $ 874,000 during fiscal 2012. other important performance measures we believe that ebitda and adjusted ebitda are useful performance measures . they are used by our executive management team and board of directors to measure operating performance , to allocate resources , to evaluate the effectiveness of our business strategies and to communicate with our board of directors and investors concerning our financial performance . ebitda and adjusted ebitda are non-gaap financial measures . we define ebitda as follows : net income attributable to chase corporation before interest expense from borrowings , income tax expense , depreciation expense from fixed assets , and amortization from intangible assets . we define adjusted ebitda as ebitda excluding costs related to our acquisitions , costs of products sold related to inventory step-up to fair value , and settlement ( gains ) or losses resulting from lump sum distributions to participants from our defined benefit plan . 20 the use of ebitda and adjusted ebitda has limitations and these performance measures should not be considered in isolation from , or as an alternative to , u.s. gaap measures such as net income . our measurement of adjusted ebitda may not be comparable to similarly titled measures used by other companies . the following table provides a reconciliation of net income attributable to chase corporation , the most directly comparable financial measure presented in accordance with u.s. gaap , to ebitda and adjusted ebitda for the periods presented : replace_table_token_7_th ( a ) represents costs related to our june 2012 acquisition of neptco ( b ) represents expenses related to the step-up in fair value of inventory through purchase accounting from the june 2012 acquisition of neptco ( c ) represents pension related curtailment and settlement costs due to the timing of lump sum distributions liquidity and sources of capital our cash balance increased $ 14,817,000 to $ 29,997,000 at august 31 , 2013 from $ 15,180,000 at august 31 , 2012. this was a result of cash flows generated from operations during the fiscal year , offset by principal payments on outstanding debt , equipment purchases , and payment of our fiscal 2012 annual dividend . our cash balance increased $ 198,000 to $ 15,180,000 at august 31 , 2012 from $ 14,982,000 at august 31 , 2011. the increased cash balance at august 31 , 2012 was a result of cash flows generated from operations during the fiscal year and $ 7,268,000 in cash acquired as part of the neptco acquisition , offset by principal payments on outstanding debt , equipment purchases , and payment of our annual dividend . cash provided by operations was $ 28,157,000 for the year ended august 31 , 2013 compared to $ 13,946,000 in fiscal 2012 and $ 9,303,000 in fiscal 2011. cash provided by operations during fiscal 2013 was primarily due to operating income , offset by decreased accrued expenses and increased inventory balances . cash provided by operations during fiscal 2012 was primarily due to operating income and decreased inventory as a result of higher sales volumes , offset by decreased accounts payable and increased accounts receivable balances . cash provided by operations during fiscal 2011 was primarily due to operating income offset by increased purchases of inventory , as we strategically built up our inventory to facilitate certain manufacturing plant transition plans , and made bulk purchases of key raw materials to take advantage of favorable pricing terms . the ratio of current assets to current liabilities was 3.1 as of august 31 , 2013 compared to 2.8 as of august 31 , 2012. the increase in our current ratio at august 31 , 2013 was primarily attributable to an increase in our overall cash balance due to cash flows generated from operations during the fiscal year , as well as the classification of the insulfab product line assets being held for sale as of fiscal year end ( see note 18 to the consolidated financial statements included in this report ) . cash used in investing activities was $ 3,580,000 for the year ended august 31 , 2013 compared to $ 67,090,000 in fiscal 2012 and $ 4,172,000 in fiscal 2011. during fiscal 2013 , cash used in investing activities was primarily due to $ 3,043,000 paid for purchases of machinery and equipment at our manufacturing locations , and $ 354,000 of professional legal services for new patent work that have been capitalized as intangibles . during fiscal 2012 , cash used in investing activities was primarily due to payments totaling $ 62,217,000 , net of cash 21 acquired , for the acquisition of neptco and $ 5,230,000 paid for purchases of machinery and equipment at our manufacturing locations .
| results of operations revenues and operating profit by segment are as follows : replace_table_token_5_th ( a ) includes $ 564 of expenses related to inventory step up in fair value related to the neptco acquisition , $ 521 of pension related settlement costs due to the timing of lump sum distributions , and idle facility costs of $ 185 from our paterson , nj and randolph , ma facilities . ( b ) includes $ 595 of pension related settlement costs due to the timing of lump sum distributions . ( c ) includes $ 828 of expenses related to inventory step up in fair value related to the neptco acquisition , $ 303 of pension related settlement costs due to the timing of lump sum distributions , and idle facility costs of $ 270 from our paterson , nj and webster , ma facilities . ( d ) includes $ 3,206 in acquisition related expenses , partially offset by a gain of $ 425 related to evanston , il sale leaseback transaction ( e ) includes idle facility costs of $ 706 from our paterson , nj and oxford , ma facilities total revenues total revenues in fiscal 2013 increased $ 67,143,000 or 45 % to $ 216,062,000 from $ 148,919,000 in the prior year . revenues in our industrial materials segment increased $ 67,486,000 or 70 % to $ 163,474,000 for the year ended august 31 , 2013 compared to $ 95,988,000 in fiscal 2012. the increase in revenues from our industrial materials segment in fiscal 2013 was primarily due to increased sales of : ( a ) $ 63,452,000 from neptco product offerings which we acquired in the fourth quarter of the last fiscal year ; ( b ) $ 3,779,000 from our global electronic coatings product line ; and ( c ) $ 2,253,000 from our laminated durable paper products .
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actual results could differ materially for a variety of reasons , including , among others , the effects on the airline industry and the global economy of events such as terrorist activity , changes in oil prices and other disruptions to the world markets ; trends in the airline industry , including growth rates of markets and other economic factors ; risks associated with owning and leasing jet engines and aircraft ; our ability to successfully negotiate equipment purchases , sales and leases , to collect outstanding amounts due and to control costs and expenses ; changes in interest rates and availability of capital , our ability to continue to meet the changing customer demands ; regulatory changes affecting airline operations , aircraft maintenance , accounting standards and taxes ; the market value of engines and other assets in our portfolio . these risks and uncertainties , as well as other risks and uncertainties that could cause our actual results to differ significantly from management 's expectations , are described in greater detail in item 1a of part i , risk factors , which , along with the previous discussion , describes some , but not all , of the factors that could cause actual results to differ significantly from management 's expectations . general . our core business is acquiring and leasing pursuant to operating leases , commercial aircraft engines and related aircraft equipment , and the selective sale of such engines , all of which we sometimes refer to as equipment. as of december 31 , 2011 , 70 of our leases were operating leases and one was a finance lease . as of december 31 , 2011 , we had 71 lessees in 37 countries . our portfolio is continually changing due to acquisitions and sales . as of december 31 , 2011 , our total lease portfolio consisted of 194 engines and related equipment,13 aircraft and three spare engine parts packages with an aggregate net book value of $ 981.5 million . as of december 31 , 2011 , we also managed 26 engines and related equipment on behalf of other parties . on december 30 , 2005 , we entered into a joint venture called wolf with oasis international leasing ( usa ) , inc. , which is now known as waha capital pjsc . wolf completed the purchase of two airbus a340-313 aircraft from boeing aircraft holding company for a purchase price of $ 96.0 million . on may 25 , 2011 , we entered into an agreement with mitsui & co. , ltd. to participate in a joint venture formed as a dublin-based irish limited company willis mitsui & company engine support limited ( wmes ) for the purpose of acquiring and leasing iae v2500-a5 and general electric cf34-10e jet engines . each partner holds a fifty percent interest in the joint venture . we actively manage our portfolio and structure our leases to maximize the residual values of our leased assets . our leasing business focuses on popular stage iii commercial jet engines manufactured by cfmi , general electric , pratt & whitney , rolls royce and international aero engines . these engines are the most widely used engines in the world , powering airbus , boeing , mcdonnell douglas , bombardier and embraer aircraft . critical accounting policies and estimates the preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , including those related to residual values , estimated asset lives , impairments and bad debts . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies , grouped by our activities , affect our more significant judgments and estimates used in the preparation of our consolidated financial statements : leasing related activities . revenue from leasing of aircraft equipment is recognized as operating lease revenue over the terms of the applicable lease agreements . where collection can not be reasonably assured , for example , upon a lessee bankruptcy , we do not recognize revenue until cash is received . we also estimate and charge to income a provision for bad debts based on our experience in the business and with each specific customer and the level of past due accounts . the 26 financial condition of our customers may deteriorate and result in actual losses exceeding the estimated allowances . in addition , any deterioration in the financial condition of our customers may adversely affect future lease revenues . as of december 31 , 2011 , all but one of our leases are accounted for as operating leases . under an operating lease , we retain title to the leased equipment , thereby retaining the potential benefit and assuming the risk of the residual value of the leased equipment . we generally depreciate engines on a straight-line basis over 15 years to a 55 % residual value . spare parts packages are generally depreciated on a straight-line basis over 15 years to a 25 % residual value . aircraft are generally depreciated on a straight-line basis over 13-20 years to a 15 % -17 % residual value . for equipment which is unlikely to be repaired at the end of its current expected life , and is likely to be disassembled upon lease termination , we depreciate the equipment over its estimated life to a residual value based on an estimate of the wholesale value of the parts after disassembly . currently , 50 engines having a net book value of $ 92.9 million are depreciated using this policy . story_separator_special_tag depreciation expense increased $ 2.5 million or 5.2 % to $ 51.3 million for the year ended december 31 , 2011 , from the comparable period in 2010 due to an increase in the average lease portfolio value . on july 1 , 2010 and again on july 1 , 2011 , we adjusted the depreciation for certain older engine types within the portfolio . it is our policy to review estimates regularly to reflect the cost of equipment over the useful life of these engines . the net effect of the change in depreciation estimate had no significant impact to the net income and diluted earnings per share for the year ended december 31 , 2011 over what net income would have otherwise been had the change in depreciation estimate not been made . write-down of equipment . write-down of equipment to their estimated fair values totaled $ 3.3 million for the year ended december 31 , 2011 , an increase of $ 0.4 million from the $ 2.9 million recorded in the comparable period in 2010. a write-down of $ 2.3 million was recorded for the year ended december 31 , 2011 to adjust the carrying values of engine parts held on consignment for which market conditions for the sale of parts has changed . write-downs on held for use equipment to their estimated fair values totaled $ 1.0 million for the year ended december 31 , 2011 , due to the adjustment of carrying values for certain impaired engines within the portfolio to reflect estimated market values . a write-down of $ 2.7 million was recorded for the year ended december 31 , 2010 to adjust the carrying values of engine parts held on consignment for which market conditions for the sale of parts has changed . write-downs on held for use equipment to their estimated fair values totaled $ 0.2 million for the year ended december 31 , 2010 , due to the adjustment of carrying values for certain impaired engines within the portfolio to reflect estimated market values . story_separator_special_tag style= '' margin-top:12px ; margin-bottom:0px ; text-indent:4 % '' > general and administrative expenses . general and administrative expenses increased 9.5 % to $ 29.3 million for the year ended december 31 , 2010 , from the comparable period in 2009 due mainly to increases in selling expenses ( $ 0.7 million ) , accounting , legal and consulting fees ( $ 0.7 million ) , employment related costs ( $ 0.6 million ) , system conversion expenses ( $ 0.5 million ) and employee relocation costs ( $ 0.3 million ) , which was offset partially by decreases in bad debt expense ( $ 0.5 million ) and insurance expense ( $ 0.1 million ) . technical expense . technical expenses consist of the cost of engine repairs , engine thrust rental fees , outsourced technical support services , sublease engine rental expense , engine storage and freight costs . these expenses increased 13.6 % to $ 8.1 million for the year ended december 31 , 2010 , from the comparable period in 2009 due mainly to increases in engine maintenance costs due to higher repair activity ( $ 1.3 million ) and engine operating lease costs ( $ 0.3 million ) , which was partially offset by decreases in outsourced technical support services expenses ( $ 0.4 million ) and engine thrust rental fees due to a decrease in the number of engines being operated at higher thrust levels under the cfm thrust rental program ( $ 0.1 million ) . net finance costs . net finance costs include interest expense , interest income and net ( gain ) /loss on debt extinguishment . interest expense increased 13.6 % to $ 40.9 million for the year ended december 31 , 2010 , from the comparable period in 2009 , due to an increase in average debt outstanding and an increase in the average notional value of interest rate swaps held throughout the period . virtually all of our debt is tied to one-month u.s. dollar libor which decreased from an average of 0.33 % for the year ended december 31 , 2009 to an average of 0.27 % for the year ended december 31 , 2010 ( average of month-end rates ) . at december 31 , 2010 and 2009 , one-month libor was 0.26 % and 0.23 % , respectively . to mitigate exposure to interest rate changes , we have entered into interest rate swap agreements . as of december 31 , 2010 , such swap agreements had notional outstanding amounts of $ 430.0 million , average remaining terms of between two and 51 months and fixed rates of between 2.10 % and 5.05 % . in 2010 and 2009 , $ 18.6 and $ 16.2 million was realized through the income statement as an increase in interest expense , respectively . interest income for the year ended december 31 , 2010 , decreased to $ 0.2 million from $ 0.3 million for the year ended december 31 , 2009 , due to a decrease in cash deposit balances from the prior period . we recorded $ 0.9 million as a gain upon extinguishment of debt in the year ended december 31 , 2009 when we purchased $ 3.0 million original principal amount , representing $ 2.1 million principal outstanding as of may 15 , 2009 , of west 's series 2005-a1 notes for a purchase price of $ 1.2 million . after write-off of unamortized debt issuance costs and purchase discount of $ 0.06 million related to the notes , a gain on extinguishment of debt of $ 0.9 million was recorded in the period . income taxes . income taxes for the year ended december 31 , 2010 , decreased to $ 7.6 million from $ 10.0 million for the comparable period in 2009 reflecting decreased pre-tax income and the impact of discrete items booked in 2009. the overall effective tax rate for the year ended december 31 , 2010 was 38.8 % compared to 30.9 % for the prior year .
| general and administrative expenses . general and administrative expenses increased 21.8 % to $ 35.7 million for the year ended december 31 , 2011 , from the comparable period in 2010 due mainly to increases in employment related costs ( $ 4.0 million ) , selling expenses ( $ 1.0 million ) and accounting , legal and consulting fees ( $ 1.0 million ) . technical expense . technical expenses consist of the cost of engine repairs , engine thrust rental fees , outsourced technical support services , sublease engine rental expense , engine storage and freight costs . these expenses increased 3.7 % to $ 8.4 million for the year ended december 31 , 2011 , from the comparable period in 2010 due mainly to increases in engine maintenance costs due to higher repair activity ( $ 0.9 million ) and higher engine freight costs ( $ 0.3 million ) , which was partially offset by decreases in operating lease costs ( $ 0.5 million ) and engine thrust rental fees due to a decrease in the number of engines being operated at higher thrust levels under the cfm thrust rental program ( $ 0.4 million ) . net finance costs . net finance costs include interest expense , interest income and net ( gain ) /loss on debt extinguishment . interest expense decreased 13.9 % to $ 35.2 million for the year ended december 31 , 2011 , from the comparable period in 2010 , due to a decrease in average debt outstanding and a decrease in the average notional value of interest rate swaps held throughout the period . virtually all of our debt is tied to one-month u.s. dollar libor which decreased from an average of 0.27 % for the year ended december 31 , 2010 to an average of 0.23 % for the year ended december 31 , 2011 ( average of month-end rates ) . at december 31 , 2011 and 2010 , one-month libor was 0.30 % and 0.26 % , respectively .
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our picop display technology uses our widely patented expertise in two dimensional micro-electrical mechanical systems ( mems ) , lasers , optics , and electronics to create a high quality video or still image from a small form factor device with lower power needs than conventional display technologies . our strategy is to develop and supply picop display technology directly or through licensing arrangements to original device manufacturers ( odms ) and original equipment manufacturers ( oems ) in various market segments , including consumer electronics and automotive , for integration into their products . during 2012 , we aligned our operations to our ingredient brand strategy , simplifying our operations and resulting in a significant reduction to our 2013 cash usage relative to 2012. our strategy is to focus our efforts on licensing our technology and selling display engine components to partners who will produce display engines based on picop display technology and either sell those display engines to oems , or incorporate the engines into their own products . our development efforts are focused on improving the performance of display engines through the improvement of both engine system , hardware and software design , and the performance of various components of the display engine . we also provide engineering support to our customers as they prepare to manufacture display engines as well as providing support to odms and oems during the integration and optimization of picop display technology for specific products . the primary objective for consumer applications is to provide users of mobile devices such as smartphones , tablets and other consumer electronics products with a large screen viewing experience produced by a small projector either embedded in the device or via a companion product . these potential products would allow users to watch movies and videos , play games , and display images and other data onto a variety of surfaces , freeing users from the limitations of a small screen . 14 picop display technology could also be combined with other components and systems to be embedded into a vehicle or integrated into a portable standalone head-up display ( hud ) . hud technology allows for important information , such as safety warnings or navigation instructions , to be projected so that it appears in front of vehicle operators where the information can be accessed without taking their eyes off the road . we also see potential for picop display technology in other areas , although we are not currently working with customers . picop display technology could be combined with other components and systems to be incorporated into a pair of glasses to provide the mobile user with a see-through or occluded personal display to view movies , play games or access other content . devices enabled by picop display technology could be used in field-based professions such as service repair or sales to view and share information such as schematics for equipment repair , sales data , orders or contact information on a larger , more user-friendly display . we also see potential for embedding picop display technology in industrial products where our displays could be used for 3d measuring and digital signage , enhancing the overall user experience of these applications . we develop and procure intellectual property rights relating to our technology as a key aspect of our business strategy . we generate intellectual property from our internal research and development activities and our ongoing performance on development contracts . we also have acquired exclusive rights to various technologies under licensing and acquisition agreements . we have incurred substantial losses since inception and expect to incur a substantial loss during the fiscal year ending december 31 , 2014. key accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent liabilities . we evaluate our estimates on an on-going basis . we base our estimates on historical experience , terms of existing contracts , our evaluation of trends in the display and image capture industries , information provided by our current and prospective customers and strategic partners , information available from other outside sources , and on various other assumptions we believe to be reasonable under the circumstances . the results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following key accounting policies require more significant judgments and estimates used in the preparation of our consolidated financial statements : revenue recognition . we evaluate the performance criteria and terms of our collaborative research and development agreements to determine whether revenue should be recognized under a performance-based method or milestone method . significant items included in our evaluation are the following : the nature of our obligation under the agreement , whether provisions leading to variable revenues exist whether any payments are refundable , whether the deliverables should be treated as one unit of accounting or separated into multiple units , whether substantive milestones exist , whether milestone payments are commensurate with either our level of effort or the increase in value of the customer 's rights , and whether a licensing agreement exists . 15 we recognize development revenue as work progresses on the agreement and as our customer accepts the deliverables using a proportional method based on the lesser of the cumulative proportion of total planned costs to be incurred under the agreement or the cash payments received plus outstanding billings for work accepted by the customer . since our collaborative agreements generally require some level of technology development , the actual costs required to complete a contract can vary from our estimates . story_separator_special_tag we compare the projected undiscounted net cash flows associated with the related intangible assets or group of assets over their remaining lives against their respective carrying amounts . measurement of an impairment loss for our intangible assets is based on the difference between the fair value of the asset and its carrying value . inventory . we value inventory at the lower of cost or market with cost determined on a net-realizable value basis . we make significant judgments and estimates to value our inventory and make adjustments to its carrying value . we review several factors in determining the market value of our inventory including evaluating the replacement cost of the raw materials , the net realizable value of the finished goods , and the likelihood of obsolescence . if we do not achieve our targeted sales prices , if market conditions for our components or products were to decline or if we do not achieve our sales forecast , additional reductions in the carrying value of the inventory would be required . warrant liability . in combination with our registered direct offerings of common stock in may and september 2013 , we issued warrants to purchase common stock . based on the terms of the warrants we issued , we have determined that they should be classified as a liability given that the warrants could result in the issuance of a variable number of shares of common stock based on a conditional exchange provision that is outside of our control at any point when the share price of our common stock is equal to or less than the warrant exercise prices . at the dates of issuance , and as of december 31 , 2013 , our common stock was trading at a value less than the exercise prices . as such , the holders may elect to exchange the warrants for a variable number of shares of common stock as determined by a formula included in the warrants . however , the warrants limit the number of shares that may be issued under this exchange provision to one share of common stock for each warrant exchanged . changes in the market value of our common stock may increase or decrease the number of shares to be issued under this exchange feature . at each balance sheet date , we evaluate the fair value of the warrants and any change in value is recorded as a non-operating gain or loss on the statement of operations . due to the features of the warrants , the determination of the fair value of the warrant liability may vary depending on our common stock price . if the price of our common stock is less than the exercise price of the warrant , we will calculate the fair value of the warrant liability as the fair value of the common stock that would be required to be issued to settle the exchange feature of the warrant . if the price of our common stock is greater than the exercise price of the warrant , we will use a binomial option pricing model to estimate the fair value of the warrant as the exchange feature provided per the agreement will no longer be available to the holder . if and when the exchange feature is exercised by the holder , we will recognize a gain or loss on the exchange based on the fair market value of the common stock issued by us to the holder to satisfy the exchange provision . employee share-based compensation . we issue share-based compensation to employees in the form of options exercisable into our common stock and restricted or unrestricted shares of our common stock . we account for equity instruments issued to employees using the straight-line attribution method of allocating the fair value of share-based compensation expense over the requisite service period of the related award . the value of restricted or unrestricted shares is determined using the fair value method , which is based on the number of shares granted and the closing price of our common stock on the nasdaq global market on the date of grant . the value of options is determined using the black-scholes option pricing model with estimates of option lives , stock price volatilities and interest rates , then expensed over the periods of service allowing for pre-vest forfeitures . changes in the estimated inputs or using other option valuation methods could result in materially different option values and share-based compensation expense . the key accounting policies described above are not intended to be a comprehensive list of all of our accounting policies . in many cases , the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles , with no need for us to apply judgment or make estimates . there are also areas in which our judgment in selecting any available alternative would not produce a materially different result to our consolidated financial statements . additional information about our accounting policies , and other disclosures required by generally accepted accounting principles , are set forth in the notes to our consolidated financial statements . 17 inflation has not had a material impact on our revenues , or income from continuing operations over the three most recent fiscal years . story_separator_special_tag research and product development activities , direct material to support development programs , laboratory operations , outsourced development and processing work , and other operating expenses . research and development expense includes costs associated with our work under collaborative research and development arrangements . we allocate our research and development resources based on the business opportunity of the available projects , the skill mix of the resources available and the contractual commitments we have made to customers . the decrease in research and development expense during 2013 , compared to 2012 , is primarily attributable to decreased payroll costs associated with reductions in staffing levels , lower subcontracted services and lower non-cash compensation expense .
| results of operations year ended december 31 , 2013 compared to year ended december 31 , 2012 product revenue . replace_table_token_3_th product revenue during 2013 primarily included sales of components to pioneer under our `` image by picop '' ingredient brand business model . product revenue during 2012 included sales of components to pioneer , sales of our showwx line of accessory pico projectors and sales of our picop display engines . our quarterly and annual revenue may vary substantially due to the timing of orders from customers , production constraints and availability of components and raw materials . in 2012 , we reduced our sales and marketing effort on our sales of our showwx line of accessory pico projectors . product revenue was lower during the year ended december 31 , 2013 than the same period in 2012 , due to lower sales of components to pioneer and decreased sales of our picop display engines and finished units . we have fulfilled all open orders from pioneer , and do not expect to receive additional follow-on orders . the backlog of product orders at december 31 , 2013 was approximately $ 147,000 , compared to $ 1.7 million at december 31 , 2012. the product backlog is scheduled for delivery within one year . contract revenue . replace_table_token_4_th we earn contract revenue from performance on development contracts with commercial customers and the u.s. government and from the sale of prototype units and evaluation kits and sales of test equipment built specifically for use in display engine production . our contract revenue from development contracts in a particular period is dependent upon when we enter into a contract , the value of the contracts we have entered into , and the availability of technical resources to perform work on the contracts .
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actual maturities may differ from contractual maturities because story_separator_special_tag management 's discussion and analysis of earnings and related financial data is presented to assist in understanding the financial condition and results of operations of atlantic capital bancshares , inc. and its subsidiaries . this discussion and analysis should be read in conjunction with the audited consolidated financial statements and related notes included in this annual report on form 10-k. intercompany accounts and transactions have been eliminated . although certain amounts for prior years have been reclassified to conform to statement presentations for 2016 , the reclassifications have no material effect on shareholders ' equity or net income as previously reported . unless otherwise noted , for purposes of this section , “ atlantic capital ” refers to the consolidated financial position and consolidated results of operations for atlantic capital bancshares , inc. reclassification subsequent to the earnings release furnished as exhibit 99.1 to atlantic capital 's current report on form 8-k filed on january 27 , 2017 , the company recorded an adjustment of $ 764,000 to increase an incentive accrual . as a result of the foregoing adjustment , net income for the year ended december 31 , 2016 was reduced by $ 470,000 from the amount previously reported . total assets and liabilities at december were increased by $ 294,000. story_separator_special_tag seasoning of the loan portfolio , economic conditions , and the findings of internal credit quality assessments and results from external bank regulatory examinations . while management uses the best information available to establish the allowance for loan losses , future adjustments may become necessary if conditions differ substantially from the assumptions used in making the estimates . in addition , regulatory examiners may require adjustments to the allowance for loan losses based on their judgments about information available to them at the time of their examination . such adjustments to original estimates , as necessary , are made and reflected in the financial results in the period in which these factors and other relevant considerations indicate that loss levels may vary from previous estimates . management continuously monitors and actively manages the credit quality of the entire loan portfolio and recognizes provision expense to maintain the allowance at an appropriate level . specific allowances for impaired loans are determined by analyzing estimated cash flows discounted at a loan 's original rate or collateral values in situations where atlantic capital believes repayment is dependent on collateral liquidation . management considers the established all adequate to absorb losses that relate to loans outstanding at december 31 , 2016 , although future additions may be necessary based on changes in economic conditions , collateral values , erosion of the borrower 's access to liquidity and other factors . if the financial condition of borrowers were to deteriorate , resulting in an impairment of their ability to make payments , atlantic capital 's estimates would be updated and additions to the all may be required . fair value measurements . atlantic capital 's impaired loans and foreclosed assets may be measured and carried at fair value , the determination of which requires management to make assumptions , estimates and judgments . see note 18 “ fair value measurements ” in the consolidated financial statements for additional disclosures regarding the fair value of our assets and liabilities . 34 when a loan is considered individually impaired , a specific valuation allowance is allocated , if necessary , so that the loan is reported net , at the present value of estimated future cash flows using the loan 's existing rate or at the fair value of collateral if repayment is expected solely from the collateral . in addition , foreclosed assets are carried at the lower of cost , fair value , less cost to sell , or listed selling price less cost to sell , following foreclosure . fair value is defined by gaap as “ the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. ” gaap further defines an “ orderly transaction ” as “ a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets . it is not a forced transaction ( for example , a forced liquidation or distress sale ) . ” although management believes its processes for determining the value of impaired loans and foreclosed properties are appropriate and allow atlantic capital to arrive at a fair value , the processes require management judgment and assumptions and the value of such assets at the time they are revalued or divested may be significantly different from management 's determination of fair value . in addition , because of subjectivity in fair value determinations , there may be grounds for differences in opinions , which may result in disagreements between management and atlantic capital bank 's regulators , disagreements which could cause atlantic capital bank to change its judgments about fair value . the fair values for available-for-sale securities are generally based upon quoted market prices or observable market prices for similar instruments . atlantic capital utilizes a third-party pricing service to assist with determining the fair value of its securities portfolio . the pricing service uses observable inputs when available including benchmark yields , reported trades , broker-dealer quotes , issuer spreads , benchmark securities , bids and offers . these values take into account recent market activity as well as other market observable data such as interest rate , spread and prepayment information . when market observable data is not available , which generally occurs due to the lack of liquidity for certain securities , the valuation of the security is subjective and may involve substantial judgment by management . atlantic capital periodically reviews available-for-sale securities that are in an unrealized loss position to determine whether other-than-temporary impairment exists . an unrealized loss exists when the current fair value of an individual security is less than its amortized cost-basis . story_separator_special_tag table 1 - average balance sheets and net interest analysis ( dollars in thousands ; taxable equivalent ) twelve months ended december 31 , 2016 2015 2014 average balance interest income/expense yield/rate average balance interest income/expense yield/rate average balance interest income/expense yield/rate assets interest bearing deposits in other banks $ 92,744 $ 583 0.63 % $ 65,093 $ 263 0.40 % $ 56,352 $ 214 0.38 % other short-term investments 23,134 318 1.37 % 49,014 652 1.33 % 36,804 311 0.85 % investment securities : taxable investment securities 310,815 4,755 1.53 % 161,597 3,179 1.97 % 141,627 3,035 2.14 % non-taxable investment securities ( 1 ) 46,239 1,427 3.09 % 4,199 185 4.41 % 2,100 113 5.38 % total investment securities 357,054 6,182 1.73 % 165,796 3,364 2.03 % 143,727 3,148 2.19 % total loans 1,986,482 80,781 4.07 % 1,192,103 44,562 3.74 % 918,959 32,762 3.57 % fhlb and frb stock 15,617 837 5.36 % 4,338 189 4.36 % 3,917 146 3.73 % total interest-earning assets 2,475,031 88,701 3.58 % 1,476,344 49,030 3.32 % 1,159,759 36,581 3.15 % non-earning assets 234,107 105,343 67,471 total assets $ 2,709,138 $ 1,581,687 $ 1,227,230 liabilities interest bearing deposits : now , money market , and savings 1,170,879 4,889 0.42 % 745,777 2,840 0.38 % 605,014 2,376 0.39 % time deposits 208,800 936 0.45 % 58,133 150 0.26 % 16,322 69 0.42 % internet and brokered deposits 207,543 1,574 0.76 % 140,416 628 0.45 % 107,575 444 0.41 % total interest-bearing deposits 1,587,222 7,399 0.47 % 944,326 3,618 0.38 % 728,911 2,889 0.40 % total borrowings 176,122 825 0.47 % 84,196 447 0.53 % 100,326 560 0.56 % total long-term debt 49,275 3,285 6.67 % 12,805 858 6.70 % — — — % total interest-bearing liabilities 1,812,619 11,509 0.63 % 1,041,327 4,923 0.47 % 829,237 3,449 0.42 % demand deposits 559,762 352,437 254,861 other liabilities 35,314 17,248 7,445 shareholders ' equity 301,443 170,675 135,687 total liabilities and shareholders ' equity $ 2,709,138 $ 1,581,687 $ 1,227,230 net interest spread 2.95 % 2.85 % 2.73 % net interest income and net interest margin ( taxable equivalent ) ( 2 ) $ 77,192 3.12 % $ 44,107 2.99 % $ 33,132 2.86 % ( 1 ) interest revenue on tax-exempt securities has been increased to reflect comparable interest on taxable securities . the rate used was 35 % , reflecting the statutory federal income tax rate . ( 2 ) taxable equivalent net interest income divided by total interest-earning assets using the appropriate day count convention based on the type of interest-earning asset . for a reconciliation of non-gaap financial measures , see item 6. selected financial data - non-gaap performance measures reconciliation . 37 the following table shows the relative effect on net interest income for changes in the average outstanding amounts ( volume ) of interest-earning assets and interest-bearing liabilities and the rates earned and paid on such assets and liabilities ( rate ) . variances resulting from a combination of changes in rate and volume are allocated in proportion to the absolute dollar amounts of the change in each category . replace_table_token_6_th provision for loan losses management considers a number of factors in determining the required level of the allowance for loan losses and the provision required to achieve what is believed to be appropriate reserve level , including historical loss experience , loan growth , credit risk rating trends , nonperforming loan levels , delinquencies , loan portfolio concentrations and economic and market trends . the provision for loan losses represents management 's determination of the amount necessary to be charged against the current period 's earnings to maintain the allowance for loan losses at a level that it considered adequate in relation to the estimated losses inherent in the loan portfolio . the provision for loan losses was $ 3.8 million in 2016 , a decrease of $ 4.2 million , or 53 % , compared to 2015. the provision for loan losses was $ 8.0 million in 2015 , an increase of $ 7.5 million compared to 2014. in accordance with the accounting guidance for business combinations , there was no allowance for loan losses brought forward on loans acquired from first security on october 31 , 2015. at december 31 , 2015 , atlantic capital included the performing non-impaired loans acquired from first security in its general allowance calculation in order to reflect the necessary allowance for incurred losses , which accounted for a majority of the decrease in provision expense from 2015 to 2016 , and a majority of the increase in the provision expense from 2014 to 2015. at december 31 , 2016 , nonperforming loans totaled $ 1.6 million compared to $ 8.5 million at december 31 , 2015. the decrease was attributable to the payoff and sale of loans associated with two legacy atlantic capital relationships totaling approximately $ 7.7 million which were on nonaccrual status as of december 31 , 2015. net loan charge-offs were 0.11 % , 0.05 % and ( 0.01 ) % , respectively , of average loans for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . the allowance for loan losses to total loans at december 31 , 2016 was 1.04 % , compared to 1.06 % at december 31 , 2015 . 38 noninterest income noninterest income was $ 21.7 million in 2016 , compared with $ 9.4 million in 2015 , and $ 5.3 million in 2014. the following table presents the components of noninterest income . replace_table_token_7_th service charges for the year ended december 31 , 2016 increased $ 2.9 million , or 110 % from 2015. the increase was primarily due to the addition of first security deposits . mortgage income and trust income for 2016 increased from 2015 due to these two new lines of business acquired from first security .
| executive overview and earnings summary on october 31 , 2015 , atlantic capital completed the acquisition of first security and its wholly-owned bank subsidiary fsgbank . the acquired entity 's results are included in atlantic capital 's consolidated results beginning on october 31 , 2015 , the acquisition date . atlantic capital reported net income of $ 13.4 million for the year ended december 31 , 2016. this compared to a net loss of $ 1.3 million for the year ended december 31 , 2015. diluted income per common share was $ .53 for 2016 , compared to diluted loss per common share of $ .09 for 2015. the increase in net income for the year ended december 31 , 2016 compared to 2015 was primarily the result of a $ 32.7 million , or 74 % , increase in net interest income before provision for loan losses , as well as a $ 4.2 million , or 53 % , decrease in the provision for loan losses . during the fourth quarter of 2015 , atlantic capital recorded a loan loss provision related to the acquired first security loan portfolio in the amount of $ 6.8 million . in addition , noninterest income increased $ 12.3 million , or 131 % , from 2015 to 2016 , due to the $ 3.9 million gain on the sale of seven branches , increased service charges and higher trust and mortgage income due to the acquisition of first security . this was offset by a $ 27.3 million , or 60 % , increase in noninterest expense , resulting primarily from an $ 18.2 million increase in salary and benefits , equipment and software , and data processing expenses related to the acquisition of first security .
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md & a is provided as a supplement to , and should be read in conjunction with , the consolidated financial statements and notes to consolidated financial statements contained in item 8 of this form 10-k. the following discussion includes forward-looking statements that involve certain risks and uncertainties . see part i , item 1 , “ business- forward-looking statements and associated risks ” in the beginning of this form 10-k. the md & a includes the following sections : business - a general description of dentsply sirona 's business and how performance is measured ; results of operations - an analysis of the company 's consolidated results of operations for the three years presented in the consolidated financial statements ; critical accounting policies and estimates- a discussion of accounting policies that require critical judgments and estimates ; and liquidity and capital resources - an analysis of cash flows ; debt and other obligations ; off-balance sheet arrangements ; and aggregate contractual obligations . 2020 operational highlights for the year ended december 31 , 2020 , net sales decreased 17.1 % compared to the year ended december 31 , 2019. net sales were positively impacted by approximately 0.3 % due to the weakening of the u.s. dollar over the prior year period . net sales , on an organic sales basis ( a non-gaap measure as defined under the heading `` principal measurements '' below ) , decreased 16.7 % for the year ended december 31 , 2020 as compared to december 31 , 2019. for the year ended december 31 , 2020 , the company reported net loss attributable to dentsply sirona of $ 83 million as compared to the net income attributable to dentsply sirona of $ 263 million for the year ended december 31 , 2019. the company reported diluted net loss per share of $ 0.38 per share compared to a net income per share of $ 1.17 in the prior year . for the year ended december 31 , 2020 , cash from operations was $ 635 million , as compared to $ 633 million in the prior year ended december 31 , 2019. during the year , the company continued to execute on the restructuring plan that was announced in november 2018. the company also announced an addition to the plan in august 2020. under this plan , the company is undergoing a restructuring to drive revenue growth , margin expansion and to simplify its organization . company profile dentsply sirona inc. ( “ dentsply sirona ” or the “ company ” ) , is the world 's largest manufacturer of professional dental products and technologies , with a 134-year history of innovation and service to the dental industry and patients worldwide . dentsply sirona develops , manufactures , and markets a comprehensive solutions offering including dental equipment and dental consumable products under a strong portfolio of world class brands . the company also manufactures and markets healthcare consumable products . as the dental solutions company , dentsply sirona 's products provide innovative , high-quality and effective solutions to advance patient care and deliver better , safer and faster dentistry . dentsply sirona 's worldwide headquarters is located in charlotte , north carolina . the company 's shares of common stock are listed in the united states on nasdaq under the symbol xray . business the company operates in two operating segments , technologies & equipment and consumables . 37 the technologies & equipment segment is responsible for the design , manufacture , sales and distribution of the company 's dental technology and equipment products and healthcare consumable products . these products include dental implants , cad/cam systems , orthodontic clear aligner products , imaging systems , treatment centers , instruments , as well as consumable medical device products . the consumables segment is responsible for the design , manufacture , sales and distribution of the company 's dental consumable products which include preventive , restorative , endodontic , and dental laboratory products . the impacts of covid-19 and the company 's response the impacts to the company 's net sales and net income during the year ended december 31 , 2020 were as follows : as previously announced , in the early part of the first quarter , the company started to experience declines in customer demand in asia as a result of the effects of covid-19 . as covid-19 spread to other geographies during the first quarter , the company experienced effects on customer demand in those regions as well . in early march , the company experienced declines in demand in the european region , followed by north and south america in the second half of march . these decreases in demand were primarily driven by the government actions taken to limit the spread of covid-19 . additionally , end-user demand was affected by guidance from professional dental associations recommending practitioners only perform emergency procedures . following march , the company continued to see lower levels of customer demand on a global basis as a result of government authorities extending actions taken in response to covid-19 . the company experienced the lowest sales levels in april , however , it began to see an increase in sales during may and june as most stay-at-home orders were lifted and dental practices started to re-open particularly in the united states , europe , and certain asian countries within the rest of world region . in the second half of 2020 , the company continued to see demand improve in both the united states and europe , while the rest of the world sales started to show improvement in the fourth quarter . while government authorities have lifted many of their restrictions , the end dates for all restrictions being lifted are still unknown . it is also uncertain when customer demand will fully return to pre-covid-19 levels upon lifting these restrictions . story_separator_special_tag at december 31 , 2020 , there were no outstanding borrowings under these facilities and the company 's $ 700 million 2018 credit facility . the impact to the company 's net sales and net income subsequent to december 31 , 2020 includes : governments have continued the imposition of certain restrictions in europe which began in the fourth quarter due to the rising number of covid-19 infections . at this time it is uncertain the impact these actions and further restrictions could potentially have on the company 's net sales and net income . the company has continued to prioritize employee safety and preventing the possible spread of covid-19 by encouraging ongoing work-from-home where possible and maintaining travel restrictions . up through the date of the filing of this form 10-k , the company 's principal manufacturing facilities and other operations have now returned to a more normalized level . the company continues to monitor the covid-19 pandemic . as governmental authorities adjust restrictions globally , the company plans to appropriately staff sales , manufacturing , and other functions to meet customer demand and deliver on continuing critical projects while also complying with all government requirements . 39 principal measurements the principal measurements used by the company in evaluating its business are : ( 1 ) constant currency sales growth by segment and geographic region ; ( 2 ) organic sales growth by segment and geographic region ; and ( 3 ) adjusted operating income and margins of each reportable segment , which excludes the impacts of purchase accounting , corporate expenses , and certain other items to enhance the comparability of results period to period . these principal measurements are not calculated in accordance with accounting principles generally accepted in the united states ( `` us gaap '' ) ; therefore , these items represent non-gaap measures . these non-gaap measures may differ from other companies and should not be considered in isolation from , or as a substitute for , measures of financial performance prepared in accordance with us gaap . the company defines “ constant currency ” sales growth as the increase or decrease in net sales from period to period excluding the impact of changes in foreign currency exchange rates . this impact is calculated by comparing current-period revenues to prior-period revenues , with both periods converted to the u.s. dollar using local currency foreign exchange rates for each month of the prior period , for the currencies in which the company does business . the company defines `` organic sales '' as the increase or decrease in net sales excluding : ( 1 ) net sales from acquired and divested businesses recorded prior to the first anniversary of the acquisition or divestiture , ( 2 ) net sales attributable to discontinued product lines in both the current and prior year periods , and ( 3 ) the impact of foreign currency translation , which is calculated by comparing current-period sales to prior-period sales , with both periods converted to the u.s. dollar rate at local currency foreign exchange rates for each month of the prior period . the `` organic sales '' measure is not calculated in accordance with us gaap ; therefore , this item represents a non-gaap measure . this non-gaap measure may differ from those used by other companies and should not be considered in isolation from , or as a substitute for , measures of financial performance prepared in accordance with us gaap . organic sales is an important internal measure for the company . the company 's senior management receives a monthly analysis of operating results that includes organic sales . the performance of the company is measured on this metric along with other performance metrics . the company discloses organic sales to allow investors to evaluate the performance of the company 's operations exclusive of certain items that impact the comparability of results from period to period and may not be indicative of past or future performance of the normal operations of the company . the company believes that this information is helpful in understanding underlying net sales trends . business drivers the primary drivers of internal sales growth include macroeconomic factors , global dental market demand , innovation and new product launches by the company , as well as continued investments in sales and marketing resources , including clinical education . management believes that the company 's ability to execute its strategies should allow it to grow faster than the underlying dental market over time . on a short-term basis , sudden changes in the macroeconomic environment such as those caused by the impacts of covid-19 , changes in strategy , or distributor inventory levels can and have impacted the company 's sales . the company has a focus on maximizing operational efficiencies on a global basis . the company has expanded the use of technology as well as process improvement initiatives to enhance global efficiency . in addition , management continues to evaluate the worldwide consolidation of operations and functions to further reduce costs . while the company continues consolidation initiatives which can have an adverse impact on reported results in the short term , the company expects that the continued benefits from these global efficiency efforts will improve its cost structure . product innovation is a key component of the company 's overall growth strategy . new advances in technology are anticipated to have a significant influence on future products in the dentistry and consumable medical device markets in which the company operates . as a result , the company continues to pursue research and development initiatives to support technological development , including collaborations with various research institutions and dental schools . in addition , the company licenses and purchases technologies developed by third parties . although the company believes these activities will lead to new innovative dental and healthcare products , they involve new technologies and there can be no assurance that marketable products will be developed .
| results of operations 2020 compared to 2019 net sales the company presents net sales comparing the current year periods to the prior year periods . in addition , the company also compares net sales on an organic sales basis , which is a non-gaap measure . the company defines `` organic sales '' as the increase or decrease in net sales excluding : ( 1 ) net sales from acquired and divested businesses recorded prior to the first anniversary of the acquisition or divestiture , ( 2 ) net sales attributable to discontinued product lines in both the current and prior year periods , and ( 3 ) the impact of foreign currency translation , which is calculated by comparing current-period sales to prior-period sales , with both periods converted to the u.s. dollar rate at local currency foreign exchange rates for each month of the prior period . the `` organic sales '' measure is not calculated in accordance with us gaap ; therefore , this item represents a non-gaap measure . this non-gaap measure may differ from those used by other companies and should not be considered in isolation from , or as a substitute for , measures of financial performance prepared in accordance with us gaap . organic sales is an important internal measure for the company . the company 's senior management receives a monthly analysis of operating results that includes organic sales . the performance of the company is measured on this metric along with other performance metrics . the company discloses organic sales to allow investors to evaluate the performance of the company 's operations exclusive of certain items that impact the comparability of results from period to period and may not be indicative of past or future performance of the normal operations of the company . the company believes that this information is helpful in understanding underlying net sales trends .
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as of december 31 , 2016 , we had approximately 382,100 members in our dental and vision benefit programs with approximately 2,900 providers participating in our dental hmo network , approximately 3,100 providers participating in our dentaselect dental ppo network and approximately 2,200 in our balanced value dental ppo network . the company has a network access agreement with a national dental network management company that has one of the largest ppo networks of providers under contract in the united states . with this network access agreement , our dental ppo members have access to approximately 2,700 additional providers in ohio and indiana and approximately 45,300 additional providers throughout the united states . the company also has other network access arrangements for the dental ppo plans that it offers on the ohio , indiana , pennsylvania , georgia and tennessee exchanges . with this network access arrangement , ffm exchange members have access to the following approximate number of providers in 2016 in these five states : ohio – 2,900 providers ; indiana – 1,100 providers ; pennsylvania – 1,400 providers ; georgia – 1,700 providers ; tennessee – 700 providers . we manage our business with four reportable segments : fully-insured dental hmo and indemnity ( “ dental hmo/ind ” ) , fully-insured dental ppo , self-insured dental , and corporate , all other . self-insured dental consists of the self-insured dental hmo , self-insured dental ppo and self-insured dental indemnity products . corporate , all other primarily consists of revenue associated with our dental and vision products underwritten by third-party insurance carriers and certain other corporate activities . the results of our fully-insured dental hmo/ind , fully-insured dental ppo and self-insured dental segments are measured by gross profit . we do not measure the gross profit of our corporate , all other segment . we do not allocate investment and other income , insurance expenses , assets or liabilities to our segments because these measures are not used to analyze the segments . our segments do not share overhead costs or assets . we do , however , measure the contributions of each of our fully-insured and self-insured segments to costs retained in our corporate , all other segment . 17 profitability strategy our strategy focuses on providing solutions to employers and individuals to manage the rising cost of dental care by leveraging our products that give employer groups and members options that meet their needs . we strive to provide excellent customer service to our employer groups , members , brokers and providers . additionally , we have increased the diversification of our membership base , not only through our newer products , but also by entering new geographic territories . in our markets , there has been limited growth in recent years in the number of individuals enrolled in dental benefit plans . however , there has been a shift of membership out of the more expensive dental indemnity products into the dental ppo products that offer both less expensive in-network benefits and out-of-network benefits . at the same time , members have migrated away from dental hmo products with very limited provider networks . while these dental hmo products are the least expensive , employers and members have focused their attention on the dental ppo products that offer broad provider access with the cost control associated within a contracted provider network for the in-network portion of the dental services rendered . prior to the advent of the aca , there was limited growth in the number of individuals enrolled in dental benefit plans . beginning in 2014 , there has been a significant increase in publicly funded dental membership that was the result of the expansion of medicaid in certain states and the dental membership associated with state-based insurance exchanges across the country . in our original eight county service area , our non-exclusive dental hmo provider network includes approximately 95 % of the dental providers in the market . this area , which we refer to as our original eight county service area , includes butler , clermont , hamilton and warren counties in ohio , and boone , campbell , kenton and pendleton counties in kentucky . in that market our dental hmo provides the broad provider access of a dental ppo along with effective utilization and cost control features . because of the broad provider network and our professional support services to employers , our fully-insured dental hmo is priced higher than other dental hmos and has premium rates more equivalent to competitor dental ppos . we have experienced steady growth in membership and revenue in our dental products during the last five years . we attribute this growth to our broad provider networks , competitive premium rates for our fully-insured business and aso fees for our self-insured business , and our commitment to providing outstanding customer service to all of our constituencies ( employer groups , members , brokers , and providers ) . historically , healthcare services expense has generally increased for both the fully-insured dental segment and the self-insured dental segment . we continue to review and adjust our provider fee schedules where appropriate . other important factors that have an impact on our profitability are both the competitive pricing environment and market conditions . with respect to pricing , there is a tradeoff between sustaining or increasing underwriting margins versus increasing enrollment . with respect to market conditions , economies of scale have an impact on our administrative overhead . as a result of a decline in preference for more closely managed dental hmo products , dental costs have become increasingly comparable among our larger competitors . product design and consumer involvement have become more important drivers of dental services consumption , and administrative expense efficiency is becoming a more significant driver of margin sustainability . consequently , we continually evaluate our administrative expense structure and attempt to realize administrative expense savings principally through technology improvements . story_separator_special_tag 21 ( amounts in thousands ) 2016 2015 total dollar change member volume change utilization and fee schedule change self-insured healthcare services expense $ 25,114 $ 24,954 $ 160 $ 104 $ 56 self-insured healthcare services expense increased slightly 0.6 % , in 2016. an increase of 0.2 % in self-insured member month volume in 2016 compared to 2015 resulted in an increase in self-insured healthcare services expense of approximately $ 104,000 . self-insured dental healthcare services expense increased by approximately $ 125,000 due to fee schedule increases effective january 1 , 2016. these were offset by a decrease of approximately $ 69,000 due to an decrease in dental service utilization by our self-insured members in 2016 compared to 2015. corporate , all other healthcare services expense is not recognized by the company due to the fact that our other dental indemnity , dental ppo and vision ppo products are underwritten by third party insurance carriers . insurance expenses consolidated insurance expenses increased approximately $ 2,067,000 in 2016. total insurance expenses as a percentage of total premium revenue , or the insurance expense ratio , was 21.0 % for 2016 , increasing 0.6 % from the 2015 ratio of 20.4 % . salaries and wages increased by approximately $ 1,255,000 in 2016 primarily due to the addition of new employees . commissions expense increased approximately $ 118,000 , due to the increase in total premium revenue in 2016 compared to 2015. other insurance expense increased by approximately $ 694,000 due to an increase in expenses related to the launch of the individual dental ppo product in indiana as well as the development of the on exchange dental ppo products for illinois and virginia for 2017. income taxes our effective tax rate for 2016 was 40.7 % compared to the 45.5 % effective tax rate in 2015. the decrease in the effective tax rate in 2016 compared to 2015 is primarily the result of the lower impact of non-deductible expenses as compared to overall income before income taxes . also , ou r 2016 and 2015 effective tax rates were higher than the federal statutory rate primarily due to the impact of permanent tax differences related to nondeductible federal premium tax , legal fees and meal and entertainment expenses . see note 10 to the consolidated financial statements included in item 8-financial statements and supplementary data for a complete reconciliation of the federal statutory rate to the effective tax rate . 22 comparison of results of operations for 201 5 and 201 4 the following table shows membership totals and revenues and expenses for our four business segments for the years ended december 31 , 2015 and 2014 ( dollars in thousands ) : replace_table_token_10_th summary net income was approximately $ 958,000 and $ 1,341,000 for 2015 and 2014 , respectively . this decrease in net income is primarily the result of an increase in insurance expense of approximately $ 1,751,000. our ratio of insurance expense to total premium revenue ( “ insurance expense ratio ” ) increased to 20.4 % in 2015 from 19.9 % in 2014. membership our fully-insured dental hmo/ind membership increased by approximately 3,000 in 2015. this membership increase is primarily attributable to an increase in fully-insured dental hmo membership resulting from new sales of approximately 6,500 members in the cincinnati and northern kentucky markets during 2015. an increase of approximately 2,300 is due to an increase of new sales of our individual dental hmo product . these increases were offset by the loss of approximately 5,800 members due to employer groups that did not renew with the company or reduced employee counts of retained employer groups . some of our fully-insured dental hmo membership losses were the result of employer groups moving to medical carriers to take advantage of medical/dental package savings . our fully-insured dental ppo membership increased by approximately 9,700 members in 2015. this membership increase is due to new sales in the dayton and central ohio markets and the southern kentucky market of approximately 11,600 members during 2015 , offset by the loss of approximately 3,200 members with employer groups that did not renew with the company or reduced employee counts of retained employer groups in these markets . the remaining increase of approximately 1,300 members is due to the new sales on individual and on exchange dental ppo products in 2015 . 23 our self-insured dental membership increased by approximately 6,300 members in 2015. this increase is due to both the addition of new self-insured dental hmo and dental ppo employer groups in the southwest ohio and northern kentucky markets , and an increase in membership of existing employer groups in the last twelve months . our corporate , all other membership increased by approximately 7,300 members in 2015. the increase is due to increased membership in our vision plan . revenue ( amounts in thousands ) 2015 2014 total dollar change member volume change rate change total fully-insured dental hmo/ind premium $ 49,458 $ 47,948 $ 1,510 $ 1,011 $ 499 fully-insured dental hmo/ind premium rates negotiated with employer groups at their renewals resulted in an increase of approximately $ 499,000 in fully-insured dental hmo/ind premium revenue . an increase in fully-insured dental hmo/ind membership in 2015 resulted in an increase in fully-insured dental hmo/ind premiums of approximately $ 1,011,000. the membership increase is the result of new fully-insured employer group business as well as an increase in the fully-insured individual product membership . t he fully-insured dental hmo/ind segment represented approximately 50.3 % of our total dental business in 2015 . ( amounts in thousands ) 2015 2014 total dollar change member volume change rate change total fully-insured dental ppo premium $ 19,198 $ 16,459 $ 2,739 $ 2,353 $ 386 fully-insured dental ppo premium rates negotiated with employer groups at their renewals resulted in an increase of approximately $ 386,000 in fully-insured dental ppo premium revenue .
| highlights ● we had net income of approximately $ 1,989,000 for the year ended december 31 , 2016 compared to net income of approximately $ 958,000 for the year ended december 31 , 2015. the increase in net income is primarily the result of higher gross margin of approximately $ 3,517,000 offset by an increase in insurance expense of approximately $ 2,067,000. our ratio of insurance expense to total premium revenue ( “ insurance expense ratio ” ) increased to 21.0 % in 2016 from 20.4 % in 2015 . ● our ratio of healthcare services expense to premium revenue ( “ loss ratio ” ) decreased by approximately 1.8 % from 78.0 % in 2015 to 76.2 % in 2016. the improved loss ratio impacted 2016 by approximately $ 132,000 in gross margin . the fully-insured dental hmo/ind and fully-insured dental ppo segments together represent approximately 71.7 % of our total dental business . ● our dental and vision products grew by approximately 19,900 members , or 5.5 % , from 362,200 members at december 31 , 2015 to 382,100 members at december 31 , 2016. this membership increase from december 31 , 2015 is due to an increase in fully-insured dental hmo/ind membership of approximately 8,800 members , an increase in fully-insured dental ppo membership of approximately 9,700 members and an increase in corporate , all other membership of approximately 3,900 members . this was offset by a slight decrease in self-insured dental membership of approximately 2,500 members . ● in march 2016 , we paid a dividend of $ 40.47 per share to shareholders of record for all redeemable common shares . we paid a dividend in march 2015 of $ 39.86 per share to shareholders of record for all redeemable common shares .
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the company and synbiotics shall be equal partners in the joint venture . the agreement provides for the manufacture of the tests named above and the joint sales and marketing of those tests in india . the company will license its technology to the joint venture on a royalty-free basis . the profits from the partnership shall be divided as follows : replace_table_token_2_th synbiotics will be reimbursed by the joint venture for some expenses , such as approximately $ 84,000 in rent for the manufacturing plant and office space . if the joint venture needs additional funding , it will be achieved through loans obtained by the joint venture , or if loans are not available on commercially reasonable terms , from capital contributions . there is no term to the joint venture agreement but it can be dissolved by mutual agreement or by one party upon a material breach by the other party . intellectual property protection because much of our future success and value depends on our proprietary technology , our patent and intellectual property strategy is of critical importance . three of our initial u.s. patents related to our technology have been granted by the u.s. patent and trademark office , or pto . as of march 19 , 2018 , we had two additional patents pending in the u.s. and foreign counterpart applications . two of our issued patents expire in 2034 and the other patent expires in 2036. we have identified additional applications of the technology , which represent potential patents that further define specific applications of the processes that are covered by the original patents . we intend to continue building our intellectual property portfolio as development continues and resources are available . we have copyrighted our development software that can be used by any lab or developer to develop diagnostic tests based on our technology . we have allowed one potential customer access to our development software and intend to sell customized reagents through that customer to labs serviced by that customer throughout the world . to date we have not sold any products through that customer . major customers we currently have no major customers . competition the molecular diagnostics industry is extremely competitive . there are many firms that provide some or all of the products we provide and provide many diagnostic tests that we have yet to develop . many of these competitors are larger than us and have significantly greater financial resources . because we are not established , many of our competitors have a competitive advantage in the diagnostic testing industry because they also have other lines of business in the pharmaceutical industry from which they derive revenues and for which they are well known and respected in the medical profession . we will need to overcome the disadvantage of being a start up with no history of success and no respect of the medical and testing professionals . in the diagnostic testing industry , we compete with such companies as biomerieux , siemans , qiagen , and cephied and with such pharmaceutical companies as abbott laboratories , becton , dickinson and johnson and johnson . 12 many of these competitors already have an established customer base with industry standard technology , which we must overcome to be successful . employees we currently employ 15 full-time personnel at our executive offices and lab facilities in salt lake city , utah , and two employees outside of utah . we have engaged independent contractors in india to promote the use of our products and develop outlets for products and employ the services of independent sales representatives on an “ as needed ” basis . government regulation we will be regulated by the u.s. federal drug administration and our products must be approved by the fda before we will be allowed to sell our tests in the united states . because our lab is iso certified we are allowed to apply for ce-marking , which will allow us to sell in most countries in europe , south america and asia . properties our executive offices are located at 2401 s. foothill drive , salt lake city , utah 84109. we occupy the space at the executive offices under a lease , which expires january 31 , 2020. the lease covers approximately 7,015 square feet of lab and office space leased at a rate of $ 11,109 per month . we have no other properties . legal proceedings the company has no legal proceedings and to the knowledge of management , no litigation has been threatened . story_separator_special_tag are able to generate revenue . until our operations become profitable , we will continue to rely on proceeds received from our initial public offering . we expect additional investment capital to come from ( i ) additional private placements of our common stock with existing and new investors and ( ii ) the private placement of other securities with investors similar to those that have provided funding in the past . our monthly cash operating expenses , including our technology research and development expenses and interest expense , were approximately $ 267,616 per month during the year ended december 31 , 2017. our operating expenses increased significantly upon completion of our initial public offering as we increased development and sales activities in furtherance of our business plan . we did not have sufficient capital resources at december 31 , 2016 to fund our negative cash flow for the next year without raising additional capital and therefore in july completed our initial public offering to fund operations until we commence sales of products . the foregoing estimates , expectations and forward-looking statements are subject to change as we make strategic operating decisions from time to time and as our expenses fluctuate from period to period . 15 the amount of our operating deficit could decrease or increase significantly depending on strategic and other operating decisions , thereby affecting our need for additional capital story_separator_special_tag the company and synbiotics shall be equal partners in the joint venture . the agreement provides for the manufacture of the tests named above and the joint sales and marketing of those tests in india . the company will license its technology to the joint venture on a royalty-free basis . the profits from the partnership shall be divided as follows : replace_table_token_2_th synbiotics will be reimbursed by the joint venture for some expenses , such as approximately $ 84,000 in rent for the manufacturing plant and office space . if the joint venture needs additional funding , it will be achieved through loans obtained by the joint venture , or if loans are not available on commercially reasonable terms , from capital contributions . there is no term to the joint venture agreement but it can be dissolved by mutual agreement or by one party upon a material breach by the other party . intellectual property protection because much of our future success and value depends on our proprietary technology , our patent and intellectual property strategy is of critical importance . three of our initial u.s. patents related to our technology have been granted by the u.s. patent and trademark office , or pto . as of march 19 , 2018 , we had two additional patents pending in the u.s. and foreign counterpart applications . two of our issued patents expire in 2034 and the other patent expires in 2036. we have identified additional applications of the technology , which represent potential patents that further define specific applications of the processes that are covered by the original patents . we intend to continue building our intellectual property portfolio as development continues and resources are available . we have copyrighted our development software that can be used by any lab or developer to develop diagnostic tests based on our technology . we have allowed one potential customer access to our development software and intend to sell customized reagents through that customer to labs serviced by that customer throughout the world . to date we have not sold any products through that customer . major customers we currently have no major customers . competition the molecular diagnostics industry is extremely competitive . there are many firms that provide some or all of the products we provide and provide many diagnostic tests that we have yet to develop . many of these competitors are larger than us and have significantly greater financial resources . because we are not established , many of our competitors have a competitive advantage in the diagnostic testing industry because they also have other lines of business in the pharmaceutical industry from which they derive revenues and for which they are well known and respected in the medical profession . we will need to overcome the disadvantage of being a start up with no history of success and no respect of the medical and testing professionals . in the diagnostic testing industry , we compete with such companies as biomerieux , siemans , qiagen , and cephied and with such pharmaceutical companies as abbott laboratories , becton , dickinson and johnson and johnson . 12 many of these competitors already have an established customer base with industry standard technology , which we must overcome to be successful . employees we currently employ 15 full-time personnel at our executive offices and lab facilities in salt lake city , utah , and two employees outside of utah . we have engaged independent contractors in india to promote the use of our products and develop outlets for products and employ the services of independent sales representatives on an “ as needed ” basis . government regulation we will be regulated by the u.s. federal drug administration and our products must be approved by the fda before we will be allowed to sell our tests in the united states . because our lab is iso certified we are allowed to apply for ce-marking , which will allow us to sell in most countries in europe , south america and asia . properties our executive offices are located at 2401 s. foothill drive , salt lake city , utah 84109. we occupy the space at the executive offices under a lease , which expires january 31 , 2020. the lease covers approximately 7,015 square feet of lab and office space leased at a rate of $ 11,109 per month . we have no other properties . legal proceedings the company has no legal proceedings and to the knowledge of management , no litigation has been threatened . story_separator_special_tag are able to generate revenue . until our operations become profitable , we will continue to rely on proceeds received from our initial public offering . we expect additional investment capital to come from ( i ) additional private placements of our common stock with existing and new investors and ( ii ) the private placement of other securities with investors similar to those that have provided funding in the past . our monthly cash operating expenses , including our technology research and development expenses and interest expense , were approximately $ 267,616 per month during the year ended december 31 , 2017. our operating expenses increased significantly upon completion of our initial public offering as we increased development and sales activities in furtherance of our business plan . we did not have sufficient capital resources at december 31 , 2016 to fund our negative cash flow for the next year without raising additional capital and therefore in july completed our initial public offering to fund operations until we commence sales of products . the foregoing estimates , expectations and forward-looking statements are subject to change as we make strategic operating decisions from time to time and as our expenses fluctuate from period to period . 15 the amount of our operating deficit could decrease or increase significantly depending on strategic and other operating decisions , thereby affecting our need for additional capital
| results of operations results of operations for the years ended december 31 , 2017 and 2016 replace_table_token_3_th 13 revenues we had no sales of products in the twelve months ended december 31 , 2017 and 2016. however , we had licensing revenue of $ 6,062 in 2017 , other service revenue of $ 1,000 and leased equipment revenue of $ 600 , but no revenue from sales of diagnostic tests . cost of revenues and gross profit we had no sales of products in the twelve months ended december 31 , 2017 and 2016. we had licensing revenue in 2017 , but there were no costs associated with the license revenue . we recorded $ 302 in depreciation on the leased equipment as a cost of sale . operating expenses we incurred total operating expenses of $ 4,571,427 for the year ended december 31 , 2017 compared to total operating expenses of $ 1,687,966 for the year ended december 31 , 2016. the increase of $ 2,883,461 was due to an increase in general and administrative of $ 2,298,895 , an increase in sales and marketing costs of $ 304,606 , an increase of $ 271,693 in our research and development expenses and an increase in depreciation and amortization expense of $ 8,267. our general and administrative expenses increased $ 2,298,895 from $ 796,896 for the year ended december 31 , 2016 to $ 3,095,791 for the year ended december 31 , 2017. the increase was primarily the result of an increase of $ 972,403 in other professional services and an increase of $ 900,662 in consulting services both of which primarily represented expenses incurred related to our stock being publicly traded . salaries and related benefits increased $ 225,368 resulting from an increase in staff and salaries following the closing of our public financing .
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various factors , 58 some of which are beyond our control , such as market conditions , weather conditions and the timing of the completion of development activities , will have a significant impact on the timing of option exercises or whether lot options will be exercised at all story_separator_special_tag executive overview and outlook market conditions in any period , the demand for new homes is dependent on a variety of demographic and economic factors , including household formation , job and wage growth , the availability and cost of mortgage financing , the supply of new and existing homes , home price affordability and , importantly , consumer confidence . these factors all fluctuate over time at both a national and a more localized market level . several of these factors are contributing to stable and modestly improving conditions for new home sales , but there are also risks and challenges that could adversely impact our business in fiscal 2018 and beyond . on the positive side are rising levels of household formation , a constrained supply of new and used homes , rising wages , strong employment conditions and mortgage rates that continue to be low by historical standards . challenges include early signs of home price affordability constraints ( largely driven by the historically low levels of homes available for sale and still constrained level of new home construction ) and unusual levels of political , regulatory and legislative uncertainty at the federal , state and local levels regarding housing , mortgage and tax policies , as well as volatility in domestic and international financial markets . overall , we continue to believe that we are well positioned in key markets , and that the underlying fundamentals that drive home purchases are supportive . overview of results for our fiscal 2017 fiscal 2017 represented continued progress toward achieving our “ 2b-10 ” goals and the execution of our balanced growth strategy . specifically , adjusted ebitda has grown at a 20 % compound annual growth rate for the past five years ( refer to item 6 , selected financial data , in this form 10-k for a reconciliation of adjusted ebitda ) . additionally , we successfully improved our balance sheet by extending debt maturities , reducing our cash interest expense and activating multiple land parcels previously classified as land held for future development . profitability for the fiscal year ended september 30 , 2017 , we recorded net income from continuing operations of $ 32.0 million , an increase of $ 26.7 million from the prior fiscal year 's net income from continuing operations of $ 5.2 million . however , there were multiple items that impacted the comparability of our net income from continuing operations between periods : we recorded $ 2.4 million in impairment and abandonment charges in fiscal 2017 , a decrease of $ 12.8 million from the prior year ; our income tax expense from continuing operations was $ 2.7 million and $ 16.5 million for our fiscal 2017 and fiscal 2016 , respectively . the $ 13.8 million decline in tax expense primarily related to ( 1 ) $ 7.5 million in tax benefits for federal tax credits related to energy efficient homebuilding and ( 2 ) a $ 3.5 million reduction in the valuation allowance against our deferred tax assets as a result of changes in our estimate of state net operating loss utilization . in fiscal 2016 , we recorded a tax expense of $ 8.6 million for additional valuation allowance on our state deferred tax assets that we concluded were no longer realizable due to our tax restructuring efforts . looking at our underlying operating results , year-over-year closings increased by 2.0 % , from 5,419 in the prior fiscal year to 5,525 in the current fiscal year , and our average selling price ( asp ) increased over the prior fiscal year by 4.2 % to $ 343.1 thousand . these combined to increase our homebuilding revenue by 6.2 % , from $ 1.78 billion in the prior fiscal year to $ 1.90 billion in the current fiscal year . furthermore , homebuilding gross margin , excluding impairments , abandonments , interest and the impacts of the florida stucco issues and insurance settlement noted above , increased to 21.2 % in the current fiscal year from 20.6 % in the prior fiscal year due to the impact of several factors addressed within our “ results of continuing operations ” discussion below . commission expense grew on a dollar basis due to our higher closings volume , but remained consistent as a percentage of homebuilding revenue when compared to the prior fiscal year . finally , our g & a , as a percentage of total revenue , was flat versus the prior year . the dollar value of our homes in backlog rose 2.0 % versus the prior year to $ 665.8 million , driven by a 5.4 % increase in our asp of homes in backlog . on a unit basis , we ended the current fiscal year with 1,855 homes in backlog , a decline of 3.2 % versus the prior year , primarily due to shorter cycle times in fiscal 2017 , disruptions related to hurricanes harvey and irma in houston and certain markets in our southeast segment and lower community counts as compared to fiscal 2016 . 25 debt reduction and capital efficiency in addition to the profitability we achieved during our fiscal 2017 , we also reduced our outstanding debt by $ 3.0 million as follows : we redeemed our secured term loan , which had a balance of $ 55.0 million as of the beginning of the current fiscal year ; and our $ 198.0 million senior notes due september 2021 ; and we issued and sold $ 250.0 million of senior notes due march 2025 , which are unsecured and have an interest rate of 6.75 % . over the past two fiscal years , we reduced our debt balance by nearly $ 160.0 million . story_separator_special_tag our homebuilding gross margin has been favorably impacted this year by a number of factors , including our efforts to reduce construction costs , improve cycle time , raise home prices where possible and , to a lesser extent , some non-recurring benefits . working against these efforts have been increases in land costs , driven by the location and structure of our land deals , cost pressures in certain labor and material categories and community mix ( including an increasing number of closings from recently activated assets formerly classified as land held for future development , which generally have lower margins ) . sg & a for the fiscal year ended september 30 , 2017 was 12.4 % of total revenue , compared with 12.3 % a year earlier . our reported sg & a for the current year included a $ 2.7 million charge to write off a deposit on a legacy investment in a development site that we deemed non-collectible . excluding this charge , our sg & a as a percentage of total revenue would have been 12.2 % . although this metric remains above our “ 2b-10 ” target of 11.0 % to 12.0 % , we expect further improvement as we continue to grow our revenue more quickly than our overhead . we expect to continue our focus on our “ 2b-10 ” metrics during fiscal 2018 , with particular emphasis on driving sales absorptions and improving our sg & a leverage . seasonal and quarterly variability : our homebuilding operating cycle generally reflects escalating new order activity in the second and third fiscal quarters and increased closings in the third and fourth fiscal quarters . the following tables present certain quarterly operating data for the periods presented : replace_table_token_8_th 27 story_separator_special_tag cycle times in fiscal 2017 , disruptions related to hurricanes harvey and irma in houston and certain markets in our southeast segment and lower community counts as compared to fiscal 2016. the dollar value of homes in backlog increased by 2.0 % this fiscal year , as the change in geographic mix and strength in pricing more than offset the decline in units . backlog as of september 30 , 2016 was lower than the prior year , driven by the year-over-year decline in new orders , net , discussed above , as well as a lower community count as of the end of the year . 29 homebuilding revenue , average selling price and closings the tables below summarize homebuilding revenue , the asp of our homes closed and closings by reportable segment for the periods presented : replace_table_token_12_th replace_table_token_13_th the increase in asp across all segments for the year ended september 30 , 2017 was impacted by a change in mix of closings between geographies and products within each individual market as compared with the prior fiscal year . it was also positively impacted by our operational strategies , as well as improved market conditions in certain geographies . these same dynamics enhanced our ability to generate a higher asp during our fiscal 2016 when compared with our fiscal 2015 ; in particular a higher proportion of closings generated from certain markets with high asps , including california . on average , we anticipate that our asp will likely continue to increase , as indicated by our asp for homes in backlog as of september 30 , 2017 . closings for our fiscal year ended september 30 , 2017 in our west segment increased in all markets except for texas , where our community count declined year-over-year and , to a lesser extent , due to the weather-related conditions in houston , which resulted in home construction delays in our fiscal fourth quarter . our sacramento division continued to gain momentum after being re-activated , as well as our las vegas division , where certain communities continued to mature . in our east segment , we experienced increases in closings in our indianapolis and nashville divisions , offset by our maryland division , where our community count has declined slightly and less emphasis was placed in the current year on building and closing spec homes than in the prior year . in our southeast segment , the increase in closings was primarily driven by our atlanta , charleston and myrtle beach divisions , partially offset by our orlando division . the year-over-year increase in closings and higher asp drove our increase in homebuilding revenues for fiscal 2017 as compared to both our fiscal 2016 and our fiscal 2015 . 30 homebuilding gross profit and gross margin the following tables present our homebuilding ( hb ) gross profit and gross margin by reportable segment and in total , as well as such amounts excluding inventory impairments and abandonments and interest amortized to cost of sales ( cos ) for the periods presented . homebuilding gross profit is defined as homebuilding revenue less home cost of sales ( which includes land and land development costs , home construction costs , capitalized interest , indirect costs of construction , estimated warranty costs , closing costs and inventory impairment and abandonment charges ) . additionally , for fiscal 2016 and 2015 we have shown the impact of unexpected warranty costs related to the florida stucco issues , net of insurance recoveries and the additional insurance recoveries from a third-party insurer , which we consider to be non-recurring items , on our gross profit and gross margin .
| results of continuing operations the following table summarizes certain key income statement metrics for the periods presented : replace_table_token_9_th ( a ) in addition to other items , our homebuilding gross margin for the periods presented was impacted by ( 1 ) a $ 15.5 million reduction in home construction expenses in our fiscal 2016 resulting from a settlement with our third-party insurer to resolve certain issues related to the extent of our insurance coverage for multiple policy years and ( 2 ) unexpected warranty costs related to the florida stucco issues , as well as the associated insurance recoveries . refer to further discussion of these items below in section titled “ homebuilding gross profit and gross margin. ” ( b ) in addition to other items impacting g & a , in the current fiscal year , this metric was impacted by a $ 2.7 million charge to write off a deposit on a legacy investment in a development site that we deemed noncollectible . ( c ) calculated as tax expense ( benefit ) for the period divided by income ( loss ) from continuing operations . due to the effect of a variety of factors , including the impact of discrete tax items on our effective tax rate , our income tax expense ( benefit ) is not always directly correlated to the amount of pretax income ( loss ) for the associated periods . homebuilding operations data the following table summarizes new orders , net and cancellation rates by reportable segment for the periods presented : replace_table_token_10_th sales per active community per month was 2.9 and 2.7 for the fiscal year ended september 30 , 2017 and 2016 , respectively , an increase of 10.5 % , driven by our continued emphasis on sales absorptions .
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compensation expense of $ 0.5 million in 2020 compared to $ 0.6 million in 2019 and $ 0.5 million in 2018. as the last essop loan payment was made during 2020 , the company will make future essop match payments in cash . on december 31 , 2010 , the company froze the qualified pension plan for its non-union participants and formed a new defined contribution feature within the essop plan in which each employee received a similar benefit . on december 31 , 2011 , the company froze the qualified pension plan for its union participants and included them in the same defined contribution feature within the essop . compensation expense under the defined contribution feature was $ 2.0 million in 2020 $ 3.1 million in 2019 and $ 3.0 in 2018 . 42 note 8 income taxes the company is subject to income taxes in the united states and numerous foreign jurisdictions . significant judgment is required in determining the worldwide story_separator_special_tag current business trends – covid-19 in december 2019 , a novel coronavirus disease ( “ covid-19 ” ) was reported and in january 2020 , the world health organization ( “ who ” ) declared it a public health emergency of international concern . on february 28 , 2020 , the who raised its assessment of the covid-19 threat from high to very high at a global level due to the continued increase in the number of cases and affected countries . on march 11 , 2020 , the who characterized covid-19 as a pandemic . during the second quarter of 2020 , the company implemented remote work arrangements for non-production personnel , adopted robust safety , social distancing and temperature screening protocols throughout its manufacturing sites and enacted other measures to be able to deliver products to meet customer orders on a timely basis . while the pandemic has had varying levels of impact to demand trends , to date it has not materially affected our ability to maintain business operations , including the operation of financial reporting systems , internal control over financial reporting , and disclosure controls and procedures . the company has enacted various return-to-work protocols for non-production personnel . during april 2020 and through the first part of may 2020 , the majority of the united states , the company 's primary commercial market , was subject to various levels of government shelter-in-place or other lockdown orders . during this time , we experienced some customer order delays and intermittent manufacturing interruptions . as the lock-downs were lifted and customers adapted to remote work and field safety protocols , order demand gradually improved . our operations returned to a more normalized level of output as the lockdowns lifted at the end of the second quarter and into the third quarter of 2020. municipal water order trends have been more resilient in their sequential performance while flow instrumentation orders showed less resiliency and will likely be negatively affected for a longer period , albeit flow instrumentation orders were improved slightly over the second quarter of 2020. as a result of covid-19 , the company implemented certain cost contingency actions , including travel restrictions , a hiring freeze , reductions in discretionary spending , short-term reduced work hour furloughs globally and executive salary reductions . the temporary actions generally lasted nine weeks , ending in mid-june 2020. the company continues to manage hiring and discretionary spending actions in light of continuing market uncertainty . our board of directors and company management continues to monitor the rapidly changing implications of covid-19 and is prepared to take additional cost actions if warranted . on march 27 , 2020 , the “ coronavirus aid , relief and economic security ( cares ) act ” was signed into law . the act includes provisions relating to refundable payroll tax credits , deferment of the employer portion of certain payroll taxes , net operating loss carryback periods , alternative minimum tax credit refunds , modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property . in accordance with the cares act the company delayed federal tax installment payments to the third quarter of 2020. the cares act is not expected to have a material impact on the company 's consolidated financial statements . it remains difficult to estimate the severity and duration of the impact of the covid-19 pandemic on the company 's business , financial position or results of operations . the magnitude of the impact will be determined by the duration and span of the pandemic , operational disruptions including those resulting from government actions , delivery interruptions due to component supply availability or logistical challenges , the timeline of an effective and broadly available vaccine and the overall impact on the economy . the company has contingency plans in place to adequately respond to a wide range of potential economic scenarios and our board of directors continues to monitor and evaluate the ongoing situation . long term business trends across the globe , increasing regulations and a focus on sustainability are driving companies and utilities to better manage critical resources like water , monitor their use of hazardous materials and reduce exhaust gases . some customers measure fluids to identify leaks and or misappropriation for cost control or add measurement points to help automate manufacturing . other customers employ measurement to comply with government mandates and laws including those associated with process and discharge water quality monitoring . the company provides flow measurement technology to measure water , oil , chemicals and other fluids , gases and steams . this technology is critical to provide baseline usage data and to quantify reductions as customers attempt to reduce consumption . for example , once water usage metrics are better understood , a strategy for water-use reduction can be developed with specific water-reduction initiatives targeted to those areas where it is most viable . with the company 's technology , customers have found costly leaks , pinpointed equipment in need of repair , and identified areas for process improvements . story_separator_special_tag on april 2 , 2018 , the company acquired 100 % of the outstanding stock of innovative metering solutions , inc. ( “ ims ” ) of odessa , florida , which was one of the company 's distributors serving florida . the total purchase consideration was approximately $ 12.0 million , which included $ 7.7 million in cash , a $ 0.3 million working capital adjustment , a balance sheet holdback of $ 0.7 million and a $ 3.3 million settlement of pre-existing company receivables . the working capital adjustment was settled in the second quarter of 2018 and the balance sheet holdback was paid in the second quarter of 2019. as of march 31 , 2019 , the company had completed its analysis for estimating the fair value of the assets acquired with no additional adjustments . this acquisition is further described in note 3 “ acquisitions ” in the notes to consolidated financial statements . in the first quarter of 2019 and the fourth quarter of 2020 , the company made separate payments of contingent acquisition consideration of $ 1.0 million related to the may 1 , 2017 acquisition of 100 % of the outstanding common stock of d-flow technology ab ( “ d-flow ” ) of lulea , sweden . these were the final payments associated with the acquisition . story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > overall pwc decreased $ 3.4 million as the company undertook several working capital improvement actions during the year , reducing pwc by $ 8.8 million , which was partially offset by the acquisition of s : :can which added $ 5.4 million of pwc . receivables at december 31 , 2020 were $ 61.7 million compared to $ 61.4 million at the end of 2019. excluding s : :can , a decrease of $ 3.0 million was due to robust collection efforts and active monitoring processes instituted during the year . the company believes its receivables balance is fully collectible . inventories at december 31 , 2020 were $ 81.6 million , a modest decrease from $ 81.9 million at december 31 , 2019 , with the acquisition of s : :can offsetting a core inventory reduction of $ 4.6 million resulting from improved inventory planning actions . payables at december 31 , 2020 were $ 34.9 million , up from $ 31.5 million at the end of 2019 with the majority of the increase due to the acquisition of s : :can . cash provided by operations cash provided by operations in 2020 was $ 89.6 million compared to $ 80.7 million in 2019. the increase from 2019 was driven primarily by improved working capital management as well as higher operating earnings . operating cash flow was more than adequate to fund the acquisition of s : :can ( $ 29.1 million , net of cash acquired ) , capital expenditures of $ 9.1 million along with dividends of $ 20.3 million and $ 3.1 million in share repurchases to partially offset equity compensation dilution . the remaining cash flow was used to reduce short term borrowings and add to cash balances . cash provided by operations in 2019 was $ 80.7 million compared to $ 60.4 million in 2018. the increase from 2018 was driven primarily by improved working capital management as well as higher operating earnings ( excluding the non-cash pension termination settlement charges ) . operating cash flow was more than adequate to fund capital expenditures of $ 7.5 million along with dividends of $ 18.6 million and $ 5.2 million in share repurchases to offset equity compensation dilution . the remaining cash flow was used to reduce short term borrowings and add to cash balances . 19 capital expenditures were $ 9.1 million , $ 7.5 million and $ 8.6 million in fiscal 20 20 , 20 19 and 2018 , respectively . capital expenditures for fiscal 20 2 1 are expected to be in the $ 1 0 -1 2 million range , but could vary depending on timing of r & d projects , growth opportunities and the amount of assets purchased . short-term debt decreased to $ 0 from $ 4.5 million at december 31 , 2019 due to the strong cash flow from operations . at the end of 2020 , the company was in a net cash position of $ 72.3 million . the company 's financial condition remains strong . in june 2018 , the company amended its may 2012 credit agreement with its primary lender and extended its term until september 2021. the credit agreement includes a $ 125.0 million line of credit that supports commercial paper ( up to $ 70.0 million ) and includes $ 5.0 million of a euro line of credit . while the facility is unsecured , there are a number of financial covenants with which the company must comply , and the company was in compliance as of december 31 , 2020. the company intends to enter into a new credit facility in 2021 , prior to the expiration of existing agreement . the company believes that its operating cash flows , available borrowing capacity , and its ability to raise capital provide adequate resources to fund ongoing operating requirements , future capital expenditures and the development of new products . the company had $ 133.5 million of unused credit lines available at december 31 , 2020. off-balance sheet arrangements the company had no off-balance sheet arrangements at december 31 , 2020. contractual obligations the following table includes the company 's significant contractual obligations as of december 31 , 2020. there are no material undisclosed guarantees . replace_table_token_3_th other than items included in the preceding table , as of december 31 , 2020 , the company had no additional material purchase obligations other than those created in the ordinary course of business related to inventory and property , plant and equipment , which generally have terms of less than 90 days .
| results of operations net sales net sales in 2020 increased $ 0.9 million , or less than 1 % , to $ 425.5 million from $ 424.6 million in 2019. sales into the utility water market were $ 344.3 million , an increase of 4 % over the prior year 's $ 330.7 million . the increase was attributable to higher sales of advanced technology products including orion cellular lte-m endpoints , e-series ultrasonic water meters as well as increased beacon saas revenue associated with data collection and software analytics . it also included approximately $ 2.5 million of sales related to s : :can , acquired on november 2 , 2020. these favorable trends more than offset the short term decline in orders that occurred in april and may 2020 from the stay-at-home orders throughout much of the united states in response to covid-19 . sales of products into the global flow instrumentation end markets were $ 81.2 million , 13.6 % lower than the prior year 's $ 94.0 million due to significantly reduced activity across the array of industrial end markets served and also the result of widespread covid-19 shelter-in-place and lockdown restrictions . net sales in 2019 decreased $ 9.1 million , or 2 % , to $ 424.6 million from $ 433.7 million in 2018. sales into the utility water market were $ 330.7 million , a decrease of 1 % compared to the prior year 's $ 334.7 million , while sales into the flow instrumentation end markets were $ 93.9 million , a 5 % decrease from 2018 sales of $ 99.0 million . utility water sales benefitted from higher sales of smart water solutions in north america where sales increased 1 % year-over-year , however , sales into international markets , primarily the middle east , declined significantly as a $ 5.5 million sale from 2018 did not repeat .
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minority interest buy out on august 1 , 2018 , the company signed an agreement with second city capital partners ii , limited partnership whereby second city agreed to sell its seven percent minority interest in central fairwinds limited partnership to the company for $ 1.1 story_separator_special_tag the following discussion and analysis is based on , and should be read in conjunction with , the consolidated financial statements and the related notes thereto of the city office reit , inc. for the years ended december 31 , 2018 , december 31 , 2017 and december 31 , 2016. as used in this section , unless the context otherwise requires , references to we , our , us , and our company refer to city office reit , inc. , a maryland corporation , together with our consolidated subsidiaries , including city office reit operating partnership l.p. , a maryland limited partnership of which we are the sole general partner and which we refer to in this section as our operating partnership , except where it is clear from the context that the term only means city office reit , inc. this management 's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks , uncertainties and assumptions . see cautionary statement regarding forward-looking statements for a discussion of the risks , uncertainties and assumptions associated with those statements . our actual results may differ materially from those expressed or implied in the forward-looking statements as a result of various factors , including , but not limited to , those in risk factors and included in other portions of this document . overview company we were formed as a maryland corporation on november 26 , 2013. on april 21 , 2014 , we completed our initial public offering ( ipo ) of shares of common stock . we contributed the net proceeds of the ipo to our operating partnership in exchange for common units in our operating partnership . both we and our operating partnership commenced operations upon completion of the ipo and certain related formation transactions . the company 's interest in the operating partnership entitles the company to share in distributions from , and allocations of profits and losses of , the operating partnership in proportion to the company 's percentage ownership of common units . as the sole general partner of the operating partnership , the company has the exclusive power under the operating partnership 's partnership agreement to manage and conduct the operating partnership 's business , subject to limited approval and voting rights of the limited partners . the company has elected to be taxed and will continue to operate in a manner that will allow it to qualify as a reit under the code . subject to qualification as a reit , the company will be permitted to deduct dividend distributions paid to its stockholders , eliminating the u.s. federal taxation of income represented by such distributions at the company level . reits are subject to a number of organizational and operational requirements . if the company fails to qualify as a reit in any taxable year , the company will be subject to u.s. federal and state income tax on its taxable income at regular corporate tax rates and any applicable alternative minimum tax . on march 8 , 2018 , the company sold the washington group plaza property in boise , idaho for $ 86.5 million , resulting in an aggregate net gain of $ 47.0 million , net of $ 1.7 million in costs , which has been classified as net gain on sale of real estate property in the condensed consolidated statements of operations . in connection with the sale of the property , certain debt repayments were made . on april 5 , 2018 , the company , through a wholly-owned subsidiary of the operating partnership , closed on the acquisition of pima center , a 271,782 square foot class a multi-tenant property in phoenix , arizona for $ 56.5 million . on july 9 , 2018 , the company , through a wholly-owned subsidiary of the operating partnership , closed on the acquisition of circle point , a 271,528 square foot property in denver , colorado for $ 59.8 million . 37 on july 31 , 2018 , the company , through a wholly-owned subsidiary of the operating partnership , closed on the acquisition of the quad , a 162,902 square foot property in phoenix , arizona for $ 51.0 million . on august 1 , 2018 , the company entered into an agreement with second city whereby second city agreed to sell its seven percent minority interest in central fairwinds limited partnership to the company for $ 1.1 million . on november 1 , 2018 , the company and the operating partnership entered into amendments ( the amendments ) to the equity distribution agreements ( the original agreements and , as amended by the amendments , the agreements ) with each of keybanc capital markets inc. , raymond james & associates , inc. and bmo capital markets corp. , ( collectively , the sales agents ) . pursuant to the terms of the agreements , the company may issue and sell from time to time , up to 8,000,000 shares of the company 's common stock , $ 0.01 par value per share and up to 1,000,000 shares of the company 's 6.625 % series a cumulative redeemable preferred stock , par value $ 0.01 per share ( the series a preferred stock and together with the common stock , the shares ) through the sales agents , acting as agents or principals ( the atm program ) . on december 20 , 2018 , the company , through a wholly-owned subsidiary of the operating partnership , closed on the acquisition of a land parcel in denver , colorado for $ 5.1 million . story_separator_special_tag future economic downturns or regional downturns affecting our markets or submarkets or downturns in our tenants ' industries that impair our ability to renew or re-let space and the ability of our tenants to fulfill their lease commitments , as in the case of tenant bankruptcies , could adversely affect our ability to maintain or increase rental rates at our properties . in addition , growth in rental revenue will also partially depend on our ability to acquire additional properties that meet our investment criteria . 39 operating expenses our operating expenses generally consist of utilities , property and ad valorem taxes , insurance and site maintenance costs . increases in these expenses over tenants ' base years ( until the base year is reset at expiration ) are generally passed along to tenants in our full-service gross leased properties and are generally paid in full by tenants in our net leased properties . conditions in our markets positive or negative changes in economic or other conditions in the markets we operate in , including state budgetary shortfalls , employment rates , natural hazards and other factors , may impact our overall performance . while we generally expect a trend of positive economic growth and increasing interest rates to continue , there is no way for us to predict whether these trends will continue , especially in light of the potential changes in tax policy , fiscal policy and monetary policy . summary of significant accounting policies basis of preparation the accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the united states ( gaap ) and include the financial position and results of operations of the company , the operating partnership and its subsidiaries . all significant intercompany transactions and balances have been eliminated on consolidation . use of estimates the company has made a number of significant estimates and assumptions relating to the reporting of assets and liabilities , the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses to prepare these consolidated financial statements in conformity with gaap . significant estimates made include the recoverability of accounts receivable , allocation of property purchase price to tangible and intangible assets acquired and liabilities assumed , the determination of impairment of long-lived assets and the useful lives of long-lived assets . these estimates and assumptions are based on our best estimates and judgment . we evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors , including the current economic environment . the current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions . management adjusts such estimates when facts and circumstances dictate . actual results could differ materially from those estimates . business combinations the fair value of the real estate acquired , which includes the impact of fair value adjustments for assumed mortgage debt related to property acquisitions , is allocated to the acquired tangible assets , consisting of land , building and improvements and identified intangible assets and liabilities , consisting of the value of above-market and below-market leases , other value of in-place leases and value of tenant relationships , based in each case on their fair values . for acquisitions that do not meet the business combination accounting criteria , these are accounted for as asset acquisitions . the company allocates the cost of the acquisition , which includes any associated acquisition costs to individual assets and liabilities assumed on a relative fair value basis . also , non-controlling interests acquired are recorded at estimated fair market value . the fair value of the tangible assets of an acquired property ( which includes land , building and improvements and fixtures and equipment ) is determined by valuing the property as if it were vacant . the as-if-vacant value is then allocated to land and building and improvements based on our determination of relative fair values of these assets . factors considered by us in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute 40 similar leases . in estimating carrying costs , we include real estate taxes , insurance and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand . we also estimate costs to execute similar leases including leasing commissions . the fair value of above-market and below-market lease values are recorded based on the difference between the current in place lease rent and our estimate of current market rents . below-market lease intangibles are recorded as part lease intangibles liability and amortized into rental revenue over the non-cancelable periods and bargain renewal periods of the respective leases . above-market leases are recorded as part of intangible assets and amortized as a direct charge against rental revenue over the non-cancelable portion of the respective leases . the fair value of acquired in place leases are recorded based on the costs we estimate we would have incurred to lease the property to the occupancy level of the property at the date of acquisition . such estimates include the fair value of leasing commissions and legal costs that would be incurred to lease the property to this occupancy level . additionally , we evaluate the time period over such occupancy level would be achieved and include an estimate of the net operating costs incurred during the lease-up period . revenue recognition we recognize lease revenue on a straight-line basis over the term of the lease . certain leases allow for the tenant to terminate the lease , but the tenant must make a termination payment as stipulated in the lease . if the termination payment is in such an amount that continuation of the lease appears , at the time of lease inception , to be reasonably assured , then we recognize revenue over the term of the lease .
| results of operations comparison of year ended december 31 , 2017 to year ended december 31 , 2016 revenue total revenue . revenue includes net rental income , including parking , signage and other income , as well as the recovery of operating costs and property taxes from tenants . total revenues increased $ 34.0 million , or 47 % , to $ 106.5 million for the year ended december 31 , 2017 compared to $ 72.5 million in the corresponding period in 2016 . $ 1.8 million of this increase was attributed to the acquisition of carillon point in june 2016 , $ 2.8 million from the acquisition of frp collection in july 2016 , $ 9.4 million from the acquisition of park tower in november 2016 , $ 4.3 million from the acquisition of 5090 n 40th st in november 2016 , $ 7.4 million from the acquisition of santan in december 2016 , $ 5.1 million from the acquisition of 2525 mckinnon in january 2017 , $ 2.3 million from the acquisition of mission city in september 2017 , $ 3.4 million from the acquisition of sorrento mesa in september 2017 , and $ 0.7 million from the acquisition of papago tech in october 2017. further contributing to the increase , washington group plaza increased by $ 1.6 million due to the downtime in the prior year associated with tenant improvement work for new tenants at the property replacing a tenant who departed on december 31 , 2015. offsetting these increases , corporate parkway decreased by $ 1.3 million due to the sale of the property in june 2016 and amberglen decreased by $ 0.6 million due to the sale of two of the buildings in may 2017. plaza 25 , 190 office center and dtc crossroads decreased $ 1.9 million , $ 0.7 million , and $ 0.7 million respectively , as a result of lower occupancy .
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we story_separator_special_tag the following discussion should be read in conjunction with part i , including matters set forth in the “ risk factors ” section of this form 10-k , and our consolidated financial statements and notes thereto included in part ii , item 8 of this form 10-k. this section of this form 10-k includes discussion of year-to-year comparisons between 2020 and 2019. discussion of year-to-year comparisons between 2019 and 2018 can be found in “ management 's discussion and analysis of financial conditions and results of operations ” in part ii , item 7 of the company 's annual report on form 10-k for the fiscal year ended december 31 , 2019. except to the extent that differences among reportable segments are material to an understanding of our business taken as a whole , we present the discussion in management 's discussion and analysis of financial condition and results of operations on a consolidated basis . overview autonation , inc. , through its subsidiaries , is the largest automotive retailer in the united states . as of december 31 , 2020 , we owned and operated 315 new vehicle franchises from 230 stores located in the united states , predominantly in major metropolitan markets in the sunbelt region . our stores , which we believe include some of the most recognizable and well known in our key markets , sell 32 different new vehicle brands . the core brands of new vehicles that we sell , representing approximately 89 % of the new vehicles that we sold in 2020 , are manufactured by toyota ( including lexus ) , honda , ford , general motors , fca us , mercedes-benz , bmw , and volkswagen ( including audi and porsche ) . as of december 31 , 2020 , we also owned and operated 74 autonation-branded collision centers , 5 autonation usa used vehicle stores , 4 autonation-branded automotive auction operations , and 3 parts distribution centers . we offer a diversified range of automotive products and services , including new vehicles , used vehicles , “ parts and service ” ( also referred to as “ customer care ” ) , which includes automotive repair and maintenance services as well as wholesale parts and collision businesses , and automotive “ finance and insurance ” products ( also referred to as “ customer financial services ” ) , which include vehicle service and other protection products , as well as the arranging of financing for vehicle purchases through third-party finance sources . as of december 31 , 2020 , we had three reportable segments : domestic , import , and premium luxury . our domestic segment is comprised of retail automotive franchises that sell new vehicles manufactured by general motors , ford , and fca us . our import segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by toyota , honda , subaru , and nissan . our premium luxury segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by mercedes-benz , bmw , audi , lexus , and jaguar land rover . the franchises in each segment also sell used vehicles , parts and automotive repair and maintenance services , and automotive finance and insurance products . for the year ended december 31 , 2020 , new vehicle sales accounted for 51 % of our total revenue and 16 % of our total gross profit . used vehicle sales accounted for 27 % of our total revenue and 13 % of our total gross profit . our parts and service operations , while comprising 16 % of our total revenue , contributed 41 % of our total gross profit . our finance and insurance sales , while comprising 5 % of our total revenue , contributed 30 % of our total gross profit . market conditions full-year u.s. industry new vehicle unit sales were 14.6 million in 2020 , as compared to 17.0 million in 2019 and 17.3 million in 2018. we currently expect that the annual rate of u.s. new vehicle unit sales will approach 16 million units in 2021. however , actual sales may materially differ . new vehicle unit volume has been impacted by reduced availability of inventory due to inventory shortages from manufacturer plant closures resulting from the covid-19 pandemic . we expect that new vehicle inventory shortages will continue into 2021. compared to the prior year , full-year u.s. industry used vehicle unit sales in 2020 decreased 7.0 % and our full year used vehicle unit sales decreased 2.0 % . during the second half of 2020 , both industry and our used vehicle unit volume increased compared to the same period in the prior year . market demand for used vehicles has increased due in part to increased affordability compared to new vehicles and decreased availability of new vehicles . the tight supply of new vehicle inventory and increased demand for used vehicles benefited new and used vehicle margins in 2020. while vehicle unit volume and parts and service volume improved during the second half of 2020 , continued elevated levels of covid-19 cases in the united states , and particularly in states where we 25 have a significant presence , could lead to additional governmental orders and other market disrupting impacts that could materially adversely impact our business . additionally , any adverse economic impacts resulting from the covid-19 pandemic , including any potential economic recessions or downturns , could materially adversely impact our business in future periods . story_separator_special_tag our parts , accessories , and other inventory balance was net of cumulative write-downs of $ 6.5 million at december 31 , 2020 , and $ 11.1 million at december 31 , 2019. critical accounting estimates we prepare our consolidated financial statements in conformity with u.s. generally accepted accounting principles , which require us 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 revenue and expenses during the reporting period . we evaluate our estimates on an ongoing basis and we base our estimates on historical experience and various other assumptions we believe to be reasonable . actual outcomes could differ materially from those estimates in a manner that could have a material effect on our consolidated financial statements . set forth below are the accounting estimates that we have identified as critical to our business operations and an understanding of our results of operations , based on the high degree of judgment or complexity in their application . see note 1 of the notes to consolidated financial statements for a discussion of other significant accounting policies . goodwill goodwill for our reporting units is tested for impairment annually on april 30 or more frequently when events or changes in circumstances indicate that the carrying value of a reporting unit exceeds its fair value . during the first quarter of 2020 , in light of the uncertainty surrounding the covid-19 pandemic and the decrease in our market capitalization as of march 31 , 2020 , we concluded that a triggering event had occurred potentially indicating that the fair values of our reporting units were less than their carrying values as of march 31 , 2020. therefore , we performed quantitative goodwill impairment tests for each of our reporting units as of march 31 , 2020. as a result of these impairment tests , during the three months ended march 31 , 2020 , we recorded non-cash goodwill impairment charges totaling $ 318.3 million , of which $ 257.4 million related to our premium luxury reporting unit , $ 41.6 million related to our collision centers reporting unit , and $ 19.3 million related to our parts centers reporting unit . the non-cash impairment charges are reflected as goodwill impairment in the accompanying consolidated statements of income . the quantitative goodwill impairment test is dependent on many variables used to determine the fair value of our reporting units . see note 18 of the notes to consolidated financial statements for additional information on how the fair values and carrying values of our reporting units are derived for the quantitative goodwill impairment test . this process also requires that we reconcile the estimated aggregate fair values of our reporting units to our market capitalization , including consideration of a control premium , based upon our stock price and or average stock price over a reasonable period as of the measurement date . as a result of the quantitative goodwill impairment tests , goodwill associated with our premium luxury reporting unit was partially impaired and goodwill associated with our collision centers and parts centers reporting units was fully impaired . the fair values of our domestic and import reporting units substantially exceeded their carrying values . therefore , the most significant impact of a change in the assumptions used in determining our goodwill impairment as of march 31 , 2020 , was related to our premium luxury reporting unit . as noted above , the goodwill impairment testing process requires the estimated aggregate fair values of our reporting units to be reconciled with our market capitalization , including consideration of a control premium , based upon our stock price and or average stock price over a reasonable period as of the measurement date . the covid-19 pandemic had a significant adverse impact on the u.s. stock market during the first quarter of 2020 , and our closing stock price declined significantly as of march 31 , 2020. as a result , as of 27 march 31 , 2020 , our market capitalization and , therefore , the estimated fair values of our reporting units , significantly decreased . as a measure of sensitivity , a 50 basis point increase in the discount rate would have resulted in an increase to the goodwill impairment charge of approximately $ 100 million . this result and discussion is not intended to address all potential outcomes that could have resulted if different assumptions had been used in determining our goodwill impairment given the number of assumptions used in determining the impairment and the degree of sensitivity to changes in such assumptions in the determination of the fair value of the company and its assets and liabilities . we would have been in compliance with the financial covenants in our debt agreements even if we had impaired all of the goodwill associated with all of our reporting units as such charges do not factor into the calculations for those covenants . for our april 30 , 2020 annual impairment test , we chose to make a qualitative evaluation about the likelihood of goodwill impairment , and we determined that it was not more likely than not that the fair values of our reporting units were less than their carrying amounts . as of december 31 , 2020 , we have $ 227.2 million of goodwill related to the domestic reporting unit , $ 500.6 million related to the import reporting unit , and $ 457.2 million related to the premium luxury reporting unit . other intangible assets our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle manufacturers , which have indefinite lives and are tested for impairment annually on april 30 or more frequently when events or changes in circumstances indicate that impairment may have occurred .
| segment results in the following table of financial data , revenue and segment income of our reportable segments are reconciled to consolidated revenue and consolidated operating income , respectively . replace_table_token_18_th retail new vehicle unit sales : domestic 80,687 88,404 ( 7,717 ) ( 8.7 ) 102,015 ( 13,611 ) ( 13.3 ) import 109,077 128,183 ( 19,106 ) ( 14.9 ) 142,556 ( 14,373 ) ( 10.1 ) premium luxury 59,890 66,015 ( 6,125 ) ( 9.3 ) 66,268 ( 253 ) ( 0.4 ) 249,654 282,602 ( 32,948 ) ( 11.7 ) 310,839 ( 28,237 ) ( 9.1 ) retail used vehicle unit sales : domestic 83,406 87,344 ( 3,938 ) ( 4.5 ) 86,660 684 0.8 import 82,841 86,679 ( 3,838 ) ( 4.4 ) 84,550 2,129 2.5 premium luxury 66,611 64,768 1,843 2.8 60,952 3,816 6.3 232,858 238,791 ( 5,933 ) ( 2.5 ) 232,162 6,629 < span style= '' color : # 000000 ; font-family : 'times new
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identifiable intangible assets consist of the following : trade name ( 10 year useful life ) $ 1,800 liquor licenses ( indefinite-lived ) 1,070 favorable leasehold interests ( 12.3 years weighted average useful life ) 4,546 total intangible assets $ 7,416 sales and net income of sunflower totaling $ 297.8 million and $ 8.6 million respectively are included in the consolidated results of operations for the year ended december 30 , 2012. valuations the company engaged an independent valuation firm to assist management with the valuations of acquired inventory , personal property , real estate , favorable and unfavorable leasehold interests and intangible assets for the sunflower transaction . acquired inventory was recorded at net realizable value , with significant estimates relating to the time expected to dispose of inventory , disposal costs and commensurate profit . personal property , consisting primarily of leasehold improvements and furniture , fixtures and equipment , were valued using the cost method , which requires significant estimates related to replacement costs of acquired personal 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 risk factors or in other parts of this annual report on form 10-k. please also see the section entitled special note regarding forward-looking statements. business overview sprouts farmers market operates as a healthy grocery store that offers fresh , natural and organic food that includes fresh produce , bulk foods , vitamins and supplements , grocery , meat and seafood , bakery , dairy , frozen foods , body care and natural household items catering to consumers ' growing interest in eating and living healthier . since our founding in 2002 , we have grown rapidly , significantly increasing our sales , store count and profitability . with 191 stores in ten states as of december 28 , 2014 , we are one of the largest specialty retailers of fresh , natural and organic food in the united states . as of february 26 , 2015 , we have grown to 198 stores in 12 states ( including our first stores in missouri and alabama ) . 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 , and knowledgeable team members who we believe provide best-in-class customer service and product education . our history in 2002 , we opened the first sprouts farmers market store in chandler , arizona . in 2010 , we had 54 stores and reached over $ 620 million in net sales and approximately 3,700 team members . in april 2011 , we partnered with the apollo funds , and added 43 stores by merging with henry 's and its sun harvest-brand stores in the henry 's transaction . our merger with henry 's brought us to 103 total stores located in arizona , california , colorado and texas as of the end of 2011. in may 2012 , we added another 37 stores through our acquisition of sunflower in the sunflower transaction and extended our footprint into new mexico , nevada , oklahoma and utah . we refer to the henry 's transaction and the sunflower transaction as the transactions . on august 1 , 2013 , our common stock began trading on the nasdaq global select market . outlook we are pursuing a number of strategies designed to continue our growth , including expansion of our store base , driving comparable store sales growth , enhancing our operating margins 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 achieve 14 % annual new store growth for at least the next five years , including 27 planned new store openings in 2015 , of which seven have opened as february 26 , 2015. we also believe we can continue to improve our comparable store sales growth by enhancing our core value proposition and distinctive customer-oriented shopping experience , as well as through expanding and refining our fresh , natural and organic product offerings , our targeted and personalized marketing 41 efforts and our in-store education . we believe our operating margins will continue to benefit from scale efficiencies , information technology systems , continued cost discipline and enhancements to our merchandise offerings . we are committed to growing the sprouts brand by supporting our stores , product offerings and corporate partnerships , including the expansion of innovative marketing and promotional strategies through print , digital and social media platforms , all of which promote our mission of healthy living for less. 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 2014 , 2013 and 2012 were 52-week years ending on december 28 , 2014 , december 29 , 2013 , and december 30 , 2012 , respectively . net sales we recognize sales revenue at the point of sale , with discounts provided to customers reflected as a reduction in sales revenue . story_separator_special_tag 43 provision for income taxes on july 29 , 2013 , sprouts farmers markets , llc , a delaware limited liability company , converted into sprouts farmers market , inc. , a delaware corporation . see factors affecting comparability of result of operationscorporate conversion. the corporate conversion has not had a material impact on our results of operations , financial position or cash flows since we were treated as a corporation for income tax purposes prior to the conversion . in september 2013 , the internal revenue service issued final regulations related to tangible property , which govern when a taxpayer must capitalize or deduct expenses for acquiring , maintaining , repairing and replacing tangible property . the regulations are effective for tax years beginning january 1 , 2014 ; however , early adoption is permitted . we have adopted the regulations for the tax year beginning december 30 , 2013. we have analyzed the impacts of the tangible property regulations and have determined we are in compliance with the regulations . 44 story_separator_special_tag general and administrative expenses replace_table_token_15_th the increase in selling , general and administrative expenses included $ 4.6 million of advertising expense due to additional new stores and new markets , $ 4.2 million of corporate payroll and benefits to support growth , $ 2.6 million of corporate bonus due to goal attainment , $ 1.8 million of regional expenses due to increased store count and expansion into new regions , $ 1.3 million increase in it maintenance due to growth . $ 0.9 million increase in depreciation primarily due to accelerated depreciation for corporate office move , $ 0.5 million increase in secondary offering expenses including related payroll taxes and other less significant increases . these increases were partially offset by a $ 3.2 million ipo bonus expense in the prior year , a $ 1.4 million decrease in accounting fees related to the insourcing of certain functions , and $ 1.1 million decrease in share based compensation expense due to vesting of historical grants . selling , general and administrative expenses decreased as a percentage of net sales due to leverage in corporate expenses . store pre-opening costs store pre-opening costs were $ 7.7 million for 2014 and $ 5.7 million for 2013. store pre-opening costs during 2014 included $ 7.0 million related to opening 24 stores and relocating one store during that period and $ 0.7 million associated with stores opening after 2014. store pre-opening costs in 2013 included $ 5.3 million related to opening 19 stores during that period and $ 0.4 million for stores opened after 2013. store closure and exit costs store closure and exit costs for 2014 included costs related to the relocation of one store and a $ 1.2 million favorable adjustment to reserves for settlement with landlord , offset by changes in reserves for stores and facilities already closed and ongoing expenses related to prior closures . additionally , we determined that we should have been recording accretion expense for store closure reserves and made a correcting entry of $ 0.9 million to adjust the liability for closed stores to include such accretion for prior periods . such accretion was not material to any prior period . store closure and exit costs for 2013 consisted primarily of costs to close a former sunflower warehouse and adjustments to sublease estimates for stores and facilities already closed . loss on extinguishment of debt in 2014 , we made a voluntary principal payment of $ 50.0 million and wrote-off $ 1.1 million of deferred financing costs and original issue discount related to that portion of the term loan . in 2013 , we recorded a loss on extinguishment of debt totaling $ 18.7 million primarily related to the write-off of deferred financing costs and issue discount . these write-offs included $ 9.0 million related to the august 2013 pay down of debt using proceeds from our ipo , $ 8.2 million related to the april 2013 refinancing and $ 1.0 million related to the december 2013 additional principal payment of $ 40.0 million . additionally , loss on extinguishment of debt includes $ 0.5 million related to the renewal of a financing lease . interest expense interest expense decreased to $ 25.1 million for 2014 from $ 37.2 million for 2013 , primarily due to a reduction in the interest rates related to the april 2013 refinancing , the august 2013 pay down on the term loan , the $ 40.0 million voluntary principal payment in december 2013 , the $ 50.0 million voluntary principal payment made in august 2014 and the may 2013 payoff of the senior subordinated notes . these decreases were partially offset by an increase in interest related to additional capital and financial leases . see note 13 long-term debt to our audited consolidated financial statements . 48 income tax provision income tax provision increased to $ 66.4 million for 2014 from $ 32.7 million for 2013 , primarily related to an increase in income before income taxes . our effective income tax rate decreased to 38.1 % in 2014 from 38.9 % in 2013 due to an increase in the enhanced charitable food contribution . net income replace_table_token_16_th net income growth was attributable to strong business performance driven by comparable store sales and resulting operating leverage , strong performance of new stores opened , change in loss on extinguishment of debt and reduced interest expense . comparison of fiscal 2013 to fiscal 2012 net sales replace_table_token_17_th net sales increased during 2013 as compared to 2012 , primarily as a result of ( i ) stores added through the sunflower transaction in fiscal 2012 , ( ii ) sales growth at stores operated prior to 2013 and ( iii ) new store openings .
| factors affecting comparability of results of operations sunflower transaction in may 2012 , we acquired sunflower in the sunflower transaction . commencing on may 29 , 2012 , our consolidated financial statements also include the financial position , results of operations and cash flows of sunflower . pro forma information the effect of the sunflower transaction had a material effect on the comparability of our results of operations . consequently , we have supplemented the comparative discussion of our results of operations for fiscal 2013 and fiscal 2012 with a comparative discussion of our historical results of operations on a pro forma basis for fiscal . pro forma statement of operations information for fiscal 2012 gives effect to the sunflower transaction as if it was consummated on the first day of fiscal 2012 as set out under pro forma for the sunflower transaction in unaudited supplemental fiscal 2012 pro forma information. this fiscal 2012 pro forma information presented in this management 's discussion and analysis of financial condition and results of operations does not include the impact of the april 2013 refinancing , described below in liquidity and capital resources , or the ipo . april 2013 refinancing in april 2013 , we completed a transaction in which we refinanced our debt ( the april 2013 refinancing ) and made a distribution to our equity and option holders , as further discussed in liquidity and capital resources below . the april 2013 refinancing resulted in an increase in borrowings , a reduction in interest rate and the recording of a loss on extinguishment of debt . corporate conversion in connection with our ipo , on july 29 , 2013 , sprouts farmers markets , llc , a delaware limited liability company , converted into sprouts farmers market , inc. , a delaware corporation .
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we caution that assumptions , expectations , projections , intentions or beliefs about future events may , and often do , vary from actual results and the differences can be material . please see `` cautionary statement regarding forward-looking statements '' and `` part i , item 1a . risk factors . '' unless otherwise specified , references to `` average sales price '' refer to average sales price excluding the effects of our derivative transactions . all amounts , dollars and percentages presented in this annual report are rounded and therefore approximate . executive overview we are an independent energy company focused on the acquisition , exploration and development of oil and natural gas properties , primarily in the permian basin of west texas . since our inception , we have grown primarily through our drilling program coupled with select strategic acquisitions and joint ventures . our financial and operating performance included the following for the periods presented : replace_table_token_12_th _ ( 1 ) our oil , ngl and natural gas sales decreased as a result of a 26 % decrease in average sales price per boe and were partially offset by a 19 % increase in mboe volumes sold . ( 2 ) our net loss for the year ended december 31 , 2019 includes a non-cash full cost ceiling impairment of $ 620.6 million . ( 3 ) see page 78 for a discussion and calculation of free cash flow . ( 4 ) see page 78 for a discussion and reconciliation of adjusted ebitda . ( 5 ) see note 20.d to our consolidated financial statements included elsewhere in this annual report for discussion of changes in our estimated proved reserve quantities of oil , ngl and natural gas . recent developments volatility in commodity prices we review the carrying value of our oil and natural gas properties under the full cost accounting rules of the sec on a quarterly basis . the substantial decrease in oil , ngl and natural gas prices in 2019 , if continued or maintained , may require us to incur additional non-cash full cost ceiling impairments in the future , which could have a material adverse effect on our results of operations for the periods in which the impairments are incurred . see `` low commodity price impact on our fourth-quarter 2019 and potentially on our first-quarter 2020 full cost ceiling impairment test `` below . 55 new notes , tender offers and redemptions of prior notes on january 24 , 2020 , we completed an offer and sale ( the `` offering '' ) of $ 600.0 million in aggregate principal amount of 9 1/2 % senior unsecured notes due 2025 ( the `` january 2025 notes '' ) and $ 400.0 million in aggregate principal amount of 10 1/8 % senior unsecured notes due 2028 ( the `` january 2028 notes '' and , together with the january 2025 notes , the `` new notes '' ) . interest for the new notes is payable on january 15 and july 15 of each year . the first interest payment will be made on july 15 , 2020 , and will consist of interest from closing to that date . the terms of the new notes include covenants , which are in addition to but different than similar covenants in the senior secured credit facility , which limit our ability to incur indebtedness , make restricted payments , grant liens and dispose of assets . we received net proceeds of approximately $ 982.0 million from the offering , after deducting underwriting discounts and commissions and estimated offering expenses . the proceeds from the offering have been or will be used ( i ) to fund tender offers ( defined below ) for any or all of our prior notes ( defined below ) , ( ii ) to repay our $ 450.0 million in aggregate principal amount of 5 5/8 % senior unsecured notes due 2022 ( the `` january 2022 notes '' ) and $ 350.0 million in aggregate principal amount of 6 1/4 % senior unsecured notes due 2023 ( the `` march 2023 notes '' and , together with the january 2022 notes , the `` prior notes '' ) that remain outstanding after the completion or termination of the tender offers and ( iii ) for general corporate purposes , including repaying a portion of the borrowings outstanding under our senior secured credit facility . we refer to the january 2022 notes , march 2023 notes , january 2025 notes and january 2028 notes collectively as the `` senior unsecured notes . '' our subsidiaries , lms and gcm , are guarantors of the obligations under our senior secured credit facility and senior unsecured notes . on january 6 , 2020 , we commenced cash tender offers and consent solicitations for any or all of our outstanding prior notes ( collectively , the `` tender offers '' ) . on january 24 , 2020 and february 6 , 2020 , we settled the tender offers . on january 29 , 2020 , we redeemed the remaining january 2022 notes not tendered under the tender offers at a redemption price of 100.000 % of the principal amount thereof , plus accrued and unpaid interest . on march 15 , 2020 , we anticipate redeeming the remaining $ 50.6 million of march 2023 notes not tendered under the tender offers at a redemption price of 101.563 % of the principal amount of the march 2023 notes , plus accrued and unpaid interest . acquisitions on june 20 , 2019 , we acquired 640 net acres in reagan county , texas for $ 2.9 million . on december 6 , 2019 , we closed a bolt-on acquisition of 4,475 contiguous net acres and working interests in 49 producing wells in western glasscock county , texas , which included net production of 1,400 boe per day , for $ 64.6 million , net of customary closing purchase price adjustments and subject to customary post-closing purchase price adjustments . story_separator_special_tag initial production results , production decline rates , well density , completion design and operating method are examples of the numerous uncertainties and variables inherent in the estimation of proved reserves in future periods . the quantity of proved reserves is one of the many variables inherent in the calculation of depletion . 57 the following table presents our depletion expense for our evaluated oil and natural gas properties per boe sold for the periods presented : replace_table_token_13_th low commodity price impact on our fourth-quarter 2019 and potentially on our first-quarter 2020 full cost ceiling impairment test our results of operations are heavily influenced by oil , ngl and natural gas prices , which remain at low levels . oil , ngl and natural gas price fluctuations are caused by changes in global and regional supply and demand , market uncertainty , economic conditions and a variety of additional factors . since the inception of our oil and natural gas activities , commodity prices have experienced significant fluctuations , and additional changes in commodity prices may affect the economic viability of , and our ability to fund our drilling projects , as well as the economic valuation and economic recovery of oil , ngl and natural gas reserves . we use the full cost method of accounting for our oil and natural gas properties , with the full cost ceiling , as defined by the sec , based principally on the estimated future net revenues from our proved oil and natural gas properties discounted at 10 % under required sec guidelines for pricing methodology . in the event the unamortized cost , or net book value , of evaluated oil and natural gas properties being depleted exceeds the full cost ceiling , the excess is charged to expense in the period such excess occurs . once incurred , a write-down of evaluated oil and natural gas properties is not reversible . the net book value of our evaluated oil and natural gas properties exceeded the full cost ceiling as of september 30 , 2019 and december 31 , 2019. as such , we recorded third-quarter and fourth-quarter 2019 non-cash full cost ceiling impairments of $ 397.9 million and $ 222.7 million , respectively . we did not record any similar impairments for the years ended december 31 , 2018 or 2017 , but did record non-cash full cost ceiling impairments of $ 161.1 million and $ 2.4 billion for the years ended december 31 , 2016 and 2015 , respectively . if prices remain at or below the current levels , subject to numerous factors and inherent limitations , and all other factors remain constant , we will incur an additional non-cash full cost ceiling impairment in the first quarter of 2020 , which will have an adverse effect on our results of operations . there are numerous uncertainties inherent in the estimation of proved reserves and accounting for oil and natural gas properties in future periods . in addition to unknown future commodity prices , other uncertainties include ( i ) changes in drilling and completions costs , ( ii ) changes in oilfield service costs , ( iii ) production results , ( iv ) our ability , in a low price environment , to strategically drill the most economic locations in our multi-level horizontal targets , ( v ) income tax impacts , ( vi ) potential recognition of additional proved undeveloped reserves , ( vii ) any potential value added to our proved reserves when testing recoverability from drilling unbooked locations , ( viii ) revisions to production curves based on additional data and ( ix ) the inherent significant volatility in the commodity prices for oil , ngl and natural gas . each of the above factors is evaluated on a quarterly basis and if there is a material change in any factor it is incorporated into our reserves estimation utilized in our quarterly accounting estimates . we use our reserve estimates to evaluate , also on a quarterly basis , the reasonableness of our resource development plans for our reported proved reserves . changes in circumstance , including commodity pricing , economic factors and the other uncertainties described above may lead to changes in our development plans . below is a calculation of a potential future impairment of our evaluated oil and natural gas properties . such implied impairment should not be interpreted to be indicative of our development plan or of our actual future results . each of the uncertainties noted above has been evaluated for material known trends to be potentially included in the estimation of possible first-quarter 2020 effects . based on such review , we determined that the impact of decreased commodity prices is the only significant known variable necessary in calculating the following scenario . our hypothetical first-quarter 2020 full cost ceiling calculation has been prepared by substituting ( i ) $ 52.64 per bbl for oil , ( ii ) $ 10.78 per bbl for ngl and ( iii ) $ 0.27 per mcf for natural gas ( collectively , the `` pro forma first-quarter prices '' ) for the respective realized prices as of december 31 , 2019. all other inputs and assumptions have been held constant . accordingly , this estimation strictly isolates the estimated impact of low commodity prices on the first-quarter 2020 realized prices that 58 will be utilized in our full cost ceiling calculation . the pro forma first-quarter prices use a slightly modified realized price , calculated as the unweighted arithmetic average of the first-day-of-the-month price for oil , ngl and natural gas for the 11 months ended february 1 , 2020 and holding the february 1 , 2020 prices constant for the remaining twelfth month of the calculation . based solely on the substitution of the pro forma first-quarter prices into our december 31 , 2019 proved reserve estimates , the implied first-quarter 2020 impairment would be $ 117 million .
| results of operations revenues sources of our revenue our revenues are derived from the sale of produced oil , ngl and natural gas , the sale of purchased oil and providing midstream services to third parties , all within the continental u.s. and do not include the effects of derivatives . our oil , ngl and natural gas revenues may vary significantly from period to period as a result of changes in volumes of production , pricing differentials and or changes in commodity prices . our sales of purchased oil revenue may vary due to changes in oil prices , pricing differentials and the amount of volumes purchased . our midstream service revenues may fluctuate and vary due to oil throughput fees and the level of services provided to third parties for ( i ) integrated oil and natural gas gathering and transportation systems and related facilities , ( ii ) natural gas lift , rig fuel and centralized compression infrastructure and ( iii ) water storage , recycling and transportation infrastructure . see notes 2.o and 13.b to our consolidated financial statements included elsewhere in this annual report for additional information regarding our revenue recognition policies . 62 the following table presents our sources of revenue as a percentage of total revenues : replace_table_token_14_th 63 oil , ngl and natural gas sales volumes , revenues and prices the following table presents information regarding our oil , ngl and natural gas sales volumes , sales revenues and average sales prices : replace_table_token_15_th _ ( 1 ) boe is calculated using a conversion rate of six mcf per one bbl . ( 2 ) the numbers presented in the years ended december 31 , 2019 and 2018 columns are based on actual amounts and are not calculated using the rounded numbers presented in the table above or the table below .
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56 the consideration for $ 6 million loan was allocated between the loan and the warrants based upon the relative fair value of the loan and the warrants . the company valued the warrants associated with the new debt obligation using the black-sholes model , which resulted in the allocation of $ 1.7 million to additional paid in capital with a corresponding offset to debt discount . in addition , there were $ 0.3 million in debt origination costs that are also accounted for as an offset to outstanding debt . the resulting debt discount of $ 2.0 million was amortized to interest expense over the 20-month term of the notes ( amount was fully amortized at december 31 , 2018 ) . the company entered into an amendment to the 8 % non-convertible secured debentures in december 2018. the maturity date was extended to march 31 , 2020 ; provided however , if 50 % of the principal balance of the debentures is not paid on or prior to december 31 , 2019 , the holders of the debentures in the aggregate principal amount greater than $ 3 million , acting together , may demand full and immediate payment to the company upon 15 days ' written notice . in addition , each holder received new warrants to purchase 1,200,000 shares of common stock . the warrants have an exercise price of $ 2.25 and are not exercisable for a period of six months . this amendment was accounted for as a debt modification and the relative fair value of the warrants , determined using the black-scholes model , of $ 1.5 million was recorded as additional paid-in-capital at december 31 , 2018. in connection with the debt modification , $ 1.5 million of accrued default interest on the 8 % non-convertible secured debentures was written off . additionally , the company lowered the strike price for several classes of warrants to $ .50 to allow for warrant holders exercise their warrants in anticipation of the merger contemplated with sonnet . as of december 31 , 2019 , there were 307,157 warrants exercised . ( b ) the company has two outstanding term loans with paragon bank , all of which are collateralized by all assets of the company and personally guaranteed by our chief executive officer . the outstanding balance , interest rate and maturity date of each loan is as follows : replace_table_token_22_th ( c ) the company has a promissory note payable on demand in the amount of $ 75,000 with 800 shares of restricted company common stock to be paid to the lender each month while the note is outstanding story_separator_special_tag you should read the following discussion of our results of operations and financial condition together with the selected financial data and our audited consolidated financial statements as of and for the year ended december 31 , 2019 including the notes thereto , included in this report . the discussion below contains forward-looking statements and involves numerous risks and uncertainties , including , but not limited to , those described in item 1a . “ risk factors ” . actual results may differ materially from those contained in any forward-looking statements . forward-looking statements speak only as of the date they are made . we undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur , and you are urged to review and consider disclosures that we make in this and other reports that discuss factors germane to our business . story_separator_special_tag % of restaurant net sales % change total company $ 19,406,358 66.8 % $ 18,423,991 61.9 % 5.3 % 30 restaurant pre-opening and closing expenses restaurant pre-opening and closing expenses decreased to $ 361,554 for the year ended december 31 , 2019 compared with $ 398,473 for the year ended december 31 , 2018. the company has one ( 1 ) little big burger restaurant under lease and is incurring pre-opening rent and other costs while preparing to start construction . general and administrative expense ( “ g & a ” ) g & a increased 54.5 % to $ 6.0 million for the year ended december 31 , 2019 from $ 3.9 million for the year ended december 31 , 2018. significant components of g & a are summarized as follows : replace_table_token_3_th as a percentage of total revenue , g & a increased to 19.8 % for the year ended december 31 , 2019 from 12.6 % for the year ended december 31 , 2018. this increase in g & a was driven by increased legal fees related to resolving unionization efforts , increased professional fees related to a rights offering , expenses related to the proposed reverse merger with sonnet , addition of executive management salaries , and increased marketing expenses from a customer segmentation study to build a customer loyalty program . asset impairment charges asset impairment charges totaled $ 9.1 million for the year ended december 31 , 2019 as compared with $ 1.9 million for the year ended december 31 , 2018. the company recognized impairment charges related to the closure of three bgr locations , a hooters location , and one american burger location . also , the company recognized impairment charges related to its hooters nottingham location of approximately $ 975,000 , and an impairment of $ 1.0 million related to the hooters in portland , oregon . due to the adoption of asc 842 and termination fees from the above-mentioned store closures , the company recognized another $ 5.2 million impairment . asset impairment charges totaled $ 1.9 million for the year ended december 31 , 2018 as compared with $ 2.4 million for the year ended december 31 , 2017. the company recognized impairment charges related to the closure of one just fresh location and one american burger location in charlotte , north carolina . story_separator_special_tag upon adoption , the company recorded a decrease to opening stockholders ' equity of $ 1,042,000 with a corresponding increase of $ 1,042,000 in deferred revenue . additional franchise income of $ 83,000 was recognized during the year-ended december 31 , 2018 under asc 606 , compared to what would have been recognized under asc 605. prior to the adoption of asc 606 , the company 's initial franchise fees were recorded as deferred revenue when received and proportionate amounts were recognized as revenue when certain milestones such as completion of employee training , lease signing , and store opening were achieved . with the adoption of asc 606 , such initial franchise fees are deferred and recognized over the franchise license term as discussed further below . the company generates revenues from the following sources : ( i ) restaurant sales ; ( ii ) management fee income ; ( iii ) gaming income ; and ( iv ) franchise revenues , consisting of royalties based on a percentage of sales reported by franchise restaurants and initial signing fees . 33 restaurant sales , net the company records revenue from restaurant sales at the time of sale , net of discounts , coupons , employee meals , and complimentary meals and gift cards . sales tax and value added tax ( “ vat ” ) collected from customers and remitted to governmental authorities are presented on a net basis within revenue in our consolidated statements of operations . management fee income the company receives revenue from management fees from certain non-affiliated companies , including from managing its investment in hooters of america which are generally earned and recognized over the performance period . gaming income the company receives revenue from operating a gaming facility adjacent to its hooters restaurant in jantzen beach , oregon . revenue from gaming is recognized as earned from gaming activities , net of payouts to customers , taxes and government fees . these fees are recognized as they are earned based on the terms of the agreements . franchise income the company grants franchises to operators in exchange for initial franchise license fees and continuing royalty payments . the license granted for each restaurant or area is considered a performance obligation . all other obligations ( such as providing assistance during the opening of a restaurant ) are combined with the license and were determined to be a single performance obligation . accordingly , the total transaction price ( comprised of the restaurant opening and territory fees ) is allocated to each restaurant expected to be opened by the licensee under the contract . there are significant judgments regarding the estimated total transaction price , including the number of stores expected to be opened . we recognize the fee allocated to each restaurant as revenue on a straight-line basis over the restaurant 's license term , which generally begins upon the signing of the contract for area development agreements and upon the signing of a store lease for franchise agreements . the payments for these upfront fees are generally received upon contract execution . continuing fees , which are based upon a percentage of franchisee revenues and are not subject to any constraints , are recognized on the accrual basis as those sales occur . the payments for these continuing fees are generally made on a weekly basis . deferred revenue deferred revenue consists of contract liabilities resulting from initial and renewal franchise license fees paid by franchisees , which are generally recognized on a straight-line basis over the term of the underlying franchise agreement , as well as upfront development fees paid by franchisees , which are generally recognized on a straight-line basis over the term of the underlying franchise agreement once it is executed or if the development agreement is terminated . leases we determine if a contract contains a lease at inception . our material operating leases consist of restaurant locations and office space . our leases generally have remaining terms of 1-20 years and most include options to extend the leases for additional 5-year periods . generally , the lease term is the minimum of the noncancelable period of the lease or the lease term inclusive of reasonably certain renewal periods up to a term of 20 years . if the estimate of our reasonably certain lease term was changed , our depreciation and rent expense could differ materially . operating lease assets and liabilities are recognized at the lease commencement date . operating lease liabilities represent the present value of lease payments not yet paid . operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments , initial direct costs , lease incentives , and impairment of operating lease assets . to determine the present value of lease payments not yet paid , we estimate incremental borrowing rates corresponding to the reasonably certain lease term . as we have no outstanding debt nor committed credit facilities , secured or otherwise , we estimate this rate based on prevailing financial market conditions , comparable company and credit analysis , and management judgment . if the estimate of our incremental borrowing rate was changed , our operating lease assets and liabilities could differ materially . 34 intangible assets goodwill and indefinite lived intangibles generally accepted accounting principles in the united states require the company to perform goodwill and indefinite lived intangible asset impairment tests annually and more frequently when negative conditions or a triggering event arise . in september 2011 , the fasb issued amended guidance that simplified how entities test goodwill for impairment . after an assessment of certain qualitative factors , if it is determined to be more likely than not that the fair value of a reporting unit is less than its carrying amount , entities must perform the quantitative analysis of the goodwill impairment test . otherwise , the quantitative test
| overview we operate and franchise a system-wide total of 46 fast casual restaurants , of which 35 are company-owned and 11 are owned and operated by franchisees under franchise agreements . american burger company ( “ abc ” ) is a fast-casual dining chain consisting of 6 locations in north carolina and new york , known for its diverse menu featuring fresh salads , customized burgers , milk shakes , sandwiches , and beer and wine . bgr : the burger joint ( “ bgr ” ) was acquired in march 2015 and consists of 8 company-owned locations in the united states and 11 franchisee-operated locations in the united states and the middle east ( 2 of the franchisee-operated locations were purchased by the company in 2018 and became company-owned locations ) . 28 little big burger ( “ lbb ” ) was acquired in september 2015 and consists of 19 company-owned locations in the portland , oregon , seattle , washington , and charlotte , north carolina areas . of the company-owned restaurants , 8 of those locations are operated under partnership agreements with investors where we control the management and operations of the stores and the partner supplies the capital to open the store in exchange for a noncontrolling interest . we also operate 1 hooters full-service restaurants in the united states , and 1 location in the united kingdom . hooters restaurants , which are casual beach-themed establishments featuring music , sports on large flat screens , and a menu that includes seafood , sandwiches , burgers , salads , and of course , hooters original chicken wings and the “ nearly world famous ” hooters girls . chanticleer started initially as an investor in corporate owned hooters and , subsequently evolved into a franchisee operator . we continue to hold a minority investment stake in hooters of america . however , we do not currently intend to invest in growing the hooters brand , and instead are managing this brand alongside our other fast casual brands .
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please see the discussion regarding forward-looking statements included at the end of this discussion , under the caption forward-looking statements , and item 1a , risk factors for a discussion of some of the uncertainties , risks and assumptions associated with these statements . the following discussion should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this annual report on form 10-k. all dollar amounts are in thousands except per share amounts or unless otherwise noted . percentages within the following tables included in this section may not foot due to rounding . 23 overview digimarc corporation enables governments and enterprises around the world to give digital identities to media and objects that computers can sense and recognize and to which they can react . we have developed the digimarc discover ® and digimarc barcode intuitive computing platform that are designed to optimize the identification of all consumer brand impressions , wherever and whenever they may appear , facilitating modern mobile-centric shopping . the platform includes means to embed digimarc barcodes , invisible and inaudible barcode-like information that is recognizable by smartphones , industrial scanners , and other computer interfaces , into virtually all forms of media content , including consumer product packaging . digimarc barcodes have many applications , including facilitating remarkably faster scanning of products at retail checkout as well as improved engagement with smartphone-equipped consumers . the digimarc barcode is robust yet imperceptible by people in ordinary use , allowing for reliable , efficient , economical , globally scalable automatic identification of media without visible computer codes like traditional barcodes . our growth strategy encompasses both our government and commercial businesses . we plan to continue investing in research and development and sales and marketing to develop and market our products , including digimarc discover , digimarc barcode and guardian , and to continue to expand our intellectual property portfolio . to protect our significant efforts in creating our technology , we have implemented an extensive intellectual property protection program that relies on a combination of patent , copyright , trademark and trade secret laws , and nondisclosure agreements and other contracts . as a result , we believe we have one of the world 's most extensive patent portfolios in the field of digital watermarking and related fields , with approximately 1,150 u.s. and foreign patents and pending patent applications as of december 31 , 2015. we continue to develop and broaden our portfolio of patented technology in the fields of media identification and management technology and related applications and systems . we devote significant resources to developing and protecting our inventions and continuously seek to identify and evaluate potential licensees for our patents . critical accounting policies and estimates the preparation of financial statements in accordance with accounting principles generally accepted in the u.s. ( u.s . gaap ) requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . on an on-going basis , we evaluate our estimates , including those related to bad debts , contingencies , goodwill , income taxes , intangible assets , marketable securities , property and equipment and revenue recognition . we base our estimates on historical experience and on other assumptions we believe to be reasonable in the circumstances . actual results may differ from these estimates under different assumptions or conditions . some of our accounting policies require higher degrees of judgment than others in their application . these include revenue recognition , goodwill , impairment of long-lived assets , contingencies and income taxes . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition : we account for customer arrangements that encompass multiple deliverables , such as patent licenses , professional services , software licenses , and maintenance and support fees , under asc 605-25 multiple-element arrangements . for arrangements that include multiple deliverables , we identify and divide the deliverables into separate units of accounting at inception if certain criteria are met . we apply asc 985 to software deliverables when relevant . the consideration for the arrangements under asc 605-25 is allocated to the separate units of accounting using the relative selling price method . the relative selling price method allocates the consideration based on our specific assumptions rather than assumptions of a marketplace participant , and any discount in the arrangement proportionally to each deliverable on the basis of each deliverable 's selling price . 24 applicable revenue recognition criteria are considered separately for each separate unit of accounting as follows : service revenue is generally determined based on time and materials . revenue for development and consulting services is recognized as the services are performed . billing for services rendered generally occurs within one month after the services are provided . subscription revenue , which includes digimarc discover , digimarc barcode and guardian products and services , is generally paid in advance and recognized over the term of the subscription , which is generally one to three years . license revenue is recognized when amounts owed to digimarc have been earned , are fixed or determinable ( within our normal 30 to 60 day payment terms ) , and collection is reasonably assured . if the payment terms extend beyond our normal 30 to 60 days , the fee may not be considered to be fixed or determinable , and the revenue would then be recognized when installments are due . we record revenue from certain license agreements upon cash receipt as a result of collectability not being reasonably assured . our standard payment terms for license arrangements are 30 to 60 days . story_separator_special_tag as of december 31 , 2015 , we determined a full valuation allowance was still appropriate . we are subject to federal and state income taxes within the u.s. , and , in the ordinary course of business , there are transactions and calculations where the ultimate tax determination is uncertain . we report a liability ( or contra asset ) for unrecognized tax benefits resulting from uncertain tax positions taken ( or expected to be taken ) on a tax return . we recognize interest and penalties , if any , related to the unrecognized tax benefits in income tax expense . 26 results of operationsthe years ended december 31 , 2015 and december 31 , 2014 the following tables present our consolidated statements of operations data for the periods indicated . replace_table_token_6_th 27 replace_table_token_7_th summary in 2014 , we increased our level of investment in sales and marketing to expand our sales organization . in 2015 , we made additional investments in sales and marketing to further expand our sales and marketing organizations to accelerate market development and delivery of digimarc discover and digimarc barcode . total revenue decreased $ 3.5 million or 14 % to $ 22.2 million , reflecting lower license revenue of $ 4.4 million primarily due to the end of royalty payments from verance corporation ( verance ) in the fourth quarter of 2014 and license payments from the nielsen company ( nielsen ) in the first quarter of 2014 , partially offset by growth in service and subscription revenue . total operating expenses decreased 4 % to $ 31.2 million , reflecting lower spending in research , development and engineering , general and administrative and intellectual property , partially offset by higher investment in sales and marketing as we focus on market development and delivery for digimarc discover and digimarc barcode . 28 revenue replace_table_token_8_th service . service revenue consists primarily of software development and consulting services . the majority of service revenue arrangements are structured as time and materials consulting agreements . most of our service revenue is derived from contracts with the central banks and government agency contractors . the agreements range from several months to several years in length , and our longer term contracts are subject to work plans that are reviewed and agreed upon at least annually . these contracts generally provide for billing hours worked at predetermined rates and , to a lesser extent , reimbursement for third party costs and services . increases or decreases in the services provided under these contracts are generally subject to both volume and price changes . the volume of work is generally negotiated at least annually and can be modified as the customer 's needs change . we also have provisions in our longer term contracts that allow for specific hourly rate price increases on an annual basis to account for cost of living variables . contracts with government agency contractors are generally shorter term in nature , less linear in billings and less predictable than our longer term contracts because the contracts with government agency contractors are subject to government budgets and funding . the increase in service revenue was primarily due to higher billable rates under our agreement with the central banks and increased program work with a government agency contractor . subscription . subscription revenue includes digimarc discover , digimarc barcode and guardian products and services , and is generally recurring in nature , paid in advance and recognized over the term of the subscription . the increase in subscription revenue was primarily from software license fees , recognized over the associated 12-month support period , and growth in digimarc barcode revenue , partially offset by lower guardian revenue . license . license revenue originates primarily from licensing our intellectual property where we receive license fees and or royalties as our income stream . the decrease in license revenue was primarily due to the end of royalty payments from verance in the fourth quarter of 2014 and license payments from nielsen in the first quarter of 2014 . 29 revenue by geography replace_table_token_9_th the decrease in domestic revenue was primarily due to the end of royalty payments from verance in the fourth quarter of 2014 and license payments from nielsen in the first quarter of 2014 , partially offset by higher domestic service and subscription revenue . the decrease in international revenue was primarily due to lower international license revenue and lower guardian revenue from international customers , partially offset by higher service revenue from the central banks . cost of revenue service . cost of service revenue primarily includes costs that are allocated from research , development and engineering , sales and marketing and intellectual property that relate directly to performing services under our customer contracts and direct costs of program delivery for both personnel and operating expenses . costs include : compensation , benefits , incentive compensation in the form of stock-based compensation and related costs of our software developers , quality assurance personnel , product managers , business development managers and other personnel where we bill our customers for time and materials costs ; payments to outside contractors that are billed to customers ; charges for equipment directly used by customers ; depreciation and other charges for machinery , equipment and software directly used by customers ; travel costs directly attributable to service and development contracts ; and charges for infrastructure and centralized costs of facilities and information technology . subscription . cost of subscription revenue primarily includes : compensation , benefits , incentive compensation in the form of stock-based compensation and related costs of operations personnel ; cost of outside contractors that provide operational support ; amortization of existing technology acquired in the acquisition of attributor corporation ( attributor ) ; internet service provider connectivity charges and image search data fees to support the services offered to our subscription customers ; and charges for infrastructure and centralized costs of facilities and information technology . 30 license .
| summary in 2013 , we increased the level of our investments in our product development and sales growth initiatives , primarily through hiring additional engineering and sales personnel . these initiatives included developing and marketing digimarc discover , digimarc barcode and other aspects of our intuitive computing platform as well as further developing our retained patent assets and exploring strategic opportunities in the mobile payments market . in 2014 , we continued these investments and made additional investments to expand our sales organization and expand the guardian product offering . total revenue decreased 27 % to $ 25.7 million in 2014 from $ 35.0 million in 2013 primarily due to the scheduled completion of the quarterly license fee payments from intellectual ventures ( iv ) in the second quarter of 2013 and from the nielsen company ( nielsen ) in the first quarter of 2014. total operating expenses increased 11 % to $ 32.5 million from $ 29.2 million in 2013 primarily reflecting the full-year impact of the continued investments in our product development and sales growth initiatives . 37 revenue replace_table_token_18_th the increase in service revenue was due primarily to higher billing rates under our contract with the central banks , partially offset by lower revenue due to timing of work with a government agency contractor . the increase in subscription revenue was due primarily to higher sales of our digimarc discover , digimarc barcode and guardian products and services .
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the committees of the board execute their oversight responsibility for risk management as follows : the audit committee is responsible for overseeing the company 's internal financial and accounting controls , work performed by the company 's independent registered public accounting firm and the company 's internal audit function . as part of its oversight function , the audit committee regularly discusses with management and the company 's independent registered public accounting firm the company 's major financial and controls-related risk exposures and steps that management has taken to monitor and control such exposures . within its risk oversight functions , the audit committee is responsible for reviewing the overall implementation of the company 's erm framework and program , ensuring the placement of controls needed to establish a strong internal control environment , receiving periodic status reports on management 's erm progress , overseeing the company 's risk exposure , and validating management 's active role story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( md & a ) covers : ( i ) the results of operations for the years ended december 31 , 2015 , 2014 and 2013 ; and ( ii ) the financial condition as of december 31 , 2015 and 2014. see note 2 of the notes to audited consolidated financial statements for additional information about the company and the basis of presentation of our financial statements . you should read the following discussion and analysis in conjunction with the financial statements and related notes appearing elsewhere herein . this md & a contains forward-looking statements that involve risks and uncertainties . our actual results may differ from those indicated in the forward-looking statements . see forward-looking statements for a discussion of the risks , uncertainties and assumptions associated with these statements . restatement of previously issued consolidated financial statements note 1 to the consolidated financial statements discloses the nature of the restatement matters and adjustments and shows the impact of the restatement for the years ended december 31 , 2014 and 2013 as well as the restated unaudited condensed consolidated financial statements for the interim periods in 2015 and 2014 ( see note 23 ) , which is referred to as the restatement . the restatement corrects material errors involved with the accounting for tax positions taken in the 2010 tax year . the restatement corrects an error in the recognition of a deferred tax asset originating from 2010 tax deductions and the corresponding net operating loss for transaction costs that were based on an uncertain tax position and corrects an error related to the accounting for 2010 debt issuance cost tax deductions based on an uncertain tax position that affected book tax temporary differences and differences in the applicable tax rates over the affected period . these differences impacted deferred tax liability calculations over the affected period . the restatement also establishes a liability for potential tax liabilities including penalties and interest related to these uncertain tax positions . in the third quarter of 2015 , the liability for exposure to potential tax , interest and penalties with respect to the referenced 2010 debt issuance cost deductions was reversed in full as the related statute of limitations expired in such period . this tax liability reversal triggered recognition of a tax benefit of $ 11.8 million in the third quarter of 2015. the restatement presents the effect of an adjustment to opening retained earnings as of january 1 , 2013 , which adjustment reflects the impact of the restatement on periods prior to 2013. the cumulative effect of those adjustments decreased previously reported accumulated earnings by $ 20.9 million as of december 31 , 2012. the restatement also corrects other miscellaneous insignificant accounting errors . these errors , individually and in the aggregate , would not have required a restatement . the adjustments required to correct the errors in the consolidated financial statements as a result of completing the restatement process are described in note 1 , restatement of previously issued consolidated financial statements included in part ii item 8 financial statements and supplementary data. the accompanying management 's discussion and analysis of financial condition and results of operations gives effect to the restatement adjustments made to the previously reported consolidated financial statements for the years ended december 31 , 2014 and december 31 , 2013. for additional information and a detailed discussion of the restatement , see note 1 to the notes to audited consolidated financial statements appearing elsewhere in this annual report on form 10-k. overview evertec is a leading full-service transaction processing business in latin america , providing a broad range of merchant acquiring , payment processing and business process management services . according to the july 2015 nilson report , we are the largest merchant acquirer in the caribbean and central america and one of the largest 45 in latin america , based on total number of transactions . we serve 18 countries in the region from our base in puerto rico . we manage a system of electronic payment networks that process more than two billion transactions annually , and offer a comprehensive suite of services for core bank processing , cash processing and technology outsourcing . in addition , we own and operate the ath network , one of the leading personal identification number ( pin ) debit networks in latin america . we serve a diversified customer base of leading financial institutions , merchants , corporations and government agencies with mission-critical technology solutions that enable them to issue , process and accept transactions securely . we believe our business is well-positioned to continue to expand across the fast-growing latin american region . we are differentiated , in part , by our diversified business model , which enables us to provide our varied customer base with a broad range of transaction-processing services from a single source across numerous channels and geographic markets . story_separator_special_tag many medium- and small-size institutions in the latin american markets in which we operate have outdated computer systems and updating these it legacy systems is financially and logistically challenging . we believe that our technology and business outsourcing solutions cater to the evolving needs of the financial institution customer base we target , providing integrated , open , flexible , customer-centric and efficient it products and services . we also expect our results of operations to be affected by regulatory changes that will occur as the payments industry has come under increased scrutiny from lawmakers and regulators . the dodd-frank wall street reform and consumer protection act of 2010 ( the dodd-frank act ) signed into law in july 2010 is an example of changes in laws and regulations that could affect our operating results and financial condition . finally , our financial condition and results of operations are , in part , dependent on the economic and general conditions of the geographies in which we operate . 47 the puerto rico government is experiencing a debt crisis and has defaulted on several of its debt payments , stating that it is unable to both service its debt and continue to provide essential services to its citizens . additionally , the governor of puerto rico has made public statements that the government intends to delay payments to vendors and take other necessary austerity measures to ensure essential services are provided to puerto rican citizens . the puerto rican government is a large customer of ours and many puerto rican businesses and if it is unable to pay its obligations as they become due or at all , this will likely have an adverse impact on the island 's economy . as the solution to the puerto rican government 's debt crisis remains unclear , we continue to carefully monitor our receivables with the government as well as monitor general economic trends to understand the impact the crisis has on the economy of puerto rico and our card payment volumes . to date our receivables with the puerto rican government and overall payment transaction volumes have not been significantly affected by the debt crisis , however we remain cautious . we are also concerned that the crisis could accelerate the emigration trend of puerto rico residents to the united states , which has a negative impact on the island 's economy and our business . critical accounting estimates our consolidated financial statements are prepared in accordance with gaap . in connection with the preparation of our financial statements , we are required to make estimates and assumptions about future events , and apply judgments that affect the reported amounts of certain assets and liabilities , and in some instances , the reported amounts of revenues and expenses during the period . we base our assumptions , estimates , and judgments on historical experience , current events and other factors that management believes to be relevant at the time our consolidated financial statements are prepared . however , because future events are inherently uncertain and their effects can not be determined with certainty , actual results could differ from our assumptions and estimates , and such differences could be material . a summary of significant accounting policies is included in note 2 of the notes to audited consolidated financial statements appearing elsewhere in this annual report on form 10-k. we believe that the following accounting estimates are the most critical ; require the most difficult , subjective or complex judgments ; and thus result in estimates that are inherently uncertain . revenue recognition the company 's revenue recognition policy follows the guidance from accounting standards codification ( asc ) 605 revenue recognition ; asc 605-25 , revenue recognition-multiple element arrangements ; accounting standard update ( asu ) 2009-13 , multiple-deliverable revenue arrangements , and ; asc 985 , software , which provided guidance on the recognition , presentation , and disclosure of revenue in financial statements . the company recognizes revenue when the following four criteria are met : ( i ) evidence of an agreement exists , ( ii ) delivery and acceptance has occurred or services have been rendered , ( iii ) the selling price is fixed or determinable , and ( iv ) collection of the selling price is reasonably assured . for multiple deliverable arrangements , we evaluate each distinct arrangement to determine if the elements or deliverables within the arrangement represent separate units of accounting pursuant to asc 605-25. if the deliverables are determined to be separate units of accounting , revenues are recognized as units of accounting are delivered and the revenue recognition criteria are met . if the deliverables are not determined to be separate units of accounting , revenues for the delivered services are combined into one unit of accounting and recognized ( i ) over the life of the arrangement if all services are consistently delivered over such term , or if otherwise , ( ii ) at the time that all services and deliverables have been delivered . the selling price for each deliverable is based on vendor-specific objective evidence ( vsoe ) , if available ; on third-party evidence ( tpe ) if vsoe is not available ; or on management 's best estimate of selling price ( besp ) if neither vsoe nor tpe is available . we establish vsoe of selling price using the price charged when the same element is sold separately . we bifurcate or allocate the arrangement consideration to each of the deliverables based on the relative selling price of each unit of accounting . 48 we have two main categories of revenues according to the type of transactions we enter into with our customers : ( a ) transaction-based fees and ( b ) fixed fees and time and material . transaction-based fees we provide services that generate transaction-based fees . typically transaction-based fees depend on factors such as number of accounts or transactions processed .
| results of operations the following tables set forth certain consolidated financial information for the years ended december 31 , 2015 , 2014 and 2013. these tables and the related discussion should be read in conjunction with the information contained in our audited consolidated financial statements and the notes thereto included elsewhere in this annual report on form 10-k. comparison of the years ended december 31 , 2015 and 2014 the following tables present the components of our audited consolidated statements of income ( loss ) and comprehensive income ( loss ) by business segment and the change in those amounts for the years ended december 31 , 2015 and 2014. revenues replace_table_token_6_th total revenues increased by $ 11.7 million to $ 373.5 million when compared with 2014. merchant acquiring revenue increased $ 6.3 million or 8 % when compared with the prior year . the revenue growth was primarily related to an increase in sales volumes for existing merchants coupled with the addition of the firstbank of puerto rico ( firstbank ) merchant portfolio and an overall improvement in spread . payment processing revenue increased by $ 3.6 million or 3 % . revenue growth was driven mainly by an increase in ath and pos network and processing transactions , partially offset by reduced revenues from contracts with the puerto rico government . business solutions revenue increased $ 1.9 million or 1 % when compared with 2014. the increase is primarily driven by an increase in revenues from core banking activities , partially offset by a decrease in it consulting and it management services .
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the increase was driven by higher sales in performance coatings , performance colors and glass and color solutions of $ 139.9 million , $ 42.8 million and $ 33 .0 million , respectively . gross profit increased $ 39.7 million compared with 2017 . the increase in gross profit was attributable to increases across all of our segments , with increases in performance coatings , color solutions and performance colors and glass and of $ 19.9 million , $ 11 .2 mill ion and $ 9.9 million , respectively . as a percentage of net sales , gross profit rate decre ased approximately 15 0 basis points to 28.3 % , from 29.8 % in the prior year . for the year ended december 31 , 2018 , selling , general and administrative ( “ sg & a ” ) expenses increased $ 13.1 mill ion , or 5.0 % , compared with 2017 . as a percentage of net sales , sg & a expenses decreased 170 basis points from 19.0 % in 2017 to 17.3 % in 2018 . for the year ended december 31 , 2018 , net income was $ 80.9 million , compared with n et income of $ 57.8 million in 2017 , and net income attributabl e to common shareholders was $ 80.1 million , compared with net income attributable to common shareholders of $ 57.1 million in 2017 . as previously disclosed on january 17 , 2019 , the company i s in the process of expanding its production facility in villagran , mexico , which will become the company 's manufacturing center of excellence for the americas . the expansion of the villagran facility is expected to significantly increase the revenue generated from products manufactured at that facility . with the expanded capacity in villagran , the company ( i ) will discontinue the production of glass enamels , other industrial specialty products , such as architectural glass coatings , and pigments at its washington , pennsylvania facility over the course of 2019 and into 2020 , ( ii ) plans to discontinue production of porcelain enamel products at its cleveland , ohio facility and ( iii ) will close additional facilities in latin america . as part of this optimization initiative , the company is expanding its king of prussia , pennsylvania facility . conductive glass coatings production will be discontinued at the washington , pennsylvania facility and will be produced at the king of prussia , pennsylvania facility , and the company 's operations at its vista , california facility will be transferred to the king of prussia , pennsylvania facility . in addition , the company will be moving its americas research and development center for glass products to its technology center in independence , ohio , where the company is investing in expanded laboratory facilities . the washington , pennsylvania facility is expected to remain in operation until sometime in 2020. production of specialty glasses for electronics applications will continue at the cleveland , ohio facility , and the company will invest in the facility to equip it to serve as a logistics center . the cleveland , ohio facility also will serve as the americas research and development center for the porcelain enamel business . 2018 transactional activity transaction s undertaken in 2018 included the following business a cquisitions : acquisition of quim ic er , s.a. ( “ quimicer ” ) : as discussed in note 5 , in the fourth quarter of 2018 , the company acquired 100 % of the equit y interests of quimicer , for 27 . 0 million ( approximately $ 31.3 million ) , including the assumption of d ebt of 5 . 2 million ( approximately $ 6.1 million ) . acquisition of uwiz technology co. , ltd. ( “ uwiz ” ) : as discussed in note 5 , in the third quarter of 2018 , the company acquired 100 % of the equity interest of uwiz for twd823.4 million ( approximately $ 26.9 million ) . acquisition of ernst diegel gmbh ( “ diegel ” ) : as discussed in note 5 , in the third quarter of 2018 , the company acquired 100 % of the equity interests of diegel , including the real property of a related party , for 12.1 million ( approximately $ 14 .0 million ) . acquisition of mra laboratories , inc. ( “ mra ” ) : as discussed in note 5 , in the second quarter of 2018 , the company acquired 100 % of the equity interests of mra , for $ 16 . 0 million . acquisition of pt ferro materials utama . ( “ fmu ” ) : as discussed in note 5 , in the second quarter of 2018 , the company acquired 66 % of the equity interests of fmu , for $ 2 . 7 million in cash , in addition to the forgiveness of debt of $ 9.2 million , bringing our total ownership to 100 % . 2017 transactional activity 21 transaction s undertaken in 2017 included the following business acquisitions : acquisition of endeka group ( “ endeka ” ) : as discussed in note 5 , in the fourth quarter of 2017 , the company acquired 100 % of the equity interests of endeka , a global producer of high-value coatings and key raw materials for the ceramic tile m arket , for 72.8 million ( approximately $ 84.8 million ) . acquisition of gardenia quimica s.a. ( “ gardenia ” ) : as discussed in note 5 , in the third quarter of 2017 , the company acquired a majority interest in gardenia for $ 3.0 million . on march 1 , 2018 , the company acquired the remaining equity interest in gardenia for $ 1.4 million . story_separator_special_tag the increase in sales from the united states was attributable to higher sales in color solutions , per formance colors and glass and performance coatings of $ 18.2 million , $ 2.7 million and $ 2.6 mill ion , respectively . the decrease in sales fro m latin america was attributable to lower sales in performance coatings 23 of $ 5.8 million , partially mitigated by higher sales in performance color s and glass and color solutions of $ 1.9 million and $ 1.5 million , respectively . the follow ing table presents our sales on the basis of where sold products were shipped . replace_table_token_5_th selling , general and administrative expense the following table includes sg & a components with significant changes between 2018 and 2017 . replace_table_token_6_th sg & a expenses were $ 13.1 million higher in 2018 compared with the prior year . as a percentage of net sa les , sg & a expenses decreased 170 basis points from 19.0 % in 2017 to 17.3 % in 2018 . the higher sg & a e xpenses compared with the prior year were primarily driven by businesses acquired within the last year . the acquisitions were the primary driver of th e increase in personnel e xpenses . the decrea se in incentive compensation is the result of the company 's performance relative to targets for certain aw ards compared to the prior year and t he de crease in stock-ba sed compensation expense of $ 3.3 million is the result of the company 's performance relative to targets for certain awards compared with the prior year , as well as decreases in the company 's stock price . the following table presents sg & a expenses attributable to sales , research and development , and operations costs as strategic services and presents other sg & a costs as functional services . replace_table_token_7_th 24 restructuring and impairment charges replace_table_token_8_th restru cturing and impairment charges increased $ 1.9 million in 2018 , compared with 2017 . the increase w as primarily related to costs associated with integration of recent acquisitions and optimization programs . the in crease was partially offset by an “ other than temporary impairment ” charge on an equity method investment of $ 1.6 million and costs associated with a restructuring plan in italy , which includes $ 1.2 million of asset impairment assoc iated with assets that were taken out of service in 2017 , which did n't occur in 2018 . interest expense replace_table_token_9_th interest expense in 2018 increased $ 5.6 million com pared with 2017 . the increase in interest expense was primarily due to an increase in the average lo ng-term debt balance during 2018 , compared with 2017 , partially offset by increased interest capitalization during 2018 . income tax expense in 2018 , we recorde d an income tax expense of $ 23.0 million , or 22.2 % of income before income taxes , compared to an income tax expense of $ 52.8 million , or 47.7 % of income before income taxes in 2017. the 2018 effective tax rate is greater than the statutory income tax rate of 21 % primarily as a result of a net effect of a $ 7.9 million net expense related to foreign tax rate differences , $ 3.5 million net expense resulting from foreign income tax audit settlements , $ 5.7 million net benefit related to tax credits and $ 4.1 million net benefit related to the release of valuation allowances related to deferred tax assets that were utilized in the current year or which are deemed no longer necessary based upon changes in the current and expected future years of operating profits . the 2017 effective tax rate is greater than the statutory income tax rate of 35 % primarily as a result of a net effect of a $ 21.5 million expense related to re-measuring the u.s. deferred tax assets as a result of the tax act , $ 5.6 million net expense related to uncertain tax positions and $ 8.0 million benefit related to foreign tax rate differences . on december 22 , 2017 , u.s. federal tax legislation , commonly referred to as the tax cut and jobs act ( the “ tax act ” ) , was signed into law , significantly changing the u.s. corporate income tax system . these changes include a federal statutory rate reduction from 35 % to 21 % effective january 1 , 2018. changes in tax rates and tax law are accounted for in the period of enactment . accordingly , the company 's u.s. net deferred tax assets were re-measured to reflect the reduction in the federal statutory rate , resulting in a $ 21.5 million increase in income tax expense for the year ended december 31 , 2017. the tax act also changed the u.s. taxation of worldwide income . the tax act contains many provisions which continue to be clar ified through new regulations . consistent with the guidance of sec staff accounting bulletin no . 118 , income tax accounting implications of the tax cuts and jobs act ( “ sab 118 ” ) , w e completed our analysis within 2018 consistent with the guidance of sab 118 and our initial determination of no tax due on the one-time mandatory deemed repatriation tax on accumulated foreign subsidiaries ' previously untaxed foreign earnings and profits was unchanged from our position at december 31 , 2017 .
| we review goodwill for impairment each year using a measurement date of october 31st or more frequently in the event of an impairment indicator . we annually , or more frequently as warranted , evaluate the appropriateness of our reporting units utilizing operating segments as the starting point of our analysis . in the event of a change in our reporting units , we would allocate goodwill based on the relative fair value . we estimate the fair values of the reporting units associated with these assets using the average of both the income approach and the market approach , which we believe provides a reasonable estimate of the reporting units ' fair values , unless facts and circumstances exist that indicate more representative fair values . the income approach uses projected cash flows attributable to the reporting units over their useful lives and allocates certain corporate expenses to the reporting units . we use historical results , trends and our projections of market growth , internal sales efforts and anticipated cost structure assumptions to estimate future cash flows . using a risk-adjusted , weighted-average cost of capital , we discount the cash flow projections to the measurement date . the market approach estimates a price reasonably expected to be paid by a market participant in the purchase of similar businesses . if the fair value of any reporting unit was determined to be less than its carrying value , we would proceed to the second step and obtain comparable market values or independent appraisals of its assets and liabilities to determine the amount of any impairment . the significant assumptions and ranges of assumptions we used in our impairment analyses of goodwill at october 31 , 2018 and 2017 , were as follows : replace_table_token_31_th our estimates of fair value can be adversely affected by a variety of factors .
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10.12 ( b ) # change in control and severance agreement , dated august 9 , 2013 between innovus pharmaceuticals , inc. and morgan brown ( incorporated by reference to exhibit 10.6 to the registrant 's form 10-q , filed on august 13 , 2013 ( sec file no . 000-52991 - 131033276 ) ) . 10.13 form of officer and director indemnification agreement , dated june 2013 ( incorporated by reference to exhibit 10.4 to the registrant 's form 10-q , filed on august 13 , 2013 ( sec file no . 000-52991 - 131033276 ) ) . 10.14 subscription agreement , dated june 12 , 2013 between innovus pharmaceuticals , inc. and the investor parties thereto ( incorporated by reference to exhibit 10.5 to the registrant 's form 10-q , filed on august 13 , 2013 ( sec file no . 000-52991 - 131033276 ) ) . 47 10.15 # amended and restated innovus pharmaceuticals , inc. non-employee director compensation plan , dated october 1 , 2013 ( incorporated by reference to exhibit 10.2 to the registrant 's form 10-q , filed on november 14 , 2013 ( sec file no . 000-52991 - 131220746 ) ) . 10.16 ( a ) amended and restated 8 % convertible debenture , dated november 11 , 2013 , between innovus pharmaceuticals , inc. and henry esber , ph.d. ( incorporated by reference to exhibit 10.4 to the registrant 's form 10-q , filed on november story_separator_special_tag the following information should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report . overview we are an emerging pharmaceutical company engaged in the commercialization , licensing , and development of non-prescription pharmaceutical and consumer health products . we deliver innovative and uniquely presented and packaged health solutions through our over-the-counter , or otc medicines and consumer and health products , which we market directly or through commercial partners , to primary care physicians , urologists , gynecologists and therapists , and directly to consumers through on-line channels , retailers and wholesalers . our business model leverages our ability to acquire and in-license commercial products that are supported by scientific and or clinical evidence , place them through our existing supply chain , retail and on-line channels to tap new markets and drive demand for such products , and to establish physician relationships . strategy our corporate strategy focuses on two primary objectives : 1. developing a diversified product portfolio of exclusive unique and patented non-prescription pharmaceutical and consumer health products : through ( a ) the acquisition of marketed non-prescription pharmaceutical and consumer health products ; and ( b ) the introduction of line extensions and reformulations of currently marketed products . 2. building an innovative , global sales and marketing model through commercial partnerships with established complimentary partners that : ( a ) generates revenue ; and ( b ) requires a lower cost structure compared to traditional pharmaceutical companies . 23 the execution of our strategy is underway , and we have generated minimal revenue from some of our products most notably from zestra® , zestra® glide and ejectdelay . we believe that our ability to market , license , acquire and develop brand name non-prescription pharmaceutical and consumer health products will uniquely position us to commercialize our products and grow in this market in a differentiated way . the following are additional details about our strategy : 1. focusing on acquisition of commercial non-prescription pharmaceutical and consumer health products that are well aligned with current therapeutic areas of male and female sexual health , pain and vitality . in general , we seek non-prescription pharmaceutical and consumer health products that are already marketed with scientific and or clinical data and evidence that are aligned with our therapeutic areas and that we can grow through promotion to physicians and expanding their sales through our existing retail and online channels and commercial partners on a worldwide basis . our acquisitions of ( a ) ex-u.s. rights to circumserum from centric research institute , or cri , and ( b ) zestra® and zestra® glide from the acquisition of semprae laboratories , inc. , are examples of this strategy . using this strategy we are moving from a development-stage company to a commercial company as zestra® and zestra® glide are already marketed in the united states and canada and the two products combined generated approximately $ 1 million in revenue during 2013 , ( primarily by semprae prior to our acquisition on december 24 , 2013 ) through both retail channels and internet based sales the efficacy of zestra® is supported by two published us placebo controlled clinical trials in 276 women with mixed female sexual arousal disorder ( fsad ) and non fsad . currently zestra® and zestra® glide are commercially available in the us and canada . the products are available in large retails chains in the us such as walmart and through multiple online retailers in both the us and canada . 2. increasing the number of us and canadian non-exclusive distribution channel partners for direct and online sales and also open more channels directly to physicians , urologists , gynecologists and therapists . one of our goals is to increase the number of us and canadian distribution channel partners that sell our products . to do this , we have devised a three-pronged approach . first , we are seeking to expand the number of otc direct selling partners , such as the larger in-store distributors ( e.g. , cvs , walmart , etc . ) , and to expand sales to the more regional , statewide and local distributors , such as regional pharmacy chains , large grocery stores and supplements and health stores . second , we are working to expand our online presence through relationships with well- known online sellers that we believe have sufficient customers to warrant our relationship with them . story_separator_special_tag shares as of the close of business on the closing date . in the merger , we also agreed to pay the former semprae stockholders an annual royalty equal to five percent of the net sales from zestra® , and zestra® glide and any second generation products derived primarily therefrom up until the time that a generic version of such product is introduced worldwide by a third party , and we agreed to pay , and we did pay , $ 343,500 to the new jersey economic development authority as settlement-in-full for an outstanding loan owed by the former semprae stockholders . as a result of the acquisition , we acquired all of semprae 's assets and liabilities , including the zestra products . see note 3 to the consolidated financial statements included in this report for additional information regarding the acquisition . recent financings january 2012 and january 2013 convertible debentures financings in january 2012 , we issued a total of $ 174,668 in principal amount of 8 % convertible debentures to six individuals , three of whom were on our board of directors and one of whom owns more than 5 % of our outstanding common stock . in june 2012 , the holder of one of the debentures we issued in january 2012 , which had an outstanding principal amount of $ 12,000 ( plus accrued interest of $ 435 ) , converted all amounts owing under the debenture into 16,580 shares of common stock , leaving an aggregate principal balance of $ 162,668 for the five remaining debentures as of december 31 , 2012. in january 2013 , we issued an 8 % convertible debenture in the principal amount of $ 70,000 to a board member . in november 2013 , the holders of four of the five outstanding january 2012 debentures and the holder of the january 2013 debenture agreed to amend and restate the terms of such debentures to provide for automatic conversion of outstanding principal and accrued interest into our securities upon the earlier of either ( a ) the closing of the financing and ( b ) july 1 , 2016. the securities to be issued will be either the company 's securities that are issued to the investors in the financing or , if the financing does not occur by july 1 , 2016 , shares of our common stock based on a conversion price of $ 0.312 per share . on february 19 , 2014 , we agreed with all five of the holders of the outstanding january 2012 debentures and the holder of the january 2013 debenture to convert such debentures into shares of our common stock at a conversion price of $ 0.40 per share and to terminate the debenture . immediately prior to conversion , ( a ) the january 2012 debentures had an outstanding aggregate principal amount of $ 162,668 with accumulated interest of $ 27,345 , and the total amount of $ 190,013 was converted into 475,033 shares of our common stock.and ( b ) the january 2013 debenture had an outstanding principal amount of $ 70,000 with accumulated interest of $ 6,122 , and the total amount of $ 76,122 was converted into 190,304 shares of our common stock . 26 january 2013 line of credit convertible debenture financing in january 2013 , we entered into a line of credit convertible debenture with dr. damaj , our president and chief executive officer , which we refer to as the loc convertible debenture . under the terms of its original issuance : ( 1 ) we could request to borrow up to a maximum principal amount of $ 250,000 from time to time ; ( 2 ) amounts borrowed bore an annual interest rate of 8 % ; ( 3 ) the amounts borrowed plus accrued interest was payable in cash at the earlier of january 14 , 2014 or when we completed a financing ; and ( 4 ) dr. damaj had sole discretion to determine whether or not to make an advance upon our request . in march 2013 , the loc convertible debenture was amended and restated . under its amended and restated terms : ( 1 ) we could request to borrow up to $ 500,000 ; ( 2 ) amounts borrowed bore an annual interest rate of 8 % ; ( 3 ) the amounts borrowed plus accrued interest was payable in cash at the earlier of january 14 , 2014 or when we completed a financing ; ( 4 ) dr. damaj committed to advance funds ( up to the maximum amount borrowable thereunder ) upon our request if and to the extent we would have insufficient liquidity to meet any material payment obligations arising in the ordinary course of business as they come due ; and ( 5 ) dr. damaj 's funding commitment automatically terminated on the earlier of january 1 , 2014 or when we completed a financing with minimum net proceeds of at least $ 500,000. in addition , dr. damaj 's funding commitment increased by the gross amount of any cash salary , bonus or severance payments provided to dr. damaj under his employment agreement with us . dr. damaj 's salary has been accrued and not paid under the provision of his employment agreement stating that salary payments will be accrued and not paid for so long as payment of such salary would jeopardize our ability to continue as a going concern .
| results of operations comparison of 2013 and 2012 revenues we recognized revenues of $ 6,641 for the year ended december 31 , 2013 , compared to $ 0 for the year ended december 31 , 2012. revenue was generated from limited historical on-line ex-us sales of circumserum and from one week of sales of zestra® . ( see note 3 ) as we execute our strategy , we also receive payments for upfront fees from our partners . we record these payments as deferred revenues . as of december 31 , 2013 , we had a total of $ 175,569 in deferred revenues . of this amount , $ 75,000 is attributable to an upfront payment we received from ovation pharma in connection with the agreement we signed in september , and $ 100,000 is attributable to a product order for ejectdelay which is expected to ship in the first half of 2014. cost of goods sold we recognized cost of goods sold of $ 1,821 for the year ended december 31 , 2013 , compared to $ 0 for the year ended december 31 , 2012. the cost of goods sold includes the cost of inventory , shipping and royalties .. the company is required to make royalty payments based upon the net sales of its marketed product , zestra® . royalty expenses are directly related to product sales , are paid on an annual basis , and are classified as cost of sales . research and development research and development expenses increased to $ 92,923 for the year ended december 31 , 2013 from $ 2,000 for the year ended december 31 , 2012. this increase was a result of conducting testing , clinical trials , material purchases , and regulatory costs for our products ejectdelay and circumserum .
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the impact from the rapidly changing market and economic conditions due to the coronavirus disease 2019 , or covid-19 , pandemic on our business , results of operations and financial condition is uncertain . we have made estimates of the impact of the covid-19 pandemic within our financial statements as of and for the year ended december 31 , 2020 which did not result in material adjustments . the estimates assessed included , but were not limited to , allowances for credit losses , the carrying values of goodwill and story_separator_special_tag ” of our annual report on form 10-k for the year ended december 31 , 2019 , filed with the sec on february 24 , 2020. non-gaap financial measures in addition to financial measures prepared in accordance with gaap , we use certain non-gaap financial measures to clarify and enhance our understanding , and aid in the period-to-period comparison , of our performance . we believe that these non-gaap financial measures provide supplemental information that is meaningful when assessing our operating performance because they exclude the impact of certain amounts that our management and board of directors do not consider part of core operating results when assessing our operational performance , allocating resources , preparing annual budgets and determining compensation . accordingly , these non-gaap financial measures may provide insight to investors into the motivation and decision-making of management in operating the business . investors are encouraged to review the reconciliation of each of these non-gaap financial measures to its most comparable gaap financial measure included below . while we believe that these non-gaap financial measures provide useful supplemental information , non-gaap financial measures have limitations and should not be considered in isolation from , or as a substitute for , their most comparable gaap measures . these non-gaap financial measures are not prepared in accordance with gaap , do not reflect a comprehensive system of accounting and may not be comparable to similarly titled measures of other companies due to potential differences in their financing and accounting methods , the book value of their assets , their capital structures , the method by which their assets were acquired and the manner in which they define non-gaap measures . items such as the amortization of intangible assets , stock-based compensation expense and related employer-paid payroll taxes , acquisition related adjustments , costs related to the exploration of a potential spin-off of our msp business and the cyber incident and restructuring charges , as well as the related tax impacts of these items can have a material impact on our gaap financial results . 49 non-gaap revenue we define non-gaap subscription revenue , non-gaap maintenance revenue , non-gaap license revenue and non-gaap total revenue , as subscription revenue , maintenance revenue , license revenue and total revenue , respectively , excluding the impact of purchase accounting from our take private transaction in early 2016 and acquisitions . we monitor these measures to assess our performance because we believe our revenue growth rates would be overstated without these adjustments . we believe presenting non-gaap subscription revenue , non-gaap maintenance revenue , non-gaap license revenue and non-gaap total revenue aids in the comparability between periods and in assessing our overall operating performance . replace_table_token_7_th non-gaap operating income and non-gaap operating margin we provide non-gaap operating income and related non-gaap margin using non-gaap revenue as discussed above and excluding such items as the write-down of deferred revenue related to purchase accounting , amortization of acquired intangible assets , stock-based compensation expense and related employer-paid payroll taxes , acquisition and other costs , spin-off exploration costs , restructuring costs and cyber incident costs . management believes these measures are useful for the following reasons : amortization of acquired intangible assets . we provide non-gaap information that excludes expenses related to purchased intangible assets associated with our acquisitions . we believe that eliminating this expense from our non-gaap measures is useful to investors , because the amortization of acquired intangible assets can be inconsistent in amount and frequency and is significantly impacted by the timing and magnitude of our acquisition transactions , which also vary in frequency from period to period . accordingly , we analyze the performance of our operations in each period without regard to such expenses . stock-based compensation expense and related employer-paid payroll taxes . we provide non-gaap information that excludes expenses related to stock-based compensation and related employer-paid payroll taxes . we believe that the exclusion of stock-based compensation expense provides for a better comparison of our operating results to prior periods and to our peer companies as the calculations of stock-based compensation vary from period to period and company to company due to different valuation methodologies , subjective assumptions and the variety of award types . employer-paid payroll taxes on stock-based compensation is dependent on our stock price and the timing of the taxable events related to the equity awards , over which our management has little control , and does not correlate to the core operation of our business . because of these unique characteristics of stock-based compensation and related employer-paid payroll taxes , management excludes these expenses when analyzing the organization 's business performance . acquisition and other costs . we exclude certain expense items resulting from the take private and other acquisitions , such as legal , accounting and advisory fees , changes in fair value of contingent consideration , costs related to integrating the acquired businesses , deferred compensation , severance and retention expense . in addition , we exclude 50 certain other costs including expense related to our offerings . we consider these adjustments , to some extent , to be unpredictable and dependent on a significant number of factors that are outside of our control . furthermore , acquisitions result in operating expenses that would not otherwise have been incurred by us in the normal course of our organic business operations . story_separator_special_tag as of july 1 , 2018 , this foreign currency denominated intercompany loan was designated as long-term due to a change in our investment strategy and the enactment of the u.s. tax cuts and jobs act of 2017 , or tax act . therefore , beginning on july 1 , 2018 , the foreign currency transaction gains and losses resulting from remeasurement are recognized as a component of accumulated other comprehensive income ( loss ) . as of december 31 , 2019 , we determined that the intercompany loan will not be repaid and it was reclassified as a capital contribution . ( 2 ) debt related costs include fees related to our credit agreements , debt refinancing costs and the related write-off of debt issuance costs . see note 9. debt in the notes to consolidated financial statements in item 8 of part ii of this annual report on form 10-k for additional information regarding our debt . 52 liquidity and capital resources cash and cash equivalents were $ 370.5 million as of december 31 , 2020. our international subsidiaries held approximately $ 163.4 million of cash and cash equivalents , of which 39.6 % were held in euros . we intend either to invest our foreign earnings permanently in foreign operations or to remit these earnings to our u.s. entities in a tax-free manner with the exception for immaterial state income taxes . the tax act imposed a mandatory transition tax on accumulated foreign earnings and eliminates u.s. federal income taxes on foreign subsidiary distribution . our primary source of cash for funding operations and growth has been through cash provided by operating activities . given the uncertainty in the rapidly changing market and economic conditions related to the covid-19 pandemic , we continue to evaluate the nature and extent of the impact to our business and financial position . in addition , currently it is not possible to estimate the amount of loss or range of possible loss that might result from adverse judgments , settlements , penalties , or other resolution of the proceedings and investigations resulting from the cyber incident . such potential payments , if great enough , could have an adverse effect on our liquidity . however , despite these uncertainties , we believe that our existing cash and cash equivalents , our cash flows from operating activities and our borrowing capacity under our credit facilities will be sufficient to fund our operations , fund required debt repayments and meet our commitments for capital expenditures for at least the next 12 months . although we are not currently a party to any material definitive agreement regarding potential investments in , or acquisitions of , complementary businesses , applications or technologies , we may enter into these types of arrangements , which could reduce our cash and cash equivalents , require us to seek additional equity or debt financing or repatriate cash generated by our international operations that could cause us to incur withholding taxes on any distributions . additional funds from financing arrangements may not be available on terms favorable to us or at all . indebtedness as of december 31 , 2020 , our total indebtedness was $ 1.9 billion , with up to $ 125.0 million of available borrowings under our revolving credit facility . see note 9. debt in the notes to consolidated financial statements included in item 8 of part ii of this annual report on form 10-k for additional information regarding our debt . first lien credit agreement the first lien credit agreement , as amended , provides for a senior secured revolving credit facility in an aggregate principal amount of $ 125.0 million , or the revolving credit facility , consisting of a $ 25.0 million u.s. dollar revolving credit facility , or the u.s. dollar revolver , and a $ 100.0 million multicurrency revolving credit facility , or the multicurrency revolver . the revolving credit facility includes a $ 35.0 million sublimit for the issuance of letters of credit . the first lien credit agreement also contains a term loan facility ( which we refer to as the first lien term loan , and together with the revolving credit facility , as the first lien credit facilities ) in an original aggregate principal amount of $ 1,990.0 million . the first lien credit agreement provides us the right to request additional commitments for new incremental term loans and revolving loans , in an aggregate principal amount not to exceed ( a ) the greater of ( i ) $ 400.0 million and ( ii ) 100 % of our consolidated ebitda , as defined in the first lien credit agreement ( calculated on a pro forma basis ) , for the most recent four fiscal quarter period , or the first lien fixed basket , plus ( b ) the amount of certain voluntary prepayments of the first lien credit facilities , plus ( c ) an unlimited amount subject to pro forma compliance with a first lien net leverage ratio not to exceed 4.75 to 1.00. under the u.s. dollar revolver , $ 7.5 million of commitments will mature on february 5 , 2021 , and $ 17.5 million along with all commitments under the multicurrency revolver will mature on february 5 , 2022. the first lien term loan will mature on february 5 , 2024. the first lien term loan requires equal quarterly repayments equal to 0.25 % of the original principal amount . story_separator_special_tag roman ' , sans-serif ; font-size:8pt ; font-weight:400 ; line-height:120 % ; padding-left:8.68pt '' > represents maturities of operating lease liabilities , see note 7. leases in the notes to consolidated financial statements included in item 8 of part ii of this annual report on form 10-k for additional details . as of december 31 , 2020 , we had a lease agreement in which the lease did not commence prior to year-end and therefore the lease liabilities had not been recorded in our consolidated balance sheet . the future minimum lease payments under this lease are approximately $ 29.0
| summary of cash flows summarized cash flow information is as follows : replace_table_token_10_th 53 operating activities our primary source of cash from operating activities is cash collections from our customers . we expect cash inflows from operating activities to be affected by the timing of our sales . our primary uses of cash from operating activities are for personnel-related expenditures , and other general operating expenses , as well as payments related to taxes , interest and facilities . for 2020 compared to 2019 , the increase in cash provided by operating activities was primarily due to an increase in net income adjusted for the net effect of non-cash items including deferred taxes , depreciation and amortization and stock-based compensation expense . the change in deferred taxes is primarily related the deferred tax asset recognized as a result of the ip transfer during the year ended december 31 , 2020. the net cash inflow resulting from the changes in our operating assets and liabilities was $ 41.4 million for 2020 as compared to $ 12.9 million in 2019 and was primarily due to the timing of sales and cash payments and receipts . cash flow from operations for the year ended december 31 , 2020 was reduced by $ 54.6 million of cash paid for taxes which includes an $ 8.1 million cash payment related to the transition tax as a result of the tax act . investing activities investing cash flows consist primarily of cash used for acquisitions , capital expenditures and intangible assets . our capital expenditures primarily relate to purchases of leasehold improvements , computers , servers and equipment to support our domestic and international office locations . purchases of intangible assets consist primarily of capitalized research and development costs . net cash used in investing activities decreased in 2020 compared to 2019 due to a decrease in cash used for acquisitions .
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as a result of many factors , including those factors set forth in the “ risk factors ” section of this annual report , our actual results could differ materially from the results described in or implied by the forward‑looking statements contained in the following discussion and analysis . overview using our proprietary product platform , we have identified and are developing the following product candidates : olinvo tm ( oliceridine ) injection : we are developing olinvo , a g protein biased ligand of the μ opioid receptor , for the management of moderate-to-severe acute pain where intravenous , or iv , administration is preferred . in february 2017 , we announced positive top-line results from our phase 3 apollo-1 and apollo-2 pivotal efficacy studies of olinvo in moderate-to-severe acute pain following bunionectomy and abdominoplasty , respectively . in both studies , all dose regimens achieved their primary endpoint of statistically greater analgesic efficacy than placebo , as measured by responder rate . in july 2017 , we announced that we had completed enrollment in the phase 3 open-label athena safety study to support the new drug application , or nda , for olinvo . in the study , 768 patients were administered olinvo to manage pain associated with a wide range of procedures and diagnoses . in january 2018 , we announced that the united states food and drug administration , or fda , had accepted the nda we submitted for olinvo . the fda also indicated that the prescription drug user fee act , or pdufa , review date for the olinvo nda is november 2 , 2018 and that it plans to hold an advisory committee meeting to discuss the nda . if olinvo ultimately receives regulatory approval , we plan to commercialize it in the united states , either on our own or with a commercial partner , for use in acute care settings such as hospitals and ambulatory surgery centers ; outside the united states , we plan to commercialize olinvo in certain countries with a commercial partner . we currently hold all worldwide development and commercialization rights to olinvo . trv250 : we are developing trv250 , a g protein biased ligand targeting the δ-receptor , as a compound with a potential first-in-class , non-narcotic mechanism for the treatment of migraine . trv250 also may have utility in a range of other central nervous system , or cns , indications . because trv250 selectively targets the δ-receptor , we believe it will not have the addiction liability of conventional opioids or other μ opioid related adverse effects like those seen with morphine or oxycodone . in the second quarter of 2017 , we began a phase i study of trv250 in the united kingdom in healthy volunteers ; we expect to complete dosing in this study by the end of the first quarter of 2018. we have also identified and have completed the initial phase 1 studies for trv734 , an orally administered new chemical entity expected to be used for first-line treatment of moderate-to-severe acute and chronic pain . we intend to continue to focus our efforts for trv734 on securing a development and commercialization partner for this asset . since our incorporation in late 2007 , our operations have included organizing and staffing our company , business planning , raising capital , and discovering and developing our product candidates . we have financed our operations primarily through private placements and public offerings of our equity securities and debt borrowings . as of december 31 , 2017 , we had an accumulated deficit of $ 357.5 million . our net loss was $ 71.9 million , $ 103.0 million and $ 50.5 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . our ability to become and remain profitable depends on our ability to generate revenue or sales . we do not expect to generate significant revenue or sales unless and until we or a collaborator obtain marketing approval for and commercialize olinvo , trv250 or trv734 . in september 2014 , we announced we had entered into a $ 35 million senior secured tranched term loan credit facility with oxford finance llc and pacific western bank ( formerly square 1 bank ) , of which we have drawn $ 28.5 million as of december 31 , 2017 . as of january 1 , 2018 , we began making monthly payments of both principal and interest , which will be required until the loan maturity of march 1 , 2020. on october 11 , 2017 , upon the approval of our board of directors , we announced a restructuring and reduction in force of approximately 30 % of our workforce , or 21 employees , as well as other cost saving initiatives . the restructuring was completed as of october 13 , 2017. in connection with the restructuring , we announced an updated strategy to focus our resources on the potential approval and commercialization of olinvo in the united states . with this strategic repositioning , 55 we halted our investment in early stage research . we intend to complete the ongoing phase 1 trial of trv250 for acute migraine , after which we will assess options for further development of this asset , as well as for our series of novel s1p modulators for neuropathic pain . we expect to incur significant expenses and operating losses for the foreseeable future as we continue the development and clinical trials of , seek regulatory approval for , and prepare for commercialization of our product candidates and repay our outstanding loan obligations . if we obtain regulatory approval for olinvo , we expect to incur significant expenses associated with the launch of this product . we will need to obtain substantial additional funding in connection with our continuing operations . we will seek to fund our operations through the sale of equity , debt financings or other sources , including potential collaborations . story_separator_special_tag in august 2016 , allergan notified us of its decision to not exercise its option . as such , we have retained all rights to trv027 . critical accounting policies and significant judgments and estimates the preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements , as well as the reported revenues and expenses during the reported periods . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . a summary of our significant accounting policies appears in the notes to our audited consolidated financial statements for the year ended december 31 , 2017 included in this annual report on form 10-k. however , we believe that the following accounting policies are important to understanding and evaluating our reported financial results , and we have accordingly included them in this discussion . research and development in connection with our october 2017 restructuring , we announced an updated strategy to focus our resources on the potential approval and commercialization of olinvo in the united states . with this strategic repositioning , we halted our investment in early stage research . we intend to complete the ongoing phase 1 trial of trv250 for acute migraine , after which we will assess options for further development of this asset , as well as for our series of novel s1p modulators for neuropathic pain . research and development cost are charged to expense as incurred . research and development costs include , but are not limited to , personnel expenses , clinical trial supplies , fees for clinical trial services , manufacturing costs , consulting costs and allocated overhead , including rent , equipment , depreciation and utilities . costs for certain development activities , such as clinical trials , are recognized based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment , clinical site activations or information provided to us by our vendors with respect to their actual costs incurred . payments for these activities are based on the terms of the individual arrangements , which may differ from the pattern of costs incurred , and are reflected in the financial statements as prepaid or accrued research and development expense , as the case may be . as part of the process of preparing our financial statements , we are required to estimate our expenses resulting from our obligations under contracts with vendors , clinical research organizations and consultants , and under 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 under such contracts . our objective is to reflect the appropriate trial expenses in our financial statements by matching those expenses with the period in which services are performed and efforts are expended . we may account for these expenses according to the progress of the trial as measured by subject progression and the timing of various aspects of the trial . we determine accrual estimates through financial models taking into account discussion with applicable personnel and outside service providers as to the progress or state of consummation of trials , or the services completed . during the course of a clinical trial , we adjust our clinical expense recognition if actual results differ from estimates . we make estimates of our accrued expenses as of each balance sheet date based on the facts and circumstances known to us at that time . our clinical trial accruals are dependent upon the timely and accurate reporting of contract research organizations and other third party vendors . 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 it reporting amounts that are too high or too low for any particular period . for the years ended december 31 , 2017 , 2016 and 2015 , there were no material adjustments to our prior period estimates of accrued expenses for clinical trials . stock‑based compensation 57 we have applied the fair value recognition provisions of financial accounting standards board accounting standards codification topic 718 , compensation — stock compensation , or asc 718 , to account for stock-based compensation for employees . we recognize compensation costs related to stock options granted to employees based on the estimated fair value of the awards on the date of grant . we have equity incentive plans under which various types of equity-based awards including , but not limited to , incentive stock options , non-qualified stock options , and restricted stock awards , may be granted to employees , non-employee directors , and non-employee consultants.we also have an inducement plan under which various types of equity-based awards , including non-qualified stock options and restricted stock awards , may be granted to new employees . for stock options granted to employees and directors , we recognize compensation expense for all stock-based awards based on the estimated grant-date fair values . for restricted stock awards to employees , the fair value is based on the closing price of the company 's common stock on the date of grant . the value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service period . the fair value of stock options is determined using the black-scholes option pricing model .
| results of operations ( in thousands , except per share data ) comparison of years ended december 31 , 2017 and 2016 replace_table_token_4_th revenue to date , we have derived revenue principally from research grants and collaboration arrangements . in march 2015 , we signed a letter agreement with allergan plc pursuant to which it paid us $ 10.0 million to fund the expansion of our phase 2b trial of trv027 from 500 patients to 620 patients . the collaboration revenue was recorded on a straight-line basis over the remaining period of the trial and was fully recognized as of june 30 , 2016. general and administrative expense general and administrative expenses consist principally of salaries and related costs for personnel in our executive , finance , commercial , and other administrative areas , including stock‑based compensation and travel expenses . other general and administrative expenses include professional fees for legal , market research , consulting , and accounting services . general and administrative expenses increased by $ 3.6 million , or 22 % , for the year ended december 31 , 2017 compared to the same period in 2016 , primarily as a result of increased headcount and associated salary , bonus and stock compensation expenses , olinvo market research expenditures , and increased facility expenditures associated with the relocation of our corporate headquarters to chesterbrook , pennsylvania , in july 2017. research and development expense research and development expenses consist primarily of costs incurred for research and the development of our product candidates . in addition , research and development expenses include salaries and related costs for our research and development personnel and stock‑based compensation and travel expenses for such individuals . research and development costs are expensed as incurred and are tracked by discovery program and subsequently by product candidate once a product candidate has been selected for development .
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( d ) includes furniture , lighting , kitchenware , small appliances , home décor , bed and bath , home improvement , automotive , and seasonal merchandise such as patio furniture and holiday décor . ( e ) includes electronics ( including video game hardware and software ) , music , movies , books , computer software , sporting goods , and toys . further analysis of sales metrics is infeasible due to the collective interaction of a broad array of macroeconomic , competitive , and consumer behavioral factors , as well as sales mix and transfer of sales to new stores . td offers credit to qualified guests through target-branded credit cards : the target credit card and the target mastercard credit card ( target credit cards ) . additionally , we offer a branded proprietary target debit card . collectively , we refer to these products as redcards ® . guests receive a 5 percent discount on virtually all purchases and free shipping at target.com when they use a redcard . we monitor the percentage of sales that are paid for using redcards ( redcard penetration ) because our internal analysis has indicated that a meaningful portion of incremental purchases on our redcards are also incremental sales for target . replace_table_token_12_th note : excluding pharmacy and clinic sales , total redcard penetration would have been 23.2 percent and 21.9 percent for 2015 and 2014 , respectively . the sum of target credit cards and target debit card penetration may not equal total redcard penetration due to rounding . gross margin rate our gross margin rate was 29.7 percent in 2016 , 29.5 percent in 2015 , and 29.4 percent in 2014 . the 2016 increase was primarily due to the pharmacy transaction and favorable category sales mix , partially offset by increased shipping and digital fulfillment costs . cost of goods savings helped offset the impact of a competitive promotional environment . 19 the 2015 increase was primarily due to favorable category sales mix and lower promotional activity relative to the highly promotional period in 2014 following the 2013 data breach , partially offset by the impact of increased digital channel sales . selling , general and administrative expense rate our sg & a expense rate was 19.2 percent in 2016 , 19.6 percent in 2015 , and 20.0 percent in 2014 . the decrease in 2016 primarily resulted from the benefit of the pharmacy transaction and technology-related cost savings , partially offset by increased stores hourly payroll . the decrease in 2015 primarily resulted from cost saving initiatives and reduced marketing expense , partially offset by investments in other initiatives , none of which were individually significant . store data replace_table_token_13_th replace_table_token_14_th ( a ) in thousands , reflects total square feet less office , distribution center and vacant space . other performance factors other selling , general and administrative expenses we recorded $ ( 4 ) million , $ 216 million , and $ 174 million of selling , general and administrative expenses outside of the segment during 2016 , 2015 , and 2014 , respectively , because they relate to discretely managed matters . additional information about these discretely managed items is provided within note 30 of the financial statements . 20 net interest expense net interest expense from continuing operations was $ 1,004 million , $ 607 million , and $ 882 million for 2016 , 2015 , and 2014 , respectively . net interest expense for 2016 and 2014 included a loss on early retirement of debt of $ 422 million and $ 285 million , respectively . provision for income taxes our 2016 effective income tax rate from continuing operations increased to 32.7 percent , from 32.5 percent in 2015 , driven primarily by the 2015 rate impact of the $ 112 million tax benefit from releasing the valuation allowance on a capital loss . this comparative rate impact was partially offset by $ 27 million of excess tax benefit in 2016 related to shared-based payments after the adoption of accounting standards update ( asu ) no . 2016-09 , improvements to employee share-based payment accounting , and lower pretax earnings . note 23 of the financial statements provides a tax rate reconciliation . our 2015 effective income tax rate from continuing operations decreased to 32.5 percent , from 33.0 percent in 2014 , driven primarily by the $ 112 million tax benefit from releasing the valuation allowance on a capital loss . this benefit was partially offset by a year-over-year decrease in the favorable resolution of various income tax matters and the rate impact of higher pretax earnings . the resolution of various income tax matters reduced tax expense by $ 8 million and $ 35 million in 2015 and 2014 , respectively . discontinued operations see note 7 of the financial statements for information about our canada exit . reconciliation of non-gaap financial measures to gaap measures to provide additional transparency , we have disclosed non-gaap adjusted diluted earnings per share from continuing operations ( adjusted eps ) . this metric excludes certain items presented below . we believe this information is useful in providing period-to-period comparisons of the results of our continuing operations . this measure is not in accordance with , or an alternative to , generally accepted accounting principles in the united states ( gaap ) . the most comparable gaap measure is diluted earnings per share from continuing operations . adjusted eps should not be considered in isolation or as a substitution for analysis of our results as reported under gaap . other companies may calculate adjusted eps differently than we do , limiting the usefulness of the measure for comparisons with other companies . replace_table_token_15_th note : amounts may not foot due to rounding . ( a ) refer to note 6 of the financial statements . ( b ) refer to note 8 of the financial statements . ( c ) refer to note 19 of the financial statements . ( d ) for 2016 , represents items related to the pharmacy transaction . story_separator_special_tag 23 short-term and long-term financing our financing strategy is to ensure liquidity and access to capital markets , maintain a balanced spectrum of debt maturities , and manage our net exposure to floating interest rate volatility . within these parameters , we seek to minimize our borrowing costs . our ability to access the long-term debt and commercial paper markets has provided us with ample sources of liquidity . our continued access to these markets depends on multiple factors , including the condition of debt capital markets , our operating performance , and maintaining strong credit ratings . as of january 28 , 2017 , our credit ratings were as follows : credit ratings moody 's standard and poor 's fitch long-term debt a2 a a- commercial paper p-1 a-1 f2 if our credit ratings were lowered , our ability to access the debt markets , our cost of funds , and other terms for new debt issuances could be adversely impacted . each of the credit rating agencies reviews its rating periodically and there is no guarantee our current credit ratings will remain the same as described above . in 2016 , we funded our peak holiday sales period working capital needs through internally generated funds and the issuance of commercial paper . in 2015 , we funded our peak holiday sales period working capital needs through internally generated funds . replace_table_token_19_th we have additional liquidity through a committed $ 2.5 billion revolving credit facility obtained through a group of banks in october 2016 which expires in october 2021. this new unsecured revolving credit facility replaced a $ 2.25 billion unsecured revolving credit facility that was scheduled to expire in october 2018. no balances were outstanding under either credit facility at any time during 2016 , 2015 , or 2014. most of our long-term debt obligations contain covenants related to secured debt levels . in addition to a secured debt level covenant , our credit facility also contains a debt leverage covenant . we are , and expect to remain , in compliance with these covenants . additionally , at january 28 , 2017 , no notes or debentures contained provisions requiring acceleration of payment upon a credit rating downgrade , except that certain outstanding notes allow the note holders to put the notes to us if within a matter of months of each other we experience both ( i ) a change in control and ( ii ) our long-term credit ratings are either reduced and the resulting rating is non-investment grade , or our long-term credit ratings are placed on watch for possible reduction and those ratings are subsequently reduced and the resulting rating is non-investment grade . we believe our sources of liquidity will continue to be adequate to maintain operations , finance anticipated expansion and strategic initiatives , fund debt maturities , pay dividends , and execute purchases under our share repurchase program for the foreseeable future . we continue to anticipate ample access to commercial paper and long-term financing . 24 capital expenditures ( a ) in addition to these cash investments , we entered into leases related to new stores in 2016 , 2015 , and 2014 with total future minimum lease payments of $ 550 million , $ 338 million , and $ 85 million , respectively . capital expenditures increased in 2016 from the prior year because we increased our investments in existing stores , including remodels and guest experience enhancements . these increases were partially offset by continued efficiency gains in technology . capital expenditures decreased in 2015 from the prior year as we opened fewer large-format stores and realized efficiency gains in technology , partially offset by increased guest experience and supply chain investments . as noted in the footnote to the chart presented above , we substantially increased our investments in leases in 2016 and 2015. we expect capital expenditures in 2017 to increase to approximately $ 2.0 billion to $ 2.5 billion as we accelerate the rate of store remodels and flexible-format store openings , and continue to make supply chain investments . we also expect our rate of investment in store leases to continue to increase . 25 commitments and contingencies replace_table_token_20_th ( a ) represents principal payments only . see note 20 of the financial statements for further information . ( b ) these payments also include $ 348 million and $ 269 million of legally binding minimum lease payments for stores that are expected to open in 2017 or later for capital and operating leases , respectively . see note 22 of the financial statements for further information . ( c ) the timing of deferred compensation payouts is estimated based on payments currently made to former employees and retirees , forecasted investment returns , and the projected timing of future retirements . ( d ) real estate liabilities include costs incurred but not paid related to the construction or remodeling of real estate and facilities . ( e ) estimated tax contingencies of $ 222 million , including interest and penalties and primarily related to continuing operations , are not included in the table above because we are not able to make reasonably reliable estimates of the period of cash settlement . see note 23 of the financial statements for further information . ( f ) purchase obligations include all legally binding contracts such as firm minimum commitments for inventory purchases , merchandise royalties , equipment purchases , marketing-related contracts , software acquisition/license commitments , and service contracts . we issue inventory purchase orders in the normal course of business , which represent authorizations to purchase that are cancelable by their terms . we do not consider purchase orders to be firm inventory commitments ; therefore , they are excluded from the table above . if we choose to cancel a purchase order , we may be obligated to reimburse the vendor for unrecoverable outlays incurred prior to cancellation .
| executive summary fiscal 2016 included the following notable items : gaap earnings per share from continuing operations were $ 4.58 . adjusted earnings per share were $ 5.01 . comparable sales decreased 0.5 percent , reflecting a 0.8 percent decrease in traffic . comparable digital channel sales growth of 27 percent contributed 1.0 percentage points of comparable sales growth . we returned $ 5.0 billion to shareholders through dividends and share repurchase . sales were $ 69,495 million for 2016 , a decrease of $ 4,290 million or 5.8 percent from the prior year , primarily due to the pharmacy transaction . earnings from continuing operations before interest expense and income taxes in 2016 decreased by $ 561 million or 10.1 percent from 2015 to $ 4,969 million , primarily due to the 2015 gain on the pharmacy transaction . operating cash flow provided by continuing operations was $ 5,329 million , $ 5,254 million , and $ 5,157 million for 2016 , 2015 , and 2014 , respectively . in 2015 , proceeds from the pharmacy transaction are included in investing cash flows provided by continuing operations . refer to note 6 of the financial statements for additional information about the transaction . 16 replace_table_token_5_th note : amounts may not foot due to rounding . adjusted diluted earnings per share from continuing operations ( adjusted eps ) , a non-gaap metric , excludes the impact of certain items not related to our routine retail operations . management believes that adjusted eps is meaningful to provide period-to-period comparisons of our operating results . a reconciliation of non-gaap financial measures to gaap measures is provided on page 21. we report after-tax return on invested capital ( roic ) from continuing operations because we believe roic provides a meaningful measure of our capital-allocation effectiveness over time .
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our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of several factors , including those discussed in the section titled “ risk factors ” included under part i , item 1a and elsewhere in this annual report . see “ special note regarding forward-looking statements ” in this annual report . overview we are a clinical-stage immunology-based biopharmaceutical company focused on discovering , developing and commercializing oral small molecule therapies for patients with significant unmet needs in oncology and inflammatory diseases . utilizing our proprietary drug discovery and development engine , we are developing highly selective small molecules designed to modulate the critical immune responses underlying these diseases . we have discovered and advanced into clinical development two unique drug candidates each targeting c-c motif chemokine receptor 4 ( “ ccr4 ” ) : flx475 for the treatment of a range of tumors , and rpt193 for the treatment of allergic inflammatory diseases . we are also pursuing a range of targets , including general control nonderepressible 2 ( “ gcn2 ” ) and hematopoietic progenitor kinase 1 ( “ hpk1 ” ) , that are in the discovery stage of development . financial overview since commencing operations in 2015 , we have devoted substantially all of our efforts and financial resources to building our research and development capabilities and establishing our corporate infrastructure . as a result , we have incurred net losses since inception . as of december 31 , 2019 , we had an accumulated deficit of $ 162.0 million . we have incurred net losses of $ 43.0 million and $ 36.1 million for the years ended december 31 , 2019 and 2018 , respectively . we do not expect to generate product revenue unless and until we obtain approval for the commercialization of a drug candidate , and we can not assure you that we will ever generate significant revenue or profits . since inception , we have financed our operations primarily through the private placements of convertible preferred stock with net proceeds of $ 175.5 million and sale of equity securities . as of december 31 , 2019 , we had cash and cash equivalents of $ 77.4 million and working capital of $ 71.3 million . we believe our current cash and cash equivalents , including the net proceeds of approximately $ 69.7 million from our follow-on offering ( the “ follow-on offering ” ) in february 2020 , will be sufficient to fund our planned operations for a period of at least twelve months following the filing date of this report . we expect to incur substantial expenditures in the foreseeable future as we expand our pipeline and advance our drug candidates through clinical development , undergo the regulatory approval process and , if approved , launch commercial activities . specifically , in the near term we expect to incur substantial expenses relating to our ongoing and planned clinical trials , the development and validation of our manufacturing processes and other development activities . we will need substantial additional funding to support our continuing operations and pursue our development strategy . until such time as we can generate significant revenue from sales of our drug candidates , if ever , we expect to finance our operations through the sale of equity , debt financings or other capital sources , including potential collaborations with other companies or other strategic transactions . adequate funding may not be available to us on acceptable terms , or at all . if we fail to raise capital or enter into such agreements as , and when , needed , we may have to significantly delay , scale back or discontinue the development and commercialization of our drug candidates or delay our efforts to expand our product pipeline . we may also be required to sell or license to other parties rights to develop or commercialize our drug candidates that we would prefer to retain . 104 components of operating results research and development expenses we expense both internal and external research and development costs as such expenses are incurred . we track the external research and development costs incurred for each of our drug candidates . however , we do not track our internal research and development costs by drug candidate , as the related efforts and their costs are typically spread across multiple drug candidates . we account for non-refundable advance payments for goods or services that will be used in future research and development activities as expenses when the goods have been received or when the service have been performed rather than when the payment is made . clinical trial costs are a component of research and development expenses . we expense costs for our clinical trial activities performed by third parties , including clinical research organizations ( “ cros ” ) and other service providers , as they are incurred , based upon estimates of the work completed over the life of the individual study in accordance with the associated agreements . we use information received from internal personnel and outside service providers to estimate the clinical trial costs incurred . external research and development expenses consist primarily of costs incurred for the development of our drug candidates and include : expenses incurred under agreements with cros , investigative sites and consultants to conduct our clinical trials and preclinical and non-clinical studies ; costs to acquire , develop and manufacture supplies for clinical trials and other studies , including fees paid to contract manufacturing organizations ( “ cmos ” ) ; and costs related to compliance with drug development regulatory requirements . internal research and development costs include : salaries and related costs , including stock-based compensation and travel expenses , for personnel in our research and development functions ; and depreciation and other allocated facility-related and overhead expenses . story_separator_special_tag royalties : if an agreement includes sales-based royalties and the license is deemed to be the predominant item to which the royalties relate , we will recognize revenue at the later of ( i ) when the related sales occur , or ( ii ) when the performance obligation to which some or all of the royalty has been allocated has been satisfied ( or partially satisfied ) . as of december 31 , 2019 , we recorded deferred revenue of $ 4.0 million on the consolidated balance sheet related to our license and collaborative agreement with hanmi . research and development expenses research and development costs are expensed as incurred . research and development costs consist primarily of salaries and benefits of research and development personnel , costs related to research activities , preclinical studies , clinical trials , drug manufacturing and allocated overhead and facility-related costs . we account for non-refundable advance payments for goods or services that will be used in future research and development activities as expenses when the related goods have been received or when the service has been performed rather than when the payment is made . clinical trial costs are a component of research and development expenses . we expense costs for our clinical trial activities performed by third parties , including cros and other service providers , as they are incurred , based upon estimates of the work completed over the life of the individual study in accordance with associated agreements . we use information we receive from internal personnel and outside service providers to estimate the progress of services performed and the associated clinical trial costs incurred . stock-based compensation expense we account for stock-based compensation arrangements with employees in accordance with asc 718 , stock compensation . stock-based awards issued by us have been primarily stock options with time-based vesting or performance-based vesting . asc 718 requires the recognition of compensation expense , using a fair value-based method , for costs related to all stock-based awards . to determine the grant-date fair value of stock-based awards with time-based vesting , we utilize the black-scholes option pricing model , which is impacted by the fair value of our common stock as well as other variables including , but not limited to , expected term that stock-based awards will remain outstanding , expected common stock price volatility over the term of the stock-based awards , risk-free interest rates and expected dividends . prior to our ipo , there had been no public market for our common stock . as such , the estimated fair values of our common stock underlying our stock-based awards were determined at each grant date by our board of directors , with input from management , based on the information known to us on the grant date , including a review of any recent events and their potential impact on the estimated per share fair value of our common stock . valuations of our common stock were prepared by a third-party valuation firm in accordance with the guidance outlined in the american institute of certified public accountants technical practice aid , valuation of privately held company equity securities issued as compensation ( the “ practice aid ” ) . for stock-based awards with time-based vesting , stock-based compensation is recognized over the period during which an awardee is required to provide services in exchange for the stock-based award , known as the requisite service period ( usually the vesting period ) , on a straight-line basis . for stock-based awards with performance-based vesting , the fair value of the award is recognized as expense when the achievement of the associated performance criteria becomes probable , using an accelerated attribution method . for both time-based and performance-based stock-based awards , stock-based compensation expense is recognized based on the fair value determined on the date of grant . 107 equity instruments issued to non-employees are accounted for in accordance with asc 505-50 , equity based payments to non-employees , and are recorded at their fair value on the measurement date and are subject to periodic adjustments as the equity instruments vest . the fair value of stock-based awards granted to non ‑employees is expensed when vested . estimates of the fair value of stock-based awards as of the grant date using the black-scholes option pricing model are affected by assumptions regarding a number of complex variables . changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized . these inputs are subjective and generally require significant analysis and judgment to develop . these inputs are : expected term – the expected term represents the period that our stock-based awards granted is expected to be outstanding and is determined using the simplified method ( based on the mid-point between the vesting date and the end of the contractual term ) . we have very limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for our stock-based awards . expected volatility – prior to our ipo , we did not have any trading history for our common stock , so the expected volatility was estimated based on the average volatility for comparable publicly traded biopharmaceutical companies over a period , where available , equal to the expected term of the stock-based awards . the comparable companies were chosen based on their similar size , life cycle stage or area of specialty . risk-free interest rate – the risk-free interest rate is based on the u.s. treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the stock-based awards . expected dividend – we have never paid dividends on our common stock and have no plans to pay dividends on our common stock . therefore , we use an expected dividend yield of zero . we will continue to use judgment in evaluating the expected volatility , expected terms and interest rates utilized for our stock-based compensation expense calculations on a prospective basis .
| results of operations comparison of the years ended december 31 , 2019 and 2018 the following table summarizes our results of operations for the periods indicated ( in thousands ) : replace_table_token_2_th * : percentage not meaningful research and development expenses research and development expenses increased $ 3.1 million , or 10 % , to $ 34.9 million for the year ended december 31 , 2019 from $ 31.8 million for the year ended december 31 , 2018. the increase in research and development expenses was primarily due to an increase of $ 3.6 million in clinical costs relating to rpt193 , an increase of $ 0.5 million in clinical costs relating to flx475 , an increase of $ 1.3 million in personnel and other costs , $ 1.0 million of facilities related expenses and an increase of $ 0.8 million in consulting , offset by a decrease of $ 2.3 million of outsourced research and development costs , a decrease of $ 1.6 million in laboratory supplies to support our preclinical programs and a decrease of $ 0.2 million in depreciation expense . we expect our research and development expenses to increase substantially during the next few years as we seek to complete existing and initiate additional clinical trials , pursue regulatory approval of flx475 and rpt193 and advance other programs into the clinic . the following is a comparison of research and development expenses for the years ended december 31 , 2019 and 2018 ( in thousands ) : replace_table_token_3_th as previously noted , we do not track our own internal research and development costs by drug candidate , as the related efforts and their costs are typically spread across multiple drug candidates . 110 general and administrative expenses general and administrative expenses increased $ 3.5 million , or 68 % , to $ 8.7 million for the year ended december 31 , 2019 from $ 5.2 million for the year ended december 31 , 2018.
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of these sales , approximately 64 % was derived from the sales of aftermarket , other new and refurbished products , while 36 % was composed of recycled and remanufactured products and services sales . our services revenue , which includes secure disposal of `` crush only '' vehicles , represented less than 1 % of our parts and services revenue for the year ended december 31 , 2012. we sell the majority of our vehicle replacement products to collision and mechanical repair shops . our vehicle replacement products include sheet metal crash parts such as doors , hoods , and fenders ; bumper covers ; engines ; head and tail lamps ; and wheels . for an additional fee , we sell extended warranty contracts for certain mechanical products . these contracts cover the cost of parts and labor and are sold for periods of six months , one year , two years or a non-transferable lifetime warranty . we defer the revenue from such contracts and recognize it ratably over the term of the contracts or three years in the case of lifetime warranties . the demand for our products and services is influenced by several factors , including the number of vehicles in operation , the number of miles being driven , the frequency and severity of vehicle accidents , the age profile of vehicles in accidents , availability and pricing of new oem parts , seasonal weather patterns and local weather conditions . additionally , automobile insurers exert significant influence over collision repair shops as to how an insured vehicle is repaired and the cost level of the products used in the repair process . accordingly , we consider automobile insurers to be key demand drivers of our products . while they are not our direct customers , we do provide insurance carriers services in an effort to promote the increased usage of alternative replacement products in the repair process . such services include the review of vehicle repair order estimates , direct quotation services to insurance company adjusters and an aftermarket parts quality and service assurance program . we neither charge a fee to the insurance carriers for these services nor adjust our pricing of products for our customers when we perform these services for insurance carriers . there is no standard price for many of our products , but rather a pricing structure that varies from day to day based upon such factors as product availability , quality , demand , new oem product prices , the age and mileage of the vehicle from which the part was obtained and competitor pricing . in 2012 , revenue from other sources represented approximately 14 % of our consolidated sales . these other sources include scrap sales and sales of aluminum ingots and sows . we derive scrap metal from several sources , including vehicles that have been used in both our wholesale and self service recycling operations and from oems and other entities that contract with us for secure disposal of `` crush only '' vehicles . with our acquisition of a precious metals refining and reclamation business in the second quarter of 2012 , we also generate revenue from the sales of precious metals harvested from various sources , including certain of our salvage vehicle parts . other revenue will vary from period to period based on fluctuations in commodity prices and the volume of materials sold . 29 cost of goods sold our cost of goods sold for aftermarket products includes the price we pay for the parts , freight , and overhead costs including labor , fuel expense , and facility and machinery costs related to the purchasing , warehousing and distribution of our inventory . our aftermarket products are acquired from a number of vendors . our cost of goods sold for refurbished products includes the price we pay for inventory , freight , and costs to refurbish the parts , including direct and indirect labor , facility costs including rent and utilities , machinery and equipment costs including equipment rental , repairs and maintenance , depreciation and other overhead related to refurbishing operations . our cost of goods sold for recycled products includes the price we pay for the salvage vehicle and , where applicable , auction , storage and towing fees . prices for salvage vehicles may be impacted by a variety of factors , including the number of buyers competing to purchase the vehicles , the demand and pricing trends for used vehicles , the number of vehicles designated as “ total losses ” by insurance companies , the production level of new vehicles ( which provides the source from which salvage vehicles ultimately come ) , and the status of laws regulating bidders or exporters of salvage vehicles . due to changes relating to these factors , we have seen the prices we pay for salvage vehicles fluctuate over time . our cost of goods sold also includes labor and other costs we incur to acquire and dismantle such vehicles . our labor and labor-related costs related to acquisition and dismantling account for approximately 9 % of our cost of goods sold for vehicles we dismantle . the acquisition and dismantling of salvage vehicles is a manual process and , as a result , energy costs are not material . our cost of goods sold for remanufactured products includes the price we pay for cores , freight , costs to remanufacture the products , including direct and indirect labor , rent , depreciation and other overhead related to remanufacturing operations . some of our salvage mechanical products are sold with a standard six-month warranty against defects . additionally , some of our remanufactured engines are sold with a standard three-year warranty against defects . we also provide a limited lifetime warranty for certain of our aftermarket products . we record the estimated warranty costs at the time of sale using historical warranty claims information to project future warranty claims activity and related expenses . we also sell separately priced extended warranty contracts for certain mechanical products . story_separator_special_tag salvage and remanufactured inventory . our salvage inventory cost is established based upon the price we pay for a vehicle , including auction , storage and towing fees , as well as expenditures for buying and dismantling . inventory carrying value is determined using the average cost to sales percentage at each of our facilities and applying that percentage to the facility 's inventory at expected selling prices . the average cost to sales percentage is derived from each facility 's historical vehicle profitability for salvage vehicles purchased at auction or from contracted rates for salvage vehicles acquired under certain direct procurement arrangements . remanufactured inventory cost is based upon the price paid for cores , and also includes expenses incurred for freight , direct manufacturing costs and overhead . for all inventory , carrying value is recorded at the lower of cost or market and is reduced to reflect the age of the inventory and current anticipated demand . if actual demand differs from our estimates , additional reductions to inventory carrying value would be necessary in the period such determination is made . business combinations we record our acquisitions under the purchase method of accounting , under which the acquisition purchase price is allocated to the assets acquired and liabilities assumed based upon their respective fair values . we utilize management estimates and , in some instances , independent third-party valuation firms to assist in determining the fair values of assets acquired , liabilities assumed and contingent consideration granted . such estimates and valuations require us to make significant assumptions , including projections of future events and operating performance . the purchase price allocation is subject to change during the measurement period , which is limited to one year subsequent to the acquisition date . 31 for certain acquisitions , we may issue contingent consideration under which additional payments will be made to the former owners if specified future events occur or conditions are met , such as meeting profitability or earnings targets . each contingent consideration obligation is measured at the acquisition date fair value of the consideration , which is determined using the discounted probability-weighted expected cash flows . at each subsequent reporting period , we remeasure the liability at fair value and record any changes to the fair value through change in fair value of contingent consideration liabilities within other expense ( income ) on our consolidated statements of income . the fair value measurement of the liability is performed by our corporate accounting department using current information about key assumptions , with the input and oversight of our operational and executive management teams . each reporting period , we evaluate the performance of the business compared to our previous expectations , along with any changes to our future projections , and update the estimated cash flows accordingly . in addition , we consider changes to our cost of capital and changes to the probability of achieving the earnout payment targets when updating our discount rate on a quarterly basis . increases or decreases in the fair value of the contingent consideration liability can result from changes in discount periods and rates , variances between actual results achieved and projected results , changes in the projected results of the acquired business , or changes in our assessment of the probabilities surrounding the achievement of targets detailed in the respective agreements . as of december 31 , 2012 , we recorded $ 90.0 million of contingent consideration liabilities . actual payouts under these contingent consideration arrangements will be determined at the end of the performance periods , and if the maximum payments were earned , the total payout would be approximately $ 117 million . goodwill impairment we are required to test our goodwill for impairment at least annually . when testing goodwill for impairment , we are required to evaluate events and circumstances that may affect the performance of the reporting unit and the extent to which the events and circumstances may impact the future cash flows of the reporting unit to determine whether the fair value of the assets exceed the carrying value . if these assumptions or estimates change in the future , we may be required to record impairment charges for these assets . in response to changes in industry and market conditions , we may be required to strategically realign our resources and consider restructuring , disposing of , or otherwise exiting businesses , which could result in an impairment of goodwill . we are organized into three operating segments : wholesale—north america ; wholesale—europe ; and self service . we have also concluded that these three operating segments are reporting units for purposes of goodwill impairment testing in 2012 . we perform goodwill impairment tests annually in the fourth quarter and between annual tests whenever events indicate that an impairment may exist . during 2012 , we did not identify any events or changes in circumstances that would more likely than not reduce the fair value of our reporting units below their carrying amounts . therefore , we did not perform any impairment tests other than our annual test in the fourth quarter of 2012 . our goodwill would be considered impaired if the net book value of a reporting unit exceeded its estimated fair value . the fair value estimates are established using weightings of the results of a discounted cash flow methodology and a comparative market multiples approach . we believe that using two methods to determine fair value limits the chances of an unrepresentative valuation . as of december 31 , 2012 , we had a total of $ 1.7 billion in goodwill subject to future impairment tests . if we were required to recognize goodwill impairments , we would report those impairment losses as part of our operating results . we determined that no adjustments were necessary when we performed our annual impairment testing in the fourth quarter of 2012 .
| overview we provide replacement parts , components and systems needed to repair cars and trucks . buyers of vehicle replacement products have the option to purchase from primarily five sources : new products produced by original equipment manufacturers ( `` oems '' ) , which are commonly known as oem products ; new products produced by companies other than the oems , which are sometimes referred to as aftermarket products ; recycled products originally produced by oems ; used products that have been refurbished ; and used products that have been remanufactured . we distribute a variety of products to collision and mechanical repair shops , including aftermarket collision and mechanical products , recycled collision and mechanical products , refurbished collision replacement products such as wheels , bumper covers and lights , and remanufactured engines . collectively , we refer to our products as alternative parts . we are the nation 's largest provider of alternative vehicle collision replacement products and a leading provider of alternative vehicle mechanical replacement products , with our sales , processing , and distribution facilities reaching most major markets in the united states . our wholesale operations also reach most major markets in canada , and we are a leading provider of alternative vehicle mechanical replacement products in the united kingdom . in addition to our wholesale operations , we operate self service retail facilities across the u.s. that sell recycled automotive products . we have organized our businesses into three operating segments : wholesale—north america ; wholesale—europe ; and self service . we aggregate our north american operating segments ( wholesale—north america and self service ) into one reportable segment , resulting in two reportable segments : north america and europe .
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covid-19 pandemic in march 2020 , the world health organization characterized covid-19 as a pandemic , and the president of the united states declared the covid-19 outbreak a national emergency . the rapid spread of the outbreak has caused significant disruptions in the u.s. and global economies . as an agricultural sciences company , we are considered an `` essential '' industry in the countries in which we operate ; we have avoided significant plant closures and all our manufacturing facilities and distribution warehouses remain operational and fully staffed . however , we did have a third party u.s. toller that was disrupted in the fourth quarter because of covid-related staffing issues , which signifies one of the ongoing business risks that the pandemic creates . we do not yet know the full extent of the disruptions on either our business and operations or the global economy nor the duration of the pandemic and its adverse effects . we have implemented new procedures to support the health and safety of our employees and we are following all u.s. centers for disease control and prevention , as well as state and regional health department guidelines . the well-being of our employees is fmc 's top priority . although most fmc office-based employees around the world have been working remotely during this period , we have implemented procedures to safely return to the workplace in regions where the pandemic is controlled and local health officials have deemed this to be safe in compliance with any government regulations . in addition , we have thousands of employees who continue operating our manufacturing sites and distribution warehouses . in all our facilities , we are using a variety of best practices to address covid-19 risks , following the protocols and procedures recommended by leading health authorities . we are monitoring the situation in regions where the pandemic continues to escalate and in such regions will remain in a remote working environment until it is safe to return to the workplace . during 2020 we have made significant investments in our employees as a result of the covid-19 pandemic , including through enhanced dependent care pay policies , recognition bonuses , increased flexibility of work schedules and hours of work to accommodate remote working arrangements , and investment in it infrastructure to promote remote work . through these efforts we have successfully avoided any covid-19 related furloughs or workforce reductions to date . in addition to addressing the needs of the company and our employees , fmc has been a leader in supporting the needs of the communities in which fmc has operations and those generally in need as a result of the pandemic . since the advent of the pandemic , we have donated in excess of 233,000 personal protective equipment supplies , including n95 masks , surgical masks , protective cover suits , goggles and similar items . we have also donated more than 1,800 containers and canisters used to transport alcohol-based disinfecting solution . additional efforts include financial contributions to hunger-relief organizations ; assisting with disinfecting schools and other public spaces in villages ; and supporting various community initiatives . in our supply chain , sourcing of raw materials and intermediates was not a significant issue , although we continued to see some logistics challenges and related higher costs . we are conscious of the potential downside risks in future periods and expect to continue to experience disruption caused by covid-19 in our supply chain and logistics . we have also seen some pockets of reduced demand as a result of covid-19 , primarily related to disruptions of farm worker labor required for planting , harvesting and packing crops ( especially fruits , vegetables and other specialty crops ) which may continue going forward . as discussed in our 2020 quarterly reports , we implemented price increases and cost-saving measures across the company to offset impacts of the covid-19 pandemic and related foreign currency headwinds . we amended our debt covenants with our banks on april 22 , 2020 ( see note 11 for more details ) to provide significant additional headroom above any of the covid-19 related scenarios assessed by the company . we will continue to monitor the economic environment related to the pandemic on an ongoing basis and assess the impacts on our business . 23 2020 highlights the following are the more significant developments in our businesses during the year ended december 31 , 2020 : revenue of $ 4,642.1 million in 2020 increased $ 32.3 million or approximately 1 percent versus last year . a more detailed review of revenues is included under the section entitled `` results of operations '' . on a regional basis , sales in north america decreased 8 percent , driven primarily by timing of shipments and supply chain disruptions , including covid related factors , sales in latin america increased by 1 percent , sales in europe , middle east and africa increased by 4 percent and sales in asia increased 6 percent , primarily by volume growth . our gross margin of $ 2,052.0 million decreased $ 31.6 million or approximately 2 percent versus last year . the decrease in gross margin was primarily driven by unfavorable foreign currency impacts primarily in latin america . gross margin as a percent of revenue of 44 percent decreased slightly from 45 percent in the prior year period , primarily due to unfavorable foreign currency headwinds . selling , general and administrative expenses decreased from $ 792.9 million to $ 729.7 million . selling , general and administrative expenses , excluding transaction-related charges , of $ 676.4 million decreased $ 38.7 million or approximately 5 percent . these decreases were a result of cost-saving measures implemented in response to the pandemic . transaction-related charges are presented in our adjusted earnings non-gaap financial measurement below under the section titled `` results of operations '' . research and development expenses of $ 287.9 million decreased $ 10.2 million or 3 percent . the decrease was primarily due to cost-saving measures taken in response to the covid-19 pandemic . story_separator_special_tag ( 2 ) adjusted ebitda is defined as operating profit excluding corporate special charges ( income ) and depreciation and amortization expense . ( 3 ) see note 9 to the consolidated financial statements included within this form 10-k for details of restructuring and other charges ( income ) . ( 4 ) our non-operating pension and postretirement charges ( income ) are defined as those costs ( benefits ) related to interest , expected return on plan assets , amortized actuarial gains and losses and the impacts of any plan curtailments or settlements . these are excluded from our operating results and are primarily related to changes in pension plan assets and liabilities which are tied to financial market performance and we consider these costs to be outside our operational performance . we continue to include the service cost and amortization of prior service cost in our operating results noted above . these elements reflect the current year operating costs to our businesses for the employment benefits provided to active employees . ( 5 ) charges relate to the expensing of the inventory fair value step-up resulting from the application of purchase accounting , transaction costs , costs for transitional employees , other acquired employee related costs , integration related legal and professional third-party fees . except for the completion of certain in-flight initiatives , primarily associated with the finalization of our worldwide erp system , we completed the integration of the dupont crop protection business as of june 30 , 2020. the tsa is now terminated and the last phase of the erp system transition went live in november 2020 with a stabilization period that will go into the first quarter of 2021. estimated remaining costs are expected to be less than $ 5 million for the completion of these defined in-flight initiatives during the remaining time period . amounts represent the following : replace_table_token_7_th ( 1 ) as previously disclosed , in november 2017 , we acquired certain assets relating to the crop protection business of e. i. du pont de nemours and company , and the related research and development organization ( the `` dupont crop protection business '' ) . ( 2 ) represents transaction costs , costs for transitional employees , other acquired employees related costs , and transactional-related costs such as legal and professional third-party fees . these charges are recorded as a component of `` selling , general and administrative expense '' on the consolidated statements of income ( loss ) . ( 3 ) these charges are included in `` costs of sales and services '' on the consolidated statements of income ( loss ) . adjusted earnings reconciliation replace_table_token_8_th ( 1 ) represents restructuring and other charges ( income ) , non-operating pension and postretirement charges ( income ) and transaction-related charges . ( 2 ) the income tax expense ( benefit ) on corporate special charges ( income ) is determined using the applicable rates in the taxing jurisdictions in which the corporate special charge or income occurred and includes both current and deferred income tax expense ( benefit ) based on the nature of the non-gaap performance measure . ( 3 ) we exclude the gaap tax provision , including discrete items , from the non-gaap measure of income , and instead include a non-gaap tax provision based upon the annual non-gaap effective tax rate . the gaap tax provision includes certain discrete tax 27 items including , but not limited to : income tax expenses or benefits that are not related to current year ongoing business operations ; tax adjustments associated with fluctuations in foreign currency remeasurement of certain foreign operations ; certain changes in estimates of tax matters related to prior fiscal years ; certain changes in the realizability of deferred tax assets ; and changes in tax law which includes the impact of the tax cuts and jobs act ( `` the act '' ) enacted on december 22 , 2017. management believes excluding these discrete tax items assists investors and securities analysts in understanding the tax provision and the effective tax rate related to ongoing operations thereby providing investors with useful supplemental information about fmc 's operational performance . organic revenue growth reconciliation twelve months ended december 31 , 2020 vs. 2019 total revenue change ( gaap ) 1 % less : foreign currency impact ( 6 % ) organic revenue change ( non-gaap ) 7 % results of operations in the discussion below , all comparisons are between the periods unless otherwise noted . revenue 2020 vs. 2019 revenue of $ 4,642.1 increased $ 32.3 million , or approximately 1 percent versus the prior year period . the increase was driven by higher volumes , primarily in latin america and asia , which accounted for an approximate 4 percent increase , as well as favorable pricing which accounted for an approximate 3 percent increase . foreign currency headwinds had an unfavorable impact of approximately 6 percent on revenue . excluding foreign currency impacts , revenue increased approximately 7 percent . 2019 vs. 2018 revenue of $ 4,609.8 million increased $ 324.5 million , or approximately 8 percent versus the prior year period . the increase was driven by higher volumes , primarily in latin america , and pricing which accounted for an approximate 8 percent and 3 percent increase , respectively , slightly offset by unfavorable foreign currency fluctuations of approximately 3 percent . see below for a discussion of revenue by region . replace_table_token_9_th 2020 vs. 2019 north america : revenue decreased approximately 8 percent in the year ended december 31 , 2020. sales were impacted due to supply chain disruptions , including covid-related factors associated with logistics and a tolling partner in the fourth quarter . additionally , we had channel destocking in the first half of the year . we continued market expansion of the lucento® fungicide , which had a strong second year , and elevest insect control had a good launch year .
| other results of operations depreciation and amortization 2020 vs. 2019 depreciation and amortization of $ 162.7 million increased $ 12.6 million , or approximately 8 percent , as compared to 2019 of $ 150.1 million . the increase was mostly driven by the impacts of the amortization effects of the completion of various phases of our erp implementation which increased amortization expense by approximately $ 10 million . 2019 vs. 2018 depreciation and amortization of $ 150.1 million remained relatively flat as compared to 2018 of $ 150.2 million . interest expense , net 2020 vs. 2019 interest expense , net of $ 151.2 million decreased by $ 7.3 million , or approximately 5 percent , compared to $ 158.5 million in 2019. the decrease was driven by lower term loan balances which decreased interest expense by approximately $ 17 million , lower libor rates which decreased interest expense by approximately $ 20 million and partially offset by the impacts of our third quarter 2019 debt offering which increased interest expense by approximately $ 30 million . 2019 vs. 2018 interest expense , net of $ 158.5 increased by $ 25.4 million , or approximately 19 percent compared to $ 133.1 million in 2018. the increase was driven by the issuance of the senior notes discussed further below , which increased interest expense by approximately $ 7 million , and higher average foreign debt balances throughout the year , which increased interest expense by approximately $ 17 million . 30 corporate special charges ( income ) restructuring and other charges ( income ) our restructuring and other charges ( income ) are comprised of restructuring , assets disposals and other charges ( income ) as described below : replace_table_token_10_th _ ( 1 ) see note 9 to the consolidated financial statements included in this form 10-k for more information .
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the retirement plan committee 55 receives quarterly reports addressing investment returns story_separator_special_tag story_separator_special_tag august 2000. factory overhead in 2018 declined by more than 50 % compared to 2001. the company accomplished this without closing a factory and while continuing to add new production processes , including flat metal forming , and other capabilities to support its 24 ambitious product development program . our domestic fabrication allowed the company to develop significant product variety , color choices , and custom products that are very difficult to replicate with a supply chain extending to china . finally , many education furniture products are bulky , with a large cube relative to the selling price . the cost of ocean freight from overseas for these bulky items offsets the cost advantages for overseas production . the company 's operating results can be impacted significantly by cost and volatility of commodities , especially steel , plastic , wood , and energy . because a majority of the company 's sales are generated under annual contracts in which the company has limited ability to raise the price of its products during the term of the contract , if the costs of the company 's raw materials increase suddenly or unexpectedly , the company can not be certain that it will be able to implement corresponding increases in its sales prices in order to offset such increased costs . the company moderates this exposure by building significant quantities of finished goods and component parts during the first and second quarters . commodity prices for raw materials declined modestly in the year ended january 31 , 2016. in the year ended january 31 , 2017 commodity costs , particularly steel , increased significantly but the company had already sourced and produced the majority of the product delivered during the summer . during the year-ended january 31 , 2018 commodity costs increased throughout the year , but without volatile spikes . the majority of virco 's sales include freight to the customer facility , and the cost or availability of transportation equipment can adversely impact both profitability and customer service . significant cost increases in manufacturing or distributing products during a given contract period can adversely impact operating results and have done so during prior years . the company typically benefits from any decreases in raw material or distribution costs under the contracts described above . during the year ending january 31 , 2019 , the company anticipates continued uncertainty and volatility in commodity costs , particularly with respect to certain raw materials , transportation , and energy . in 2017 , the cost of steel increased significantly , but the increase did not occur until after the company had sourced the majority of its steel for the summer delivery season . in 2018 , the cost of commodities increased during the year . subsequent to year-end , tariffs on imported steel announced by president trump have created volatility in the price of steel and other imported components , and the price of steel has increased significantly during 2018. while the company anticipates challenging economic conditions to continue to impact its core customer base in the near term , there are certain underlying demographics , customer responses , and changes in the competitive landscape that provide opportunities . first , the underlying demographics of the student population are stable compared to the volatility of school budgets , and the related level of furniture and equipment purchases . this volatility is attributable to the financial health of the school systems . virco management believes that there is a pent-up demand for quality school furniture ( though it is unclear when and to what extent that pent-up demand will be converted into a meaningful increase in purchases ) . second , management believes that parents and voters will make quality education an ongoing priority for future government spending . third , many schools have responded to the budget strains by reducing their support infrastructure . this change provides opportunities to provide services to schools , such as project management for new or renovated schools , delivery to individual school sites rather than truckload deliveries to central warehouses , and delivery of furniture into classrooms . moreover , this change offers opportunities for virco to promote its complete product assortment which allows one-stop shopping as opposed to sourcing furniture needs from a variety of suppliers . fourth , many suppliers previously shut down or dramatically curtailed their domestic manufacturing capabilities , making it difficult for competitors to adapt to dynamic fluctuations in demand or provide custom colors or finishes during a narrow seasonal summer delivery window when they are reliant upon a supply chain extending to asia or elsewhere . meanwhile , virco has continued to and invest in automation at its domestic manufacturing facilities , adding flat metal forming processes to its manufacturing capabilities and bringing production into its factories of items formerly sourced from other suppliers . domestic production facilitates our product development process , enabling the company to more rapidly develop new products , release extensions of product families , and offer customized variants of our product offering . virco views its domestic factories as a strategic resource for providing its customers with timely delivery of a broad selection of colors , finishes , laminates , and product styles . critical accounting policies and estimates this discussion and analysis of virco 's financial condition and results of operations is based upon the company 's financial statements which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires virco management to make estimates and judgments that affect the company 's reported assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . story_separator_special_tag self-insured retentions for 2019 will be comparable to the retention levels for 2018. warranty reserv e : the company provides a warranty against all substantial defects in material and workmanship . the company 's warranty is not a guarantee of service life , which depends upon events outside the company 's control and may be different from the warranty period . the standard warranty offered on products sold through january 31 , 2014 , is ten years . effective february 1 , 2014 through december 31 , 2016 , the company modified its warranty to a limited lifetime warranty . the warranty effective february 1 , 2014 is not anticipated to have a significant effect on warranty expense . effective january 1 , 2017 , the company modified the warranty offered to provide specific warranty periods by product component , with no warranty period longer than ten years . the company 's warranties generally provide that customers can return a defective product during the specified warranty period following purchase in exchange for a replacement product or that the company 26 can repair the product at no charge to the customer . the company determines whether replacement or repair is appropriate in each circumstance . the company uses historic data to estimate appropriate levels of warranty reserves . because product mix , production methods , and raw material sources change over time , historic data may not always provide precise estimates for future warranty expense . defined benefit obligations : the company has three defined benefit plans , the virco employees retirement plan ( the “ employee plan ” ) and the virco important performers plan ( the “ vip plan ” ) and the outside directors plan , which provide retirement benefits to employees and outside directors . virco discounted the pension obligations for the various plans using the following rates : replace_table_token_5_th because the company froze new benefit accruals for all three plans effective december 31 , 2003 , the assumed rate of increase in compensation has no effect on the accounting for the plans . the company estimated a 6.5 % return on plan assets for the employee plan for all three years . the vip plan and directors plan are unfunded and have no plan assets . these rate assumptions can vary due to changes in interest rates and expected returns in the stock market . in prior years , the discount rate has decreased by several percentage points , causing pension expense and pension obligations to increase . because the plans have been frozen for many years , there is no service cost related to the plans . in 2016 , due to a large number of lump sum benefits paid to retired and terminated employees , the company has incurred settlement costs for the employee plan . in effort to “ de-risk ” the employee plan , the company intends to continue to reach out to and offer lump sum benefits to terminated and retired employees , which may result in settlement costs in the future . the company did not incur settlement costs in 2018 or 2017. due to the size of the company 's pension obligations , a one percent change in discount rates can cause a material change in the pension obligations . a one percent reduction in discount rates would cause obligations under the employee plan to increase by approximately $ 2.4 million . a one percent reduction in discount rates would cause obligations under the non-qualified plans to increase by approximately $ 1.5 million . the retirement obligations would decrease by similar amounts if discount rate were to increase by a comparable percentage . the company obtains annual actuarial valuations for all plans . deferred tax assets and liabilities : the company recognizes deferred income taxes under the asset and liability method of accounting for income taxes in accordance with the provisions of fasb asc topic 740 “ income taxes. ” deferred income taxes are recognized for differences between the financial statement and tax basis of assets and liabilities at enacted statutory tax rates in effect for the years in which the differences are expected to reverse . the effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date . in assessing the realizability of deferred tax assets , the company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income or reversal of deferred tax liabilities during the periods in which those temporary differences become deductible . the company considers the scheduled reversal of deferred tax liabilities , projected future taxable income , and tax planning strategies in making this assessment . the company has a partial valuation allowance of $ 925,000 against certain state deferred tax assets that the company does not believe it is more-likely-than-not to realize . at january 31 , 2018 , the company has net operating loss carryforwards of approximately $ 13,458,000 for federal and $ 30,979,000 for state income tax purposes , expiring at various dates through january 31 , 2035. in 2017 , congress passed the tax cuts and jobs act ( tcja ) on december 22 , 2017 . the act reduces the us federal corporate tax rate to 21 % .
| executive overview management 's strategy is to position virco as the overall value supplier of educational furniture and equipment . the markets that virco serves include the education market ( the company 's primary market ) , which is made up of public and private schools ( preschool through 12th grade ) , junior and community colleges , four-year colleges and universities ; and trade , technical and vocational schools . virco also serves convention centers and arenas ; the hospitality industry , with respect to their banquet and meeting facilities ; government facilities at the federal , state , county and municipal levels ; and places of worship . in addition , the company sells to wholesalers , distributors , retailers , catalog retailers , and internet retailers that serve these same markets . these institutions are frequently characterized by extreme seasonality and or a bid-based purchasing function . the company 's business model , which is designed to support this strategy , includes the development of several competencies to enable superior service to the markets in which virco competes . an important element of virco 's business model is the company 's emphasis on developing and maintaining key manufacturing , warehousing , distribution , delivery , project management , and service capabilities . the company has developed a comprehensive product offering for the furniture , fixtures and equipment needs of the k-12 education market , enabling a school to procure all of its furniture , fixtures and equipment ( “ ff & e ” ) requirements from one source . virco 's product offering consists primarily of items manufactured by virco , complemented with products sourced from other furniture manufacturers . our product offerings are continually enhanced with an ongoing new product development program that incorporates internally developed products as well as product lines developed with accomplished designers . finally , management continues to hone virco 's ability to forecast , finance , manufacture , warehouse , deliver , and install furniture within the relatively narrow delivery window associated with the highly seasonal demand for education sales .
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property management property management provides on-site day-to-day management services for owners of office , industrial , retail , multifamily residential and various other types of properties , representing a series of daily performance obligations delivered over time . pricing is generally in the form of a monthly management fee based upon property-level cash receipts , square footage under management or some other variable metric . revenues from project management may also include reimbursement of payroll and related costs for personnel providing the services and subcontracted vendor costs . project management services represent a series of distinct daily services rendered over time . consistent with the transfer of control for distinct , daily services to the customer , revenue is typically recognized at the end of each period for the fees associated with the services performed . the amount of revenue recognized is presented gross for any services provided by our employees , as we control them . this is evidenced by our obligation for their performance and our ability to direct and redirect their work , as well as negotiate the value of such services . in the instances where we do not control third-party services delivered to the client , we report revenues net of the third-party reimbursements . capital markets we offer clients commercial mortgage and structured financing services . we are compensated for our services via a fee paid upon successful commercial financing from third party lenders . the fee earned is contingent upon the funding of the loan , which represents the transfer of control for services to the customer . therefore , we typically satisfy our performance obligation at the point in time of the funding of the loan , when there is a present right to payment . leasing we provide strategic advice and execution for owners , investors , and occupiers of real estate in connection with the leasing of office , industrial and retail space . we are compensated for our services in the form of a commission . our commission is paid upon signing of the lease by the tenant . we satisfy our performance obligation at a point in time ; generally , at the time of the contractual event where there is a present right to payment . project & development services we provide project and construction management services for owners and occupiers of real estate in connection with the management and leasing of office , industrial and retail space . the fees that we earn are typically variable based upon a percentage of project cost . we are compensated for our services in the form management fees . project and construction management services represent a series of performance obligations delivered over time and revenue is recognized over time . f-12 environmental remediation we provide environmental remediation services for owners of real estate . remediation services are generally contracted and performed by comstock environmental . we are compensated for our services as well as for the services of subcontractors used to perform remediation services . fees earned are generally based upon employee time spent as well as a cost-plus arrangement for subcontractors used . generally , environmental remediation services represent a series of performance obligations delivered over time and revenue is recognized over time . contract costs expenses , primarily employee commissions , incurred on leasing and capital markets transactions represent substantially all our incremental costs to obtain revenue contracts . we apply the applicable practical expedient offered by asc topic 606 when the amortization period is one year or less and , therefore , recognize these costs as an operating expense as they are incurred . stock compensation as discussed in note 12 , the company sponsors stock option plans and restricted stock award plans . the company accounts for its share-based awards pursuant to accounting standards codification ( “ asc ” ) 718 , share based payments . asc 718 requires all share-based payments to employees , including grants of employee stock options , to be recognized in the financial statements over the service period based on their fair values at the date of grant . for the year ended december 31 , 2020 , total stock based compensation cost was $ 0.8 million which was charged to expenses within ‘ general and administrative ' in the consolidated statement of operations . for the year ended december 31 , 2019 , total stock based compensation cost was $ 0.5 million which was charged to expenses within ‘ general and administrative ' and ‘ direct costs-real estate services ' in the consolidated statement of operations . income taxes income taxes are accounted for under the asset and liability method in accordance with asc 740 , accounting for income taxes . deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect of a change in tax rates on the deferred tax assets and liabilities is recognized in income in the period that includes the enactment date . we provide a valuation allowance story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. this discussion and analysis contain forward-looking statements that involve risks and uncertainties . story_separator_special_tag the effect of a change in tax rates on the deferred tax assets and liabilities is recognized in income in the period that includes the enactment date . we provide a valuation allowance when we consider it “ more likely than not ” ( greater than a 50 % probability ) that a deferred income tax asset will not be fully recovered . adjustments to the valuation allowance are a component of the deferred income tax expense or benefit in the consolidated statement of operations . story_separator_special_tag the master transfer agreement ( `` mta '' ) that sets forth certain transactions to complete the company 's previously announced exit from the homebuilding and land development business in favor of a migration to an asset management model . refer to note 13 – consolidation of variable interest entities for further discussion regarding the accounting related to discontinued operations . the operating results of the discontinued operations that are reflected on the consolidated statement of operations within the net loss from discontinued operations are as follows : replace_table_token_1_th liquidity and capital resources we finance our asset management and real estate services operations , capital expenditures , and business acquisitions with internally generated funds , borrowings from our credit facilities and long-term debt . pursuant to the master transfer agreement ( the `` mta '' ) , the company transferred to cds management of its class a membership interests in investors x , the entity owning the company 's residual homebuilding operations in exchange for residual cash flows . the associated debt obligations were also transferred to cds . see note 8 in the accompanying consolidated financial statements for more details on our debt and credit facilities . on march 19 , 2020 , the company entered into a revolving capital line of credit agreement ( the “ loan documents ” ) with cds , pursuant to which the company secured a $ 10.0 million capital line of credit ( the “ revolver ” ) . under the terms of the loan documents , the revolver provides for an initial variable interest rate of the wsj prime rate plus 1.00 % per annum on advances made under the revolver , payable monthly in arrears . the five-year term facility allows for interim draws that carry a maturity date of 12 months from the initial date of the disbursement unless a longer initial term is agreed to by cds . on march 27 , 2020 the company borrowed $ 5.5 million under the revolver . the $ 5.5 million borrowing has a maturity date of april 30 , 2023. on april 10 , 2020 , the capital provided to the company by the revolver was utilized to retire all of the company 's 10 % corporate indebtedness maturing in 2020 owed to comstock growth fund , l.c . on april 20 , 2020 , the company was granted the ppp loan in the aggregate amount of $ 1.95 million pursuant to the ppp under the cares act , which was enacted march 27 , 2020. under the terms of the ppp , ppp loans and accrued interest are forgivable after twenty-four weeks as long as the borrower uses the loan proceeds for eligible purposes , including payroll , benefits , rent and utilities , and maintains its payroll levels . the amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the forgiveness period . as of december 31 , 2020 , the company had used the entire loan proceeds to fund its payroll and rent expenses . as a result , the company believes that it has met the ppp eligibility criteria for forgiveness and has concluded that the loan represents , in substance , a government grant that is expected to be forgiven . as such , in accordance with ias 20 “ accounting for government grants and disclosure of government assistance ” , the company has recognized the entire loan amount as a reduction to the associated expenses as at december 31 , 2020. the company does not anticipate taking any action that would cause any portion of the ppp loan to be ineligible for forgiveness . however , to the extent that any amount is deemed unforgivable , such amount is payable over 2 to 5 years at an interest rate of 1 % , with a deferral of payments for the first 6 months . 14 cash flow net cash provided by operating activities was $ 3.4 million for the year ended december 31 , 2020. the $ 3.4 million net cash provided by operations in 2020 was primarily due to $ 2.1 million of net income generated during the year . net cash provided by operating activities was $ 8.4 million for the year ended december 31 , 2019. the $ 8.4 million net cash provided by operations in 2019 was primarily due to $ 7.8 million in cash provided by discontinued operations . net cash used in investing activities was $ 1.7 million for the year ended december 31 , 2020. this was primarily attributable to the purchase of fixed assets for the new headquarters lease . net cash used in investing activities attributable to continuing operations was immaterial for the years ended december 31 , 2019. net cash used in financing activities was $ 1.6 million for the year ended december 31 , 2020. this was primarily attributable to the retirement of debt partially offset by proceeds under the revolver of $ 5.5 million . net cash used in financing activities was immaterial for the year ended december 31 , 2019 . net cash used in financing activities from discontinued operations was $ 6.0 million primarily as a result of note payoff related to each lot or unit sale in the investors x communities . share repurchase program in november 2014 , our board of directors approved a new share repurchase program authorizing the company to repurchase up to 429,000
| results of operations year ended december 31 , 2020 compared to year ended december 31 , 2019 revenue – asset management revenue from asset management for the years ended december 31 , 2020 and 2019 was $ 21.9 million and $ 19.6 million , respectively . the 11.8 % year over year growth of $ 2.3 million in revenue was primarily due to increased headcount and other costs that are reimbursable from comstock development services ( `` cds '' ) under the 2019 ama and the other asset management agreements . the reimbursable costs are recognized as revenue in the period in which the related costs are incurred . the increased headcount and associated personnel costs are primarily attributable to the additional real estate assets being managed along with the additional management agreements year over year . please see note 2 - summary of significant accounting policies for more information on the additional management agreements . revenue – real estate services revenue from real estate services for the years ended december 31 , 2020 and 2019 was $ 6.8 million and $ 5.7 million , respectively . the 19.1 % increase of $ 1.1 million is primarily attributable to continued organic revenue growth within our comstock environmental business , partially offset by a decrease in closing financing transactions which generated incremental revenue of $ 0.6 million and $ 1.1 million during the years ended december 31 , 2020 and 2019 , respectively . direct costs – asset management direct costs – asset management for the years ended december 31 , 2020 and 2019 was $ 18.4 million and $ 16.6 million , respectively . this 11.4 % increase of $ 1.9 million was primarily related to increased personnel expense from headcount increases as well as from the continued growth of our asset management operations .
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you should read this discussion in conjunction with the consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k. overview the core u.s. segment experienced decreases in its revenues , gross profit and operating profit for the year ended december 31 , 2016 as compared to 2015 primarily due to a 9.0 % decrease in same store sales and the continued rationalization of our core u.s. store base . same store revenues were negatively impacted by unexpected capacity-related system outages occurring in the third quarter following the full implementation of our new store information system within our core u.s. stores . we have implemented software releases to improve stability and added hardware to help mitigate over-utilization issues and did not experience any additional capacity-related system outages in the fourth quarter of 2016. however , the recovery from these outages to rebuild our portfolio and improve account management is taking longer than expected . we are currently evaluating and implementing a number of actions to stabilize the core business , focusing on product mix , pricing , our store-level workforce and delinquencies . as part of our continued rationalization of our core u.s. store base , we closed , sold or converted 209 stores in 2016 , 157 stores in 2015 and 202 stores in 2014. our annual goodwill impairment testing performed as of december 31 , 2016 resulted in the recognition of an impairment charge of $ 151.3 million , thus writing off the remaining goodwill in the core u.s. segment . the impairment is a non-cash charge and does not affect our liquidity , debt covenants or our ability to declare and pay dividends . the goodwill in our acceptance now segment was not impaired . the growth in our acceptance now segment was relatively flat for the year ended december 31 , 2016 as compared to 2015. we did experience an increase in charge-offs due to customer stolen merchandise . expressed as a percentage of revenues , charge-offs were approximately 10 % in 2016 as compared to 8.5 % in 2015. this is due to an increase in multi-line vendor partners which offer higher risk merchandise versus a traditional furniture vendor as well as challenges in operational execution of the account management process . cash flow from operations was $ 353.7 million for the year ended december 31 , 2016. we used our free cash flow to pay down debt by $ 233.8 million , ending the period with $ 95.4 million of cash and cash equivalents . recent developments executive management changes . on december 2 , 2016 , guy j. constant resigned from his position as chief financial officer and maureen b. short was appointed as our interim chief financial officer . ms. short joined the company in 2008 and has served as senior vice president - finance , investor relations and treasury since november 2014. on january 9 , 2017 , robert d. davis resigned from his position as chief executive officer and mark e. speese was appointed as our interim chief executive officer . mr. speese has served as the chairman of the board since october 2001 and as one of the company 's directors since 1990 . 21 the following table is a reference for the discussion that follows . replace_table_token_6_th comparison of the years ended december 31 , 2016 and 2015 store revenue . total store revenue decreased by $ 315.5 million , or 9.7 % , to $ 2,938.5 million for the year ended december 31 , 2016 , from $ 3,254.0 million for 2015 . this was primarily due to a decrease of approximately $ 302.1 million in the core u.s. segment , as discussed further in the segment performance section below . same store revenue generally represents revenue earned in 3,469 locations that were operated by us for 13 months or more . same store revenues decreased by $ 134.7 million , or 6.2 % , to $ 2,043.0 million for the year ended december 31 , 2016 , as compared to 22 $ 2,177.7 million in 2015 . the decrease in same store revenues was primarily attributable to a decline in the core u.s. segment , as discussed further in the segment performance section below . same store revenues are reported on a constant currency basis . cost of rentals and fees . cost of rentals and fees consists of depreciation of rental merchandise . cost of rentals and fees for the year ended december 31 , 2016 , decreased by $ 63.9 million , or 8.8 % , to $ 664.8 million , as compared to $ 728.7 million in 2015 . this decrease in cost of rentals and fees was primarily attributable to a $ 64.0 million decrease in the core u.s. segment primarily as a result of lower rentals and fees revenue . cost of rentals and fees expressed as a percentage of rentals and fees revenue increased to 26.6 % for the year ended december 31 , 2016 as compared to 26.2 % in 2015 . cost of merchandise sold . cost of merchandise sold represents the net book value of rental merchandise at time of sale . cost of merchandise sold decreased by $ 33.0 million , or 9.2 % , to $ 323.7 million for the year ended december 31 , 2016 , from $ 356.7 million in 2015 , primarily attributable to a decrease of $ 24.8 million in the core u.s. segment . the gross margin percent of merchandise sales increased to 7.8 % for the year ended december 31 , 2016 , from 5.4 % in 2015 . other charges - cost of revenues . during 2015 , a charge of $ 34.7 million was recognized for the write-down of smartphones in the core u.s. segment . gross profit . story_separator_special_tag same store revenues increased by $ 143.0 million , or 5.7 % , to $ 2,641.7 million for the year ended december 31 , 2015 , as compared to $ 2,498.8 million in 2014. the increase in same store revenues was primarily attributable to growth in the acceptance now segment . cost of rentals and fees . cost of rentals and fees for the year ended december 31 , 2015 , increased by $ 24.1 million , or 3.4 % , to $ 728.7 million , as compared to $ 704.6 million in 2014. this increase in cost of rentals and fees was primarily attributable to growth in rentals and fees revenue in the acceptance now segment in 2015 as compared to 2014 , partially offset by decreases in rentals and fees revenue in the core u.s. and mexico segments . the gross margin percent of rentals and fees decreased to 73.8 % for the year ended december 31 , 2015 , as compared to 74.3 % in 2014 , driven by increased revenue in the acceptance now segment , which has higher costs of rental merchandise . cost of merchandise sold . cost of merchandise sold represents the net book value of rental merchandise at time of sale . cost of merchandise sold increased by $ 125.2 million , or 54.1 % , to $ 356.7 million for the year ended december 31 , 2015 , from $ 231.5 million in 2014. the gross margin percent of merchandise sales decreased to 5.4 % for the year ended december 31 , 2015 , from 20.2 % in 2014 , driven by a lower gross profit margin on merchandise sales and a higher mix of merchandise sales , primarily due to increased usage of the 90 day cash option in the acceptance now segment and sales of smartphones in the core u.s. segment . other charges and ( credits ) . during 2015 , we recognized a $ 34.7 million charge for the write-down of smartphones as discussed above , compared to a $ 6.8 million credit recognized in 2014 as a result of a class-action settlement with the manufacturers of lcd screen displays , which is discussed further in note l to the consolidated financial statements . gross profit . gross profit decreased by $ 66.3 million , or 3.0 % , to $ 2,118.1 million for the year ended december 31 , 2015 , from $ 2,184.4 million in 2014 , driven by decreases of $ 108.4 million and $ 8.7 million in the core u.s. and mexico segments , partially offset by a $ 49.0 million increase in the acceptance now segment , as discussed further in the segment performance section below . gross profit as a percentage of total revenue decreased to 64.6 % in 2015 compared to 69.2 % in 2014. without the $ 34.7 million smartphone write-down and the $ 6.8 million vendor settlement credit discussed above , gross margin as a percentage of total revenue would have been 65.7 % for the year ended december 31 , 2015 , a decrease of 3.3 % from the prior year , primarily due to the lower margins in the acceptance now segment as discussed above . store labor . store labor decreased by $ 34.3 million , or 3.9 % , to $ 854.6 million for the year ended december 31 , 2015 , as compared to $ 888.9 million in 2014. store labor in the core u.s. and mexico segments decreased $ 46.7 million and $ 5.5 million , respectively , partially offset by an increase of $ 17.9 million in the acceptance now segment . store labor expressed as a percentage of total store revenue decreased to 26.3 % for the year ended december 31 , 2015 , from 28.4 % in 2014 , as discussed further in the segment performance section below . other store expenses . other store expenses decreased by $ 8.3 million , or 1.0 % , to $ 833.9 million for the year ended december 31 , 2015 , as compared to $ 842.3 million in 2014. other store expenses expressed as a percentage of total store revenue decreased to 25.6 % for the year ended december 31 , 2015 , from 26.9 % in 2014 , as discussed further in the segment performance section below . general and administrative expenses . general and administrative expenses increased by $ 3.8 million , or 2.3 % , to $ 166.1 million for the year ended december 31 , 2015 , as compared to $ 162.3 million in 2014. general and administrative expenses expressed as a percentage of total revenue were 5.1 % for each of the years ended december 31 , 2015 and 2014. goodwill impairment charge . during 2015 , we recognized a $ 1,170.0 goodwill impairment charge due to an impairment in the goodwill in the core u.s. segment . goodwill impairment charge is discussed further in note f to the notes to the consolidated financial statements . 24 other charges . other charges increased by $ 6.4 million , or 45.1 % , to $ 20.7 million in 2015 , as compared to $ 14.2 million in 2014. see note m to the notes to the consolidated financial statements for additional detail regarding these other charges . operating profit ( loss ) . operating loss was $ 1,007.9 million for the year ended december 31 , 2015 , as compared to an operating profit of $ 193.5 million in 2014 , a decrease of $ 1,201.4 million . operating loss as a percentage of total revenue was 30.7 % for the year ended december 31 , 2015 , as compared to an operating profit of 6.1 % for 2014 , primarily due to the goodwill impairment charge and other charges and credits discussed above .
| quarterly results the following table contains certain unaudited historical financial information for the quarters indicated : replace_table_token_11_th replace_table_token_12_th ( 1 ) fourth quarter net loss and loss per share revised for correction of deferred tax error associated with our goodwill impairment reported in the fourth quarter of 2015 as discussed in note b in the consolidated financial statements . replace_table_token_13_th 27 replace_table_token_14_th liquidity and capital resources overview . for the year ended december 31 , 2016 , we generated $ 353.7 million in operating cash flow . we paid down debt by $ 233.8 million from cash generated from operations and an $ 84.9 million income tax refund . we also used cash in the amount of $ 61.1 million for capital expenditures and $ 25.6 million for payment of dividends , ending the year with $ 95.4 million in cash and cash equivalents . analysis of cash flow . net cash provided by operating activities increased by $ 123.2 million to $ 353.7 million in 2016 from $ 230.5 million in 2015 . this was primarily attributable to the receipt in 2016 of income tax refunds of approximately $ 84.9 million in addition to a decrease in merchandise purchases due to lower sales in the core u.s. segment and lower 90 days same as cash sales in the acceptance now segment . net cash used in investing activities decreased by $ 31.1 million to $ 59.0 million in 2016 from $ 90.1 million in 2015 , due to a decrease in capital expenditures , business acquisitions , and property sales .
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rosenthal assumes the credit risk on a substantial portion of the receivables that the company submits to it and , to the extent of any loans made to the story_separator_special_tag operations the following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and notes thereto appearing elsewhere in this annual report on form 10-k. overview : ( $ in thousands , except retail sales data per square foot , earnings per share and per share data ) steven madden , ltd. and its subsidiaries ( collectively , the “ company ” , `` we '' , `` our '' , `` us '' , as applicable ) design , source , market and sell fashion-forward branded and private label footwear for women , men and children . in addition , we design , source , market and sell name brand and private label fashion handbags and accessories , through our accessories division . we market and sell our products through better department stores , major department stores , mid-tier department stores , specialty stores , luxury retailers , value priced retailers , national chains , mass merchants , online retailers , and catalog retailers throughout the united states , canada , mexico , certain european nations , including albania , austria , belgium , bulgaria , cyprus , czech republic , denmark , estonia , finland , france , germany , hungary , ireland , kosovo , latvia , lithuania , luxembourg , the netherlands , norway , poland , romania , russia , slovakia , slovenia , sweden and switzerland , and tunisia . in addition , our products are marketed through our retail stores and our e-commerce websites within the united states , canada , mexico , our joint ventures in south africa , china and taiwan , and under special distribution arrangements in asia , europe ( excluding the aforementioned nations ) , india , the middle east , south and central america and new zealand . our product line includes a broad range of contemporary styles designed to establish or capitalize on market trends , complemented by core product offerings . we have established a reputation for design creativity and our ability to offer quality products in popular styles at accessible price points , delivered in an efficient manner and time frame . our business is comprised of five distinct segments ( wholesale footwear , wholesale accessories , retail , first cost and licensing ) . our wholesale footwear segment includes the following brands : steve madden women's® , madden girl® , steve madden men's® , madden® , madden nyc , report® , dolce vita® , dv by dolce vita® , mad love® , steven by steve madden® , superga® ( under license ) , betsey johnson® , betseyville® , steve madden kids® , freebird by steven® , stevies® , b brian atwood® , blondo® , kate spade® ( under license ) , avec les filles® ( under license ) , alice & olivia® ( through a joint venture ) , and includes our international business and certain private label footwear business . the agreement with alice & olivia® was terminated on december 31 , 2017. our wholesale accessories segment includes big buddha® , madden nyc , betsey johnson® , steve madden® , steven by steve madden® , madden girl® , luv betsey® , dkny® ( under license ) , donna karan® ( under license ) , and cejon® accessories brands and includes our international business and certain private label accessories business . steven madden retail , inc. , our wholly-owned retail subsidiary , operates steve madden , steven , superga and international retail stores , as well as steve madden , superga , betsey johnson and dolce vita e-commerce websites and comprises our retail segment . the first cost segment represents activities of a subsidiary that earns commissions for serving as a buying agent for footwear products under private labels for many of the country 's large mass-market merchandisers , shoe chains and other value priced retailers . our licensing segment is engaged in the licensing of the steve madden® , steven by steve madden® and madden girl® trademarks for use in connection with the manufacture , marketing and sale of outerwear , hosiery , jewelry , watches , sunglasses , hair accessories , umbrellas , bedding , luggage and men 's leather accessories . we license the stevies® trademark for use in connection with the manufacture , marketing and sale of outerwear exclusively to target . in addition , we license our betsey johnson® trademark for use in connection with the manufacture , marketing and sale of women 's and children 's apparel , hosiery , swimwear , fragrance and beauty , sleepwear , activewear , jewelry , watches , bedding , luggage , stationary , umbrellas and household goods . we also license our dolce vita® trademark for use in connection with the manufacture , marketing and sale of women 's and children 's apparel . on january 30 , 2017 , the company entered into an equity purchase agreement ( the “ purchase agreement ” ) with schwartz & benjamin , inc. , a new york corporation ( “ s & a ” ) , its affiliated companies b.d.s. , inc. , a delaware corporation ( “ b.d.s. ” ) , quinby ridge enterprises llc , a delaware limited liability company ( “ qre ” ) , and danielbarbara enterprises llc , a new york limited liability company ( “ dbe ” and , collectively with s & a , b.d.s . and qre , “ schwartz & benjamin ” ) , the owners of all of the issued and outstanding equity interests in schwartz & benjamin ( the “ sellers ” ) , and daniel schwartz , as designated agent for the sellers , pursuant to which the company purchased all of the outstanding equity interests in schwartz & benjamin from the sellers . story_separator_special_tag the non-gaap financial measures are limited in their usefulness and should be considered in addition to , and not in lieu of , u.s. gaap financial measures . further , these non-gaap measures may be unique to the company , as they may be different from non-gaap measures used by other companies . the table below reconciles these metrics to net income as presented in the consolidated statement of income . years ended december 31 ( $ in thousands ) 2017 2016 2015 net income $ 119,138 $ 121,274 $ 113,655 add back : provision for income taxes 53,189 49,726 58,811 provision for legal and early lease termination charges ( benefit ) 11,836 — ( 3,048 ) schwartz & benjamin amendment to the equity purchase agreement ( 10,215 ) — — bad debt expense related to the payless shoesource bankruptcy 5,470 — — schwartz & benjamin acquisition integration charges 3,639 — — charges related to preferred interest investment 2,700 — — impairment of wild pair trademark 1,000 — 3,045 schwartz & benjamin acquisition inventory fair value adjustment 591 — — deduct : other income ( expense ) - net * ( 5 ) ( 664 ) ( 1,373 ) interest , net 2,548 2,488 2,191 adjusted ebit $ 184,805 $ 169,176 $ 171,645 add back : depreciation and amortization $ 20,406 $ 19,868 $ 19,382 loss on disposal of fixed assets 1,455 652 1,780 adjusted ebitda $ 206,666 $ 189,696 $ 192,807 * consists of realized ( losses ) gains on marketable securities and foreign exchange ( losses ) gains . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > . wholesale accessories segment : net sales generated by the wholesale accessories segment accounted for $ 256,295 , or 16.6 % , and $ 254,931 , or 18.2 % , of total company net sales for the years ended december 31 , 2017 and 2016 , respectively . gross profit margin in the wholesale accessories segment decreased to 31.5 % in 2017 from 33.1 % in the prior year period primarily due to lower margins in our cold weather business driven by prior season inventory closeouts . in the year ended december 31 , 2017 , operating expenses increased to $ 57,092 , or 22.3 % of revenue , compared to $ 52,860 , or 20.7 % of revenue , in the year ended december 31 , 2016 due to the impact of the year-over-year benefit received for the reversal of contingent liabilities related to the cejon acquisition in 2016 . income from operations for the wholesale accessories segment decreased to $ 23,637 in 2017 compared to $ 31,562 in 2016 . retail segment : net sales generated by the retail segment accounted for $ 272,246 , or 17.6 % , and $ 262,756 , or 18.8 % , of total company net sales for the years ended december 31 , 2017 and 2016 , respectively , which represents a $ 9,490 or 3.6 % increase , year-over-year . this growth is due to the net addition of seventeen stores from the prior year partially offset by a decrease in comparable 28 store sales of 3.2 % . during 2017 , we added thirteen full price stores and six outlets , and closed two full price locations . as a result , we had 206 retail stores as of december 31 , 2017 , compared to 189 stores as of december 31 , 2016 . the 206 stores currently in operation include 138 steve madden full price stores , 60 steve madden outlet stores , three steven stores , one superga store and four e-commerce websites . in addition , during 2017 , we opened 21 concessions in asia through our china and taiwan joint ventures , and ended the year with 38 company-operated concessions in international markets . comparable store sales ( sales of those stores , including the e-commerce websites , that were open for all of 2017 and 2016 ) for the year ended december 31 , 2017 decreased 3.2 % when compared to the prior year . the company excludes new locations from the comparable store base for the first year of operations . stores that are closed for renovations are removed from the comparable store base . during the year ended december 31 , 2017 , gross margin increased to 60.5 % from 60.0 % in 2016 primarily due to lower promotional activity during 2017. in 2017 , operating expenses increased to $ 165,771 , or 60.9 % of revenue , from $ 141,939 , or 54.0 % of revenue , in 2016 primarily due to the incremental costs associated with new store openings , legal charges consisting of costs and estimated settlement amounts related to early lease terminations and increases in employee-related costs . for the year ended december 31 , 2017 , losses from operations for the retail segment were $ 1,126 compared income from operations of $ 15,787 in the prior year . first cost segment : income for the first cost segment , which includes net commission income and fees , increased to $ 5,159 for the year ended december 31 , 2017 , compared to $ 3,728 in 2016 due to an increase in business with certain private label footwear customers . licensing segment : during the year ended december 31 , 2017 , income for the licensing segment increased to $ 9,100 as compared to the prior year income of $ 8,060 primarily due to gains with our steve madden licensed products . year ended december 31 , 2016 vs. year ended december 31 , 2015 consolidated : net sales for the year ended december 31 , 2016 decreased slightly by 0.4 % to $ 1,399,551 from $ 1,405,239 for fiscal year 2015 . for the year ended december 31 , 2016 , gross margin as a percentage of net sales increased to 37.3 % compared to 35.6 % in the prior year primarily resulting from higher initial mark-ups , decreased markdown allowances , and reduced close-outs coupled with sales mix in the wholesale footwear segment .
| executive summary net sales for 2017 increased by 10.5 % to $ 1,546,098 from $ 1,399,551 in 2016 . net sales growth was driven by our acquisition of schwartz & benjamin , which contributed net sales of $ 80,020 , as well as growth in our core business . net income attributable to steven madden , ltd. decreased 2.5 % to $ 117,948 in 2017 compared to $ 120,911 in 2016 . the company 's effective tax rate for 2017 increased to 30.9 % compared to 29.1 % recorded in 2016 . diluted earnings per share in 2017 increased to $ 2.04 per share on 57,830,000 diluted weighted average shares outstanding compared to $ 2.03 per share on 59,556,000 diluted weighted average shares outstanding in the prior year . in our retail segment , same store sales ( sales attributable to those stores , including the e-commerce websites , that were in operation throughout 2017 and 2016 ) decreased 3.2 % , and sales per square foot decreased to $ 656 in 2017 compared to sales per square foot of $ 707 in 2016 . as of december 31 , 2017 , we had 206 stores in operation , compared to 189 stores as of december 31 , 2016 which increase resulted from the opening of 13 full price stores and six outlet store locations partially offset by the closing of two full price stores . our total inventory turnover was 8.6 times compared to 8.2 times in the comparable period of last year . our accounts receivable average collection days were 75 days in 2017 compared to 66 days in 2016 primarily due to changes in payment terms with certain customers . as of december 31 , 2017 , we had $ 274,764 in cash , cash equivalents and marketable securities , no short 26 or long-term debt and total stockholders ' equity of $ 808,932 .
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the site was added to the epa 's list of priority superfund sites in 1989. between 1993 and 1995 , remediation plans for the site were approved by the epa and fully implemented by the company . since 1998 , the primary remaining contamination at the site has been the presence of volatile organic chemicals in the soil and groundwater . to date , the remediation process has consisted primarily of drilling wells into the aquifer and pumping water to story_separator_special_tag concerning forward-looking statements - this annual report on form 10-k contains not only historical information , but also 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. statements that are not historical are forward-looking and reflect expectations for future company performance . in addition , forward-looking statements may be made orally or in press releases , conferences , reports , on the company 's worldwide web site , or otherwise , in the future by or on behalf of the company . when used by or on behalf of the company , the words expect , anticipate , estimate , believe , intend and similar expressions generally identify forward-looking statements . the entire section entitled market conditions and outlook should be considered forward-looking statements . for these statements , the company claims the protection of the safe harbor for forward-looking statements contained in the private securities litigation reform act of 1995. forward-looking statements involve a number of risks and uncertainties , including but not limited to those discussed in the risk factors section contained in item 1a . readers should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results which may not occur as anticipated . actual results could differ materially from those anticipated in the forward-looking statements and from historical results , due to the risks and uncertainties described herein , as well as others not now anticipated . the risks and uncertainties described herein are not exclusive and further information concerning the company and its businesses , including factors that potentially could materially affect the company 's financial results , may emerge from time to time . except as required by law , the company assumes no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements . 15 overview the company manufactures and markets zimmatic ® , greenfield ® and perrot center pivot , lateral move , and hose reel irrigation systems . the company also produces and markets irrigation controls , chemical injection systems and remote monitoring and control systems which it sells under its growsmart ® brand . these products are used by farmers to increase or stabilize crop production while conserving water , energy , and labor . through its acquisitions , the company has been able to enhance its capabilities in providing innovative , turn-key solutions to customers through the integration of its proprietary pump stations , controls and designs . the company sells its irrigation products primarily to a world-wide independent dealer network , who resell to their customer , the farmer . the company 's primary production facilities are located in the united states . the company has smaller production and sales operations in brazil , france , china , and south africa as well as distribution and sales operations in australia and new zealand . the company also manufactures and markets various infrastructure products , including moveable barriers for traffic lane management , crash cushions , preformed reflective pavement tapes and other road safety devices , through its production facilities in the united states and italy and has produced road safety products in irrigation manufacturing facilities in china and brazil . in addition , the company 's infrastructure segment produces large diameter steel tubing and railroad signals and structures , and provides outsourced manufacturing and production services for other companies . for the business overall , the global , long-term drivers of water conservation , population growth , increasing importance of biofuels , and the need for safer , more efficient transportation solutions remain positive . key factors which impact demand for the company 's irrigation products include agricultural commodity prices , net farm income , worldwide agricultural crop production , the profitability of agricultural crop production , availability of financing , governmental policies regarding the agricultural sector , water and energy conservation policies , the regularity of rainfall , regional climate change , and foreign currency exchange rates . a key factor which impacts demand for the company 's infrastructure products is the amount of spending authorized by governments to improve road and highway systems . much of the u.s. highway infrastructure market is driven by government spending programs . for example , the u.s. government funds highway and road improvements through the federal highway trust fund program . this program provides funding to improve the nation 's roadway system . matching funding from the various states may be required as a condition of federal funding . the company continues to have an ongoing , structured , acquisition process that it expects to generate additional growth opportunities throughout the world in water and infrastructure . lindsay is committed to achieving earnings growth by global market expansion , improvements in margins , and strategic acquisitions . on august 16 , 2013 , the company acquired 100 percent of the outstanding common shares of claude laval corporation , a california corporation that manufactures and distributes lakos ® separators and filtration solutions for groundwater , agriculture , industrial and heat transfer markets , worldwide . since 2001 , the company has added to its operations in europe , south america , south africa , australia , new zealand and china . the addition of those operations has allowed the company to strengthen its market position in those regions , yet they remain relatively small in scale . story_separator_special_tag estimates of the cost for the likely remedy are developed using internal resources or by third-party environmental engineers or other service providers . the company records the undiscounted environmental remediation liabilities that represent the points in the range of estimates that are most probable or the minimum amount when no amount within the range is a better estimate than any other amount . in fiscal 2013 , the company and the epa conducted a periodic five-year review of the status of the remediation of the contamination of the site . the company intends to complete additional investigation of the soil and groundwater on the site during the first half of fiscal 2014. the company will then assess whether it will need to revise its remediation plan in order to come to an agreement with the epa on how to proceed . the company anticipates there could be revisions to the current remediation plan as a result of these activities and as additional information is obtained . any revisions could be material to the operating results of any fiscal quarter or fiscal year . the company does not expect such additional expenses would have a material adverse effect on its liquidity or financial condition . the company accrues the anticipated cost of environmental remediation when the obligation is probable and can be reasonably estimated . although the company has accrued all reasonably estimable costs associated with remediation of the site , it is expected that additional testing and environmental monitoring and remediation could be required in the future as part of the company 's ongoing discussions with the epa regarding the development and implementation of the remedial action plans . in addition , the current investigation has not yet been completed and does not include all potentially affected areas on the site . due to the current stage of discussions with the epa and the uncertainty of the remediation actions that may be required with respect to these affected areas , the company believes that meaningful estimates of costs or range of costs can not currently be made and accordingly have not been accrued . 18 valuation of goodwill and identifiable intangible assets the company 's accounting policy on valuation of goodwill and identifiable intangible assets is critical because it requires significant judgments and estimates by management and can significantly impact the company 's consolidated results of operations and financial condition . assessment of the potential impairment of goodwill and identifiable intangible assets is an integral part of the company 's normal ongoing review of operations . testing for potential impairment of these assets is significantly dependent on numerous assumptions and reflects management 's best estimates at a particular point in time . the dynamic economic environments in which the company 's businesses operate and key economic and business assumptions related to projected selling prices , market growth , inflation rates and operating expense ratios , can significantly affect the outcome of impairment tests . estimates based on these assumptions may differ significantly from actual results . changes in factors and assumptions used in assessing potential impairments can have a significant impact on the existence and magnitude of impairments , as well as the time in which such impairments are recognized . goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination . acquired intangible assets are recognized separately from goodwill . goodwill and intangible assets with indefinite useful lives are tested for impairment at least annually at august 31 and whenever triggering events or changes in circumstances indicate its carrying value may not be recoverable . the company performs the impairment analysis at the reporting unit level using a two-step impairment test . fair value is typically estimated using a discounted cash flow analysis , which requires the company to estimate the future cash flows anticipated to be generated by the particular assets being tested for impairment as well as to select a discount rate to measure the present value of the anticipated cash flows . when determining future cash flow estimates , the company considers historical results adjusted to reflect current and anticipated operating conditions . estimating future cash flows requires significant judgment and assumptions by management in such areas as future economic conditions , industry-specific conditions , product pricing , and necessary capital expenditures . to the extent that the reporting unit is unable to achieve these assumptions , impairment losses may emerge . the company updated its impairment evaluation of goodwill and intangible assets with indefinite useful lives at august 31 , 2013. the estimated fair value of each of the company 's reporting units exceeded the respective carrying values by more than 10 percent . accordingly , no impairment losses were indicated as a result of the annual impairment testing for fiscal years 2013 , 2012 , and 2011. if assumptions on discount rates and future cash flows change as a result of events or circumstances , and the company believes that the long-term profitability may have declined in value , then the company may record impairment charges , resulting in lower profits . sales and profitability of each of the company 's reporting units may fluctuate from year to year and within a year . in the evaluation of the fair value of reporting units , the company looks at the long-term prospects for the reporting unit and recognizes that current performance may not be the best indicator of future prospects or value , which requires management judgment . indefinite life intangible assets primarily consist of tradenames/trademarks . the fair value of these assets are determined using a relief from royalty analysis that determines the fair value of each trademark through use of a discounted cash flow model that incorporates an estimated royalty rate the company would be able to charge a third party for the use of the particular trademark .
| results of operations the following fiscal 2013 compared to fiscal 2012 and the fiscal 2012 compared to fiscal 2011 sections present an analysis of the company 's consolidated operating results displayed in the consolidated statements of operations and should be read together with the information in note q , industry segment information , to the consolidated financial statements . fiscal 2013 compared to fiscal 2012 the following table provides highlights for fiscal 2013 compared with fiscal 2012 : replace_table_token_5_th ( 1 ) includes $ 17.5 million and $ 14.7 million of unallocated general and administrative expenses for fiscal 2013 and fiscal 2012 , respectively . ( 2 ) excludes unallocated corporate general and administrative expenses . 21 revenues operating revenues in fiscal 2013 increased by 25 percent to $ 690.8 million compared with $ 551.3 million in fiscal 2012. the increase is attributable to a $ 150.6 million increase in irrigation revenues offset in part by an $ 11.1 million decrease in infrastructure revenues . the irrigation segment provided 91 percent of company revenue in fiscal 2013 as compared to 86 percent of the same prior year period , due to growth in irrigation equipment revenues and the decline in infrastructure revenues . u.s. irrigation revenues of $ 385.7 million increased $ 80.3 million or 26 percent compared to fiscal 2012. the increase in u.s. irrigation equipment revenues is primarily due to a 28 percent increase in the number of irrigation systems sold compared to the prior fiscal year , with the largest increases in the u.s. corn belt . favorable economic conditions in u.s. agriculture markets continued to drive strong demand for irrigation equipment .
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the company assesses fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information . estimates of future cash flows are based on a number of factors including the historical operating results , known trends , and market/economic conditions that may affect the property . the company capitalizes certain costs related to the development and redevelopment of real estate including pre-construction costs , interest , real estate taxes , insurance , construction costs and salaries and related costs of personnel directly involved with the specific project . additionally , the company capitalizes interest costs related to development and redevelopment activities story_separator_special_tag overview as of december 31 , 2013 , we operated 112 properties , which we own or have an ownership interest in , within our core portfolio or within our funds . our core portfolio consists of those properties either 100 % owned , or partially owned through joint venture interests by the operating partnership , or subsidiaries thereof , not including those properties owned through our funds . these 112 properties primarily consist of street retail , dense suburban neighborhood and community shopping centers and mixed-use properties with a strong retail component . the properties we operate are located primarily in high-barrier-to-entry , densely-populated metropolitan areas in the united states along the east coast and in chicago . there are 77 properties in our core portfolio totaling approximately 5.3 million square feet . fund i has three remaining properties comprising approximately 0.1 million square feet . fund ii has five properties , three of which ( representing 0.3 million square feet ) are currently operating , one is under construction , and one is in the design phase . fund iii has 16 properties , 12 of which ( representing 1.7 million square feet ) are currently operating and four of which are in the design phase . fund iv has 11 properties , 10 of which ( representing 0.7 million square feet ) are operating with one under design . the majority of our operating income is derived from rental revenues from these 112 properties , including recoveries from tenants , offset by operating and overhead expenses . as our rcp venture invests in operating companies , we consider these investments to be private-equity style , as opposed to real estate , investments . since these are not traditional investments in operating rental real estate but investments in operating businesses , the operating partnership invests in these through a taxable reit subsidiary ( `` trs '' ) . our primary business objective is to acquire and manage commercial retail properties that will provide cash for distributions to shareholders while also creating the potential for capital appreciation to enhance investor returns . we focus on the following fundamentals to achieve this objective : 33 own and operate a core portfolio of high-quality retail properties located primarily in high-barrier-to-entry , densely-populated metropolitan areas and create value through accretive redevelopment and re-tenanting activities coupled with the acquisition of high-quality assets that have the long-term potential to outperform the asset class as part of our core asset recycling and acquisition initiative . generate additional external growth through an opportunistic yet disciplined acquisition program within our funds . we target transactions with high inherent opportunity for the creation of additional value through : ◦ value-add investments in high-quality urban and or street retail properties with re-tenanting or repositioning opportunities , ◦ opportunistic acquisitions of well-located real-estate anchored by distressed retailers or by motivated sellers and ◦ opportunistic purchases of debt which may include restructuring or the opportunity to convert the investment into an equity interest . these may also include joint ventures with private equity investors for the purpose of making investments in operating retailers with significant embedded value in their real estate assets . maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to sufficient capital to fund future growth . story_separator_special_tag notes to consolidated financial statements for a discussion of the impairment charge . gain on involuntary conversion of asset of $ 2.4 million related to insurance proceeds received in excess of net basis for flood damage at mark plaza during 2012. interest expense in the core portfolio increased $ 10.8 million primarily as a result of the consolidation of brandywine . interest expense in the funds increased $ 5.9 million primarily due to an increase of $ 9.4 million related to higher average outstanding borrowings offset by an increase in capitalized interest related to redevelopment activities during 2013. income from discontinued operations primarily represents activity related to a property held for sale in 2013 and properties sold during 2013 and 2012 . ( loss ) income attributable to noncontrolling interests - continuing operations and discontinued operations represents the noncontrolling interests ' share of all the funds variances discussed above . comparison of the year ended december 31 , 2012 ( `` 2012 '' ) to the year ended december 31 , 2011 ( `` 2011 '' ) replace_table_token_20_th rental income in the core portfolio increased $ 11.1 million primarily as a result of ( i ) $ 6.9 million related to 2012 core acquisitions , ( ii ) $ 2.5 million from the acquisitions of 651 west diversey , chicago retail portfolio , 4401 white plains road , and mercer street ( `` 2011 core acquisitions '' ) , and ( iii ) $ 1.3 million related to core re-tenanting . rental income in the funds increased $ 7.1 million primarily from ( i ) $ 3.0 million related to 2012 fund acquisitions , ( ii ) $ 2.2 million from the acquisitions of new hyde park , 654 broadway , and heritage shops ( `` 2011 fund acquisitions '' ) , and ( iii ) $ 1.1 million from leases that commenced during 2011 and 2012 at 161st street ( `` fund redevelopment property '' ) . story_separator_special_tag they are helpful as they exclude various items included in net income that are not indicative of the operating performance , such as gains ( losses ) from sales of depreciated property , depreciation and amortization , and impairment of depreciable real estate . in addition , noi excludes interest expense . our method of calculating ffo and noi may be different from methods used by other reits and , accordingly , may not be comparable to such other reits . ffo does not represent cash generated from operations as defined by generally accepted accounting principles ( `` gaap '' ) and is not indicative of cash available to fund all cash needs , including distributions . it should not be considered as an alternative to net income for the purpose of evaluating our performance or to cash flows as a measure of liquidity . consistent with the nareit definition , we define ffo as net income ( computed in accordance with gaap ) , excluding gains ( losses ) from sales of depreciated property and impairment of depreciable real estate , plus depreciation and amortization , and after adjustments for unconsolidated partnerships and joint ventures . liquidity and capital resources uses of liquidity our principal uses of liquidity are ( i ) distributions to our shareholders and op unit holders , ( ii ) investments which include the funding of our capital committed to the funds and property acquisitions and redevelopment/re-tenanting activities within our core portfolio , ( iii ) distributions to our fund investors and ( iv ) debt service and loan repayments . distributions in order to qualify as a reit for federal income tax purposes , we must currently distribute at least 90 % of our taxable income to our shareholders . for the year ended december 31 , 2013 , we paid dividends and distributions on our common shares and common op units totaling $ 45.4 million . distributions to noncontrolling interests during 2013 totaled $ 89.0 million . of this , $ 74.9 million related to distributions to investors within our funds , of which $ 37.7 million was primarily funded from proceeds of property sales within fund ii and $ 31.7 million was funded with proceeds primarily from refinancing activities within fund iii . investment s fund i and mervyns i fund i and mervyns i have returned all invested capital and accumulated preferred return thus triggering our promote in all future fund i and mervyns i earnings and distributions . as of december 31 , 2013 , $ 86.6 million has been invested in fund i and mervyns i , of which the operating partnership contributed $ 19.2 million . as of december 31 , 2013 , fund i currently owned , or had ownership interests in three remaining assets comprising approximately 0.1 million square feet . in addition , we , along with our fund i investors have invested in mervyns as discussed in note 4 to the consolidated financial statements of this form 10-k. fund ii and mervyns ii to date , fund ii 's primary investment focus has been in investments involving significant redevelopment activities and the rcp venture . as of december 31 , 2013 , $ 300.0 million has been invested in fund ii and mervyns ii , of which the operating partnership contributed $ 60.0 million . during september of 2004 , through fund ii , we launched our new york urban/infill redevelopment initiative . fund ii , together with an unaffiliated partner , formed acadia urban development llc ( `` acadia urban development '' ) for the purpose of acquiring , constructing , redeveloping , owning , operating , leasing and managing certain retail or mixed-use real estate properties in the new 41 york city metropolitan area . the unaffiliated partner agreed to invest 10 % of required capital up to a maximum of $ 2.2 million and fund ii , the managing member , agreed to invest the balance to acquire assets in which acadia urban development agreed to invest . of the eight properties acquired by acadia urban development , three have been sold . of the remaining five assets , three are currently at , or near , stabilization , one is currently under construction and one is in the pre-construction phase as previously discussed in `` '' -investing activities- redevelopment activities '' in item 1. of this form 10-k. redevelopment costs incurred during 2013 by acadia urban development in connection with the new york urban/infill redevelopment initiative totaled $ 98.6 million . anticipated additional costs for the property currently under construction are currently estimated to range between $ 30.5 and $ 60.5 million . rcp venture see note 4 in the notes to consolidated financial statements , for a table summarizing the rcp venture investments from inception through december 31 , 2013 . fund iii during 2007 , we formed fund iii with 14 institutional investors , including all of the investors from fund i and a majority of the investors from fund ii with $ 502.5 million of committed discretionary capital . during 2012 , the committed capital amount was reduced to $ 475.0 million . as of december 31 , 2013 , $ 357.5 million has been invested in fund iii , of which the operating partnership contributed $ 71.1 million . the remaining $ 117.5 million of unfunded capital will be used to fund current redevelopment projects . fund iii has invested in four redevelopment projects as previously discussed in `` —investing activities-redvelopment activities '' in item 1. of this form 10-k. remaining anticipated costs for the three projects currently owned by fund iii that can be estimated aggregate between $ 75.3 million and $ 95.8 million .
| results of operations see note 3 in the notes to consolidated financial statements for an overview of our three reportable segments . a discussion of the significant variances and primary factors contributing thereto within the results of operations for the years ended december 31 , 2013 , 2012 and 2011 are addressed below : comparison of the year ended december 31 , 2013 ( `` 2013 '' ) to the year ended december 31 , 2012 ( `` 2012 '' ) replace_table_token_17_th rental income in the core portfolio increased $ 34.2 million primarily as a result of additional rents of ( i ) $ 16.5 million following the consolidation of our brandywine investment formerly presented under the equity method ( `` consolidation of brandywine '' ) , ( ii ) $ 11.4 million related to the acquisitions of 1520 milwaukee avenue , 330-340 river street , our chicago street retail portfolio , 930 rush street , 28 jericho turnpike , rhode island shopping center , 83 spring street , 60 orange street , 181 main street , connecticut avenue , and 639 west diversey ( `` 2012 core acquisitions '' ) , ( iii ) $ 5.1 million related to 2013 core portfolio property acquisitions as detailed in note 2 in the notes to consolidated financial statements ( `` 2013 core acquisitions '' ) and ( iv ) $ 1.1 million as a result of re-anchoring and leasing activities at bloomfield town square and branch plaza ( `` core re-tenanting '' ) . rental income in the funds increased $ 4.5 million primarily as a result of additional rents of ( i ) $ 2.9 million related to 2013 fund property acquisitions as detailed in note 2 in the notes to consolidated financial statements ( `` 2013 fund acquisitions '' ) and ( ii ) $ 0.7 million related to the acquisitions of 640 broadway , lincoln park centre and 3104 m street ( `` 2012 fund acquisitions '' ) .
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occasionally , we will refer to the term “ parent company ” or “ holding company ” when we mean to refer to only german american bancorp , inc. , and the term “ bank ” when we mean to refer to only the company 's bank subsidiary . this management 's discussion and analysis includes an analysis of the major components of the company 's operations for the years 2018 through 2020 and its financial condition as of december 31 , 2019 and 2020. this information should be read in conjunction with the accompanying consolidated financial statements and footnotes contained elsewhere in this report and with the description of business included in item 1 of this report ( including the cautionary disclosure regarding “ forward looking statements and associated risks ” ) . financial and other information by segment is included in note 16 ( segment information ) of the notes to the consolidated financial statements included in item 8 of this report and is incorporated into this item 7 by reference . the statements of management 's expectations and goals concerning the company 's future operations and performance that are set forth in the following management overview and in other sections of this item 7 are forward-looking statements , and readers are cautioned that these forward-looking statements are based on assumptions and are subject to risks , uncertainties , and other factors . actual results may differ materially from the expectations of the company that is expressed or implied by any forward-looking statement . this item 7 , as well as the discussions in item 1 ( “ business ” ) entitled “ forward-looking statements and associated risks ” and in item 1a ( “ risk factors ” ) ( which discussions are incorporated in this item 7 by reference ) list some of the factors that could cause the company 's actual results to vary materially from those expressed or implied by any such forward-looking statements . any statements of management 's expectations and goals concerning the company 's future operations and performance , and future financial condition , liquidity and capital resources that are set forth in the following management overview and in other sections of this item 7 are forward-looking statements , and readers are cautioned that these forward-looking statements are based on assumptions and are subject to risks , uncertainties , and other factors . actual results may differ materially from the expectations of the company that is expressed or implied by any forward-looking statement . this item 7 , as well as the discussions in item 1 ( “ business ” ) entitled “ forward-looking statements and associated risks ” and in item 1a ( “ risk factors ” ) ( which discussions are incorporated in this item 7 by reference ) list some of the factors that could cause the company 's actual results to vary materially from those expressed or implied by any such forward-looking statements . significant business developments relating to covid-19 impact of covid-19 on january 30 , 2020 , the world health organization ( “ who ” ) announced that the outbreak of the novel coronavirus disease 2019 ( covid-19 ) constituted a public health emergency of international concern . on march 11 , 2020 , who declared covid-19 to be a global pandemic and , on march 13 , 2020 , the president of the united states declared the covid-19 outbreak a national emergency . the health concerns relating to the covid-19 outbreak and related governmental actions taken to reduce the spread of the virus have significantly impacted the global economy ( including the states and local economies in which we operate ) , disrupted supply chains , lowered equity market valuations , and created significant volatility and disruption in financial markets . the outbreak has resulted in authorities implementing numerous measures to try to contain the virus , such as travel bans and restrictions , quarantines , shelter in place or total lock-down orders and business limitations and shutdowns . such measures have significantly contributed to rising unemployment and negatively impacted consumer and business spending . while quarantine and lock-down orders have been lifted and vaccination efforts are underway , covid-19 has not yet been contained and commercial activity has not yet returned to the levels existing prior to the pandemic outbreak . as a result , the demand for the company 's products and services has been , and will continue to be , significantly impacted . 29 interest rates on march 3 , 2020 , the federal open market committee reduced the target federal funds rate by 50 basis points to 1.00 % to 1.25 % . this rate was further reduced to a target range of 0 % to 0.25 % on march 16 , 2020. these reductions in interest rates and other effects of the covid-19 outbreak are likely to negatively impact the company 's net interest income and noninterest income . the cares act and the paycheck protection program on march 27 , 2020 , the coronavirus aid , relief and economic security act ( the “ cares act ” ) was signed into law , providing an approximately $ 2 trillion stimulus package that includes direct payments to individual taxpayers , economic stimulus to significantly impacted industry sectors , emergency funding for hospitals and providers , small business loans , increased unemployment benefits , and a variety of tax incentives . for small businesses , eligible nonprofits and certain others , the cares act established a paycheck protection program ( “ ppp ” ) , which is administered by the small business administration ( “ sba ” ) . on april 24 , 2020 , the paycheck protection program and health care enhancement act was enacted . among other things , this legislation amended the initial cares act program by raising the appropriation level for ppp loans from $ 349 billion to $ 670 billion . story_separator_special_tag 2016-13 , “ financial instruments-credit losses ( topic 326 ) : measurement of credit losses on financial instruments , ” which replaces the incurred loss model with an expected loss model referred to as the current expected credit loss ( “ cecl ” ) model . on december 21 , 2018 , federal banking regulators issued a joint final rule to revise their regulatory capital rules to , among other things : ( i ) address implementation of the cecl accounting standard under gaap ; and ( ii ) provide an optional three-year phase-in period for the day-one adverse regulatory capital effects of adopting cecl . however , in an action related to the cares act , federal banking regulators issued , on march 27 , 2020 , an interim final rule that allows banking organizations to mitigate the estimated cumulative regulatory capital effects of cecl for up to two years . this two-year delay is in addition to the three-year phase-in period discussed above . the company has elected to adopt the optional phase-in rules , which will largely delay the effects of cecl on its regulatory capital through december 31 , 2021. beginning on january 1 , 2022 , we will be required to phase in 25 % of the previously deferred estimated capital impact of cecl , with an additional 25 % to be phased in at the beginning of each subsequent year until fully phased in by january 1 , 2025. under the interim final rule , the amount of adjustments to regulatory capital that can be deferred until the phase-in period includes both the initial impact of our adoption of cecl at january 1 , 2020 and 25 % of subsequent changes in our allowance for credit losses during each quarter of the two-year period ended december 31 , 2021. community bank leverage ratio . on april 6 , 2020 , federal banking regulators issued two interim final rules that make changes to the community bank leverage ratio ( “ cblr ” ) framework and implementing certain directives of the cares act . under the existing cblr framework , which became effective as of january 1 , 2020 , community banks and holding companies ( which 31 would include the bank and the company ) that satisfy certain qualifying criteria , including having less than $ 10 billion in average total consolidated assets and a leverage ratio ( referred to as the “ community bank leverage ratio ” ) of greater than 9 % , were eligible to opt-in to the cblr framework . the community bank leverage ratio is the ratio of a banking organization 's tier 1 capital to its average total consolidated assets , both as reported on the banking organization 's applicable regulatory filings . the first of the april 2020 interim final rules provided that , as of the second quarter 2020 , banking organizations with leverage ratios of 8 % or greater ( and that meet the other existing qualifying criteria ) may elect to use the cblr framework . it also established a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall below the 8 % cblr requirement , so long as the banking organization maintains a leverage ratio of 7 % or greater . the second interim final rule provided a transition from the temporary 8 % cblr requirement to a 9 % cblr requirement . it established a minimum cblr of 8 % for the second through fourth quarters of 2020 , 8.5 % for 2021 , and 9 % thereafter , and maintains the two-quarter grace period for qualifying community banking organizations whose leverage ratios fall no more than 100 basis points below the applicable cblr requirement . the federal banking regulators adopted the two interim rules as final , without any changes , on october 9 , 2020. notwithstanding these changes , the company intends to continue with the existing layered ratio structure . under either framework , the company and the bank would be considered well-capitalized under the applicable guidelines . ppp loans and pppl facility . on april 9 , 2020 , federal banking regulators issued an interim final rule to modify the basel iii regulatory capital rules applicable to banking organizations to allow those organizations participating in the ppp to neutralize the regulatory capital effects of participating in the program . specifically , the agencies clarified that banking organizations , including the company and the bank , are permitted to assign a zero percent risk weight to ppp loans for purposes of determining risk-weighted assets and risk-based capital ratios . additionally , in order to facilitate use of the pppl facility , the agencies further clarified that , for purposes of determining leverage ratios , a banking organization is permitted to exclude from total average assets ppp loans that have been pledged as collateral for a pppl facility . management overview net income for the year ended december 31 , 2020 totaled $ 62,210,000 , or $ 2.34 per share , an increase of $ 2,988,000 , or approximately 2 % on a per share basis , from the year ended december 31 , 2019 net income of $ 59,222,000 , or $ 2.29 per share . the company adopted asu no . 2016-13 , financial instruments - credit losses ( topic 326 ) ( `` cecl '' ) on january 1 , 2020. as a result , the company recognized a one-time cumulative adjustment to the allowance for credit losses of $ 15.7 million . the increase was primarily related to the company 's acquired loan portfolio which totaled approximately $ 851.1 million at the time of adoption . net income for the year ended december 31 , 2019 totaled $ 59,222,000 , or $ 2.29 per share , an increase of $ 12,693,000 , or approximately 15 % on a per share basis , from the year ended december 31 , 2018 net income of $ 46,529,000 , or $ 1.99 per share . net income for both 2018 and 2019 was impacted by merger and acquisition activity .
| results of operations net income net income for the year ended december 31 , 2020 totaled $ 62,210,000 , or $ 2.34 per share , an increase of $ 2,988,000 , or approximately 2 % on a per share basis , from the year ended december 31 , 2019 net income of $ 59,222,000 , or $ 2.29 per share . net income for the year ended december 31 , 2019 totaled $ 59,222,000 , or $ 2.29 per share , an increase of $ 12,693,000 , or approximately 15 % on a per share basis , from the year ended december 31 , 2018 net income of $ 46,529,000 , or $ 1.99 per share . net interest income net interest income is the company 's single largest source of earnings , and represents the difference between interest and fees realized on earning assets , less interest paid on deposits and borrowed funds . several factors contribute to the determination of net interest income and net interest margin , including the volume and mix of earning assets , interest rates , and income taxes . many factors affecting net interest income are subject to control by management policies and actions . factors beyond the control of management include the general level of credit and deposit demand , federal reserve board monetary policy , and changes in tax laws . during the year ended december 31 , 2020 , net interest income totaled $ 155,243,000 , representing an increase of $ 10,018,000 , or 7 % , from the year ended december 31 , 2019 net interest income of $ 145,225,000. the increased level of net interest income during 2020 compared with 2019 was largely attributable to a higher level of average earning assets resulting from acquisition of citizens first on july 1 , 2019 , significant deposit growth during 2020 and participation in the ppp .
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we expect 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 in part ii , item 8 of this form 10-k. this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties . our results of operations may vary significantly from period-to-period . our revenues typically fluctuate due to the seasonality of our industry , customer buying patterns , product innovation , the nature and level of competition for health and fitness products , our ability to procure products to meet customer demand , the level of spending on , and effectiveness of , our media and advertising programs and our ability to attract new customers and maintain existing sales relationships . in addition , our revenues are highly susceptible to economic factors , including , among other things , the overall condition of the economy and the availability of consumer credit in both the u.s. and canada . our profit margins may vary in response to the aforementioned factors and our ability to manage product costs . profit margins may also be affected by fluctuations in the costs or availability of materials used to manufacture our products , product warranty costs , the cost of fuel , and changes in costs of other distribution or manufacturing-related services . our operating profits or losses may also be affected by the efficiency and effectiveness of our organization . historically , our operating expenses have been influenced by media costs to produce and distribute advertisements of our products on television , the internet and other media , facility costs , operating costs of our information and communications systems , product supply chain management , customer support and new product development activities . in addition , our operating expenses have been affected from time-to-time by asset impairment charges , restructuring charges and other significant unusual or infrequent expenses . as a result of the above and other factors , our period-to-period operating results may not be indicative of future performance . you should not place undue reliance on our operating results and should consider our prospects in light of the risks , expenses and difficulties typically encountered by us and other companies , both within and outside our industry . we may not be able to successfully address these risks and difficulties and , consequently , we can not assure you any future growth or profitability . for more information , see our discussion of risk factors located at part i , item 1a of this form 10-k. overview we are committed to providing innovative , quality solutions to help people achieve a fit and healthy lifestyle . our principal business activities include designing , developing , sourcing and marketing high-quality cardio and strength fitness products and related accessories for consumer use , primarily in the u.s. , canada , europe and asia . our products are sold under some of the most-recognized brand names in the fitness industry : nautilus ® , bowflex ® , octane fitness ® , schwinn ® and universal ® . we market our products through two distinct distribution channels , direct and retail , which we consider to be separate business segments . our direct business offers products directly to consumers through television advertising , the internet and catalogs . our retail business offers our products through a network of independent retail companies and specialty retailers with stores and websites located in the u.s. and internationally . we also derive a portion of our revenue from the licensing of our brands and intellectual property . net sales in 2017 were $ 406.2 million , an increase of $ 0.1 million , compared to net sales of $ 406.0 million in 2016 . net sales of our direct segment decreased $ 5.6 million , or 2.5 % , compared to 2016 , primarily due to decreased consumer demand for our 16 treadclimber ® cardio products , partially offset by the introduction of the bowflex hvt ® . net sales of our retail segment increased by $ 6.0 million , or 3.3 % in 2017 , compared to 2016 , reflecting sales increases across a variety of product offerings in the mass retail channel , partially offset by continued weakness in sales to specialty and commercial customers . income from continuing operations was $ 27.6 million , or $ 0.89 per diluted share , in 2017 , compared to $ 35.1 million , or $ 1.12 per diluted share , in 2016 . income from continuing operations in 2017 included a non-cash intangible asset impairment charge of $ 8.8 million , and a one-time tax benefit of $ 5.6 million related to the change in united states tax law that resulted in the reassessment of certain deferred tax assets and liabilities . net income was $ 26.3 million , or $ 0.85 per diluted share , in 2017 , compared to $ 34.2 million , or $ 1.09 per diluted share , in 2016 . business acquisition on december 31 , 2015 , we acquired all of the outstanding capital stock of of holdings , inc. , sole parent of octane , for an aggregate base purchase price of $ 115.0 million , plus adjustments for working capital and cash on the closing date . we funded the acquisition through an $ 80.0 million term loan and cash on hand . based in brooklyn park , minnesota , octane is a leader in zero-impact training with a line of fitness equipment focused on retail specialty and commercial channels . the acquisition of octane strengthened and diversified our brand portfolio , broadened our distribution and deepened our talent pool . octane 's business is highly complementary to our existing business from both product and channel perspectives . discontinued operations results from discontinued operations relate to the disposal of our former commercial business , which was completed in april 2011. we reached substantial completion of asset liquidation at december 31 , 2012 . story_separator_special_tag net sales and cost of sales direct the 2.5 % decrease in year-over-year direct net sales for 2017 compared to 2016 was primarily due to decreased consumer demand for our treadclimber ® cardio products , partially offset by a 40.5 % increase in strength products . the 0.2 % decrease in year-over-year direct net sales for 2016 compared to 2015 was primarily due to decreased consumer demand for our treadclimber ® cardio products , partially offset by growth in the max trainer ® cardio product line and a 3.1 % increase in strength products . the business also benefited from higher u.s. consumer credit approval rates in both years . combined consumer credit approvals by our primary and secondary u.s. third-party financing providers were 54.4 % in 2017 compared to 50.6 % in 2016 and 48.1 % in 2015 . the increase in direct cost of sales in 2017 compared to 2016 was due to increased product costs related to unfavorable currency trends and unfavorable product mix , partially offset by the decrease in net sales . the decrease in direct cost of sales in 2016 compared to 2015 was related to improvements in product mix and supply chain efficiencies . in addition , unusual items that occurred in 2015 , including an arbitration settlement of $ 2.5 million and write-off of nutrition inventory of $ 1.4 million , contributed to the decrease in the year-over-year cost of sales for 2016 compared to 2015. the 240 basis point decrease in the gross margin of our direct business for 2017 compared to 2016 was due to higher discounting of select products , increased product costs related to unfavorable currency trends , and unfavorable product mix . the 340 basis point increase in the gross margin of our direct business for 2016 compared to 2015 was primarily driven by the arbitration settlement and reserves for nutrition product inventory discussed above , as well as improvements in product mix and improved supply chain efficiencies . retail the 3.3 % increase in retail net sales in 2017 compared to 2016 was driven primarily by sales increases across a variety of product offerings in both the traditional retail and e-commerce channels , partially offset by weakness in sales to specialty and commercial customers . the 67.5 % increase in retail net sales in 2016 compared to 2015 was driven primarily by increased sales of our cardio products due to the acquisition of octane fitness , coupled with growth in organic product sales . the increases in retail cost of sales in 2017 compared to 2016 , and in 2016 compared to 2015 , were due to the increases in retail net sales mentioned above . 22 the 30 basis point decrease in retail gross margin in 2017 compared to 2016 was due to higher promotional discounting , increases in product costs , and unfavorable mix , partially offset by higher acquired cost of goods sold in 2016 . the 780 basis point increase in retail gross margin in 2016 compared to 2015 was primarily due to the acquisition of octane fitness , which had a higher gross margin , coupled with improvements in product mix and supply chain efficiencies . selling and marketing replace_table_token_8_th replace_table_token_9_th the increase in selling and marketing in 2017 compared to 2016 was primarily due to a $ 5.5 million increase in media advertising , coupled with a $ 1.0 million increase in creative production costs related to hvt , partially offset by reductions in variable sales expenses of $ 5.8 million , mainly reduced financing fees . the increase in selling and marketing in 2016 compared to 2015 was primarily due to incremental sales and marketing expenses of $ 10.3 million related to the acquisition of octane fitness , coupled with a $ 4.9 million increase in media advertising , partially offset by decreased program costs of $ 0.8 million . the slight increase in sales and marketing as a percentage of net sales in 2017 compared to 2016 was primarily due to less efficient performance of media , resulting in increased media spend to achieve 2017 direct sales levels . the decrease in sales and marketing as a percentage of net sales in 2016 compared to 2015 was primarily due to the acquisition of octane and growth in the organic retail business , both of which have a lower selling and marketing expense percentage than the company-wide average . media advertising expense of our direct business is the largest component of selling and marketing and was as follows : dollars in thousands year ended december 31 , change 2017 2016 $ % media advertising $ 65,130 $ 59,638 $ 5,492 9.2 % dollars in thousands year ended december 31 , change 2016 2015 $ % media advertising $ 59,638 $ 54,756 $ 4,882 8.9 % the return metrics we achieved on media performance declined in 2017 and 2016 , requiring an increase in investment relative to the sales generated . we continue to closely monitor our media investments in order to optimize the investment and sales . general and administrative replace_table_token_10_th 23 replace_table_token_11_th the decrease in general and administrative in 2017 compared to 2016 was primarily due to $ 1.5 million of savings related to lower integration and administrative costs related to octane , and a $ 1.3 million reduction in incentive and stock compensation expense , offset by increased litigation costs of $ 1.3 million . the increase in general and administrative in 2016 compared to 2015 was attributable to the inclusion of the octane business in the amount of $ 3.8 million and amortization of octane acquired assets of $ 3.1 million . the decrease in general and administrative as a percentage of net sales in 2017 compared to 2016 was primarily due to achieving cost synergies related to the octane fitness acquisition . the increase in general and administrative as a percentage of net sales in 2016 compared to 2015 was primarily due to the amortization of octane acquired assets .
| results of operations the discussion that follows should be read in conjunction with our consolidated financial statements and the related notes in this report . all comparisons to prior year results are in reference to continuing operations only in each period , unless otherwise indicated . results of operations information was as follows ( in thousands ) : replace_table_token_3_th 19 replace_table_token_4_th results of operations information by segment was as follows ( in thousands ) : replace_table_token_5_th 20 replace_table_token_6_th the following tables compare the net sales of our major product lines within each business segment ( in thousands ) : replace_table_token_7_th 21 year ended december 31 , 2016 2015 change % change direct net sales : cardio products ( 1 ) $ 209,569 $ 210,578 $ ( 1,009 ) ( 0.5 ) % strength products ( 2 ) 15,488 15,017 471 3.1 % 225,057 225,595 ( 538 ) ( 0.2 ) % retail net sales : cardio products ( 1 ) 135,562 63,762 71,800 112.6 % strength products ( 2 ) 42,358 42,433 ( 75 ) ( 0.2 ) % 177,920 106,195 71,725 67.5 % < td
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factors that could cause or contribute to such differences are discussed elsewhere in this annual report , particularly in “ risk factors ” and “ cautionary statement regarding forward-looking statements , ” all of which are difficult to predict . in light of these risks , uncertainties and assumptions , the forward-looking events discussed may not occur . we do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law . our predecessor and ramaco resources , inc. we were formed in october 2016 and do not have historical financial operating results . for purposes of this annual report , our accounting predecessor is ramaco development , llc ( “ ramaco development ” ) . ramaco development was formed in july 2015 to develop high-quality , low-cost metallurgical coal . in connection with our initial public offering , the existing owners of ramaco development exchanged all of their interests in ramaco development for all of our issued and outstanding shares of common stock . we are an operator and developer of high-quality , low-cost metallurgical coal in southern west virginia , southwestern virginia , and southwestern pennsylvania . we have a near-term development portfolio of four long-lived projects : elk creek , berwind , ram mine and knox creek . basis of presentation we consider and report all of our operations as one segment . overall trends and outlook overview we expect our business to be affected by key trends in the metallurgical coal industry . our expectations are based on assumptions made by us and information currently available to us . to the extent our underlying assumptions about or interpretations of available information prove to be incorrect , our actual results may vary materially from our expected results . the overall outlook of the metallurgical coal business is dependent on a variety of factors such as pricing , regulatory uncertainties and global economic conditions . coal consumption and production in the u.s. have been driven in recent periods by several market dynamics and trends , such as the global economy , a strong u.s. dollar and accelerating production cuts . in addition to those outlined below , please read “ risk factors ” elsewhere in this annual report for additional detail on the risks affecting the coal industry . reserve estimates coal is economically recoverable when the price at which coal can be sold exceeds the costs and expenses of mining and selling the coal . we base our reserve information on geologic data , coal ownership information and current and proposed mine plans . reserve estimates are periodically updated to reflect past coal production , if any , new drilling information , other geologic or mining data , and changes to coal price expectations or the cost of production and sale . there are numerous uncertainties inherent in estimating quantities and qualities of coal and costs to mine recoverable reserves , including many factors beyond our control . as a result , estimates of economically recoverable coal reserves are by their nature uncertain and depend on a variety of factors . actual production , revenues and expenditures with respect to our future coal reserves will vary from estimates , and these variances may be material . as a result , our estimates may not accurately reflect our actual future coal reserves . 64 production we have not yet completed the development of our mining properties . we achieved initial commercial production of metallurgical coal in january 2017. we expect to incur significant capital expenditures until we have completed the development of our properties . in addition , the development of our properties involves numerous regulatory , environmental , political and legal uncertainties that are beyond our control and that may cause delays in , or increase the costs associated with , their completion . in connection with the development of our properties , we may encounter unexpected difficulties , such as shortages of materials , unexpected operational events , cost overruns and facility or equipment malfunctions . pricing sales commitments in the metallurgical coal market are typically not long-term in nature and are generally no longer than one year in duration . most metallurgical coal transactions in the u.s. are done on a calendar year basis , where both prices and volumes are fixed in the third and fourth quarter for the following calendar year . globally the market is evolving to shorter term pricing . metallurgical coal has been an extremely volatile commodity over the past 10 years , as steel production growth in asia underpinned demand growth , while the market experienced two supply shocks from flooding events in australia 's queensland and a third in 2016 caused by a reduction in chinese domestic production . u.s. metallurgical coal exports are expected to fall from 46.3 million tons in 2015 to approximately 36.0 million tons in 2016. however , premium global quarterly coal benchmark prices have rebounded significantly since early 2016 , rising from $ 81 per mt in the first quarter of 2016 to $ 285 per mt in the first quarter of 2017 , as government policies curtailing the number of working days at chinese coal mines and the continuing closure of small , unsanctioned , coal mines in china curbed domestic supply . metallurgical coal spot prices have declined from $ 308 per mt on november 11 , 2016 to $ 158 per mt as of march 20 , 2017. we believe this decline has been driven by ( i ) the reversal and relaxation by china of policies that were aimed to reduce metallurgical coal production , ( ii ) new production has been recently brought online and idled metallurgical coal mines have been recently restarted in mozambique , australia , the united states and canada and ( iii ) due to the strengthening of the u.s. dollar , non-domestic producers became more competitive and caused a metallurgical coal price based in u.s. dollars to fall as the u.s. dollar became relatively more expensive . story_separator_special_tag our professional fees increased to $ 406 thousand for the year ended december 31 , 2015 from $ 269 thousand for the year ended december 31 , 2014. this increase was due to higher accounting and legal fees incurred as the company 's activities increased . general and administrative expenses . our general and administrative expenses increased to $ 918 thousand for the year ended december 31 , 2015 from $ 489 thousand for the year ended december 31 , 2014. this increase was caused by higher general support expenses as the company 's development continued . income tax expense as a pass-through entity , our predecessor , ramaco development , was not subject to u.s. federal income tax . beginning with 2017 , we will compute federal and state income taxes as a corporation . liquidity and capital resources capital resources our primary sources of cash while we have been in the exploration and development stage of our business was our parent company ramaco carbon , llc , and , after our corporate reorganization in 2016 , yorktown and ecp , through a combination of equity infusions and loans . as of december 31 , 2016 , our available liquidity was $ 65.6 million , comprised of cash and investments ( $ 60.4 million of which is cash and short-term investments ) . we expect to fund our capital and liquidity requirements with cash and investments on hand and projected cash flow from operations . on february 8 , 2017 , we closed our ipo which provided an additional approximately $ 33 million of liquidity after expenses and full repayment of the note payable to ramaco carbon , llc . factors that could adversely impact our future liquidity and ability to carry out our capital expenditure program include the following : ● cost overruns in our purchases of equipment needed to complete our mine development plans ; ● delays in completion of development of our various mines which would reduce the coal we would have available to sell and our cash flow from operations ; and ● adverse changes in the metallurgical coal markets that would reduce the expected cash flow from operations . if future cash flows are insufficient to meet our liquidity needs , we may reduce our expected level of capital expenditures and or fund a portion of our capital expenditures through the issuance of debt or equity securities , the entry into debt arrangements or from other sources , such as asset sales . 68 our board of directors has adopted a policy of considering paying regular and special cash dividends , in amounts to be determined . although our dividend policy will depend upon our future liquidity needs , we currently intend to pay dividends in amounts that will continue to allow us to fund acquisitions that we expect to be accretive to earnings and cash flows , as determined by management and our board of directors . cash and investments we follow a diversified investment approach for our cash and investments by maintaining such funds in accounts or certificates of deposit issued by federally insured financial institutions and debt securities of u.s. government agencies . we had $ 60.4 million of investments at december 31 , 2016. the maturities of these investments were : three months or less ( millions ) $ 10.5 more than three but less than six months ( millions ) $ 14.9 more than six months but less than one year ( millions ) $ 29.8 more than one year ( millions ) $ 5.2 statement of cash flows our cash flows for the years ended december 31 , 2016 , 2015 and 2014 were as follows : replace_table_token_7_th cash flows from operating activities . net cash used in operating activities in the year ended december 31 , 2016 reflects increasing costs associated with the company 's preparing for expanded operations partially offset by the generation of $ 0.8 million of gross margin from the company 's coal sales and processing services . the cash used in operating activities in the years ended december 31 , 2015 and 2014 , respectively , was primarily the result of net losses incurred in preparing the company for operations . cash flows from investing activities . net cash used in investing activities was $ 77.5 million and $ 3.5 million for the years ended december 31 , 2016 and 2015 , respectively . the increase in net cash used in investing activities during the year ended december 31 , 2016 compared to the year ended december 31 , 2015 was primarily attributable to the purchase of $ 64.8 million of investment securities with proceeds received from the issuance of the company 's series a preferred units . cash flows from financing activities . net cash from financing activities was $ 85.5 million and $ 6.4 million for the years ended december 31 , 2016 and 2015 , respectively . the increase in net cash from financing activities during the year ended december 31 , 2016 compared to the year ended december 31 , 2015 was primarily attributable to the net proceeds received from the issuance of the company 's series a preferred units of $ 83.7 million . capital requirements our primary use of cash currently includes capital expenditures for mine development , construction of our preparation plant and load out facility and for ongoing operating expenses . we expect that we will be required to expend approximately $ 133.0 million through 2022 to fully develop our current projects , of which approximately $ 106.5 million is expected to be spent through december 31 , 2018. management believes that current cash and investments on hand , along with cash flow from operations will be sufficient to meet its capital expenditure and operating plans through 2020. we expect to fund any new reserve acquisitions from cash on hand , cash from operations and future issuances of debt or equity securities .
| results of operations replace_table_token_6_th 66 our revenue producing activities consisting of the sale of coal produced by third parties and of coal washing services for third parties commenced in the third quarter of 2016 after completion of the knox creek acquisition . our coal mining operations commenced in late december 2016 and as a result we had no revenue from our mining operations in prior periods . before the knox creek acquisition , our activities were limited to acquiring geologically advantaged coal reserve properties and to advancing those properties toward coal production through exploration , the delineation of reserves ; assessment and mine planning ; permitting ; and the development of access for mining . direct costs associated with preparation of future mine sites for mining are capitalized . operating expenditures including certain professional fees and overhead costs are not capitalized but are expensed as incurred . year ended december 31 , 2016 compared to year ended december 31 , 2015 revenues . for the year ended december 31 , 2016 , the company generated $ 2.2 million from the sale of coal that it purchased from third parties and processed at its knox creek preparation plant and $ 3.0 million from processing third party coal at the knox creek preparation plant and loading facility . coal processing services were performed on a per raw ton processed fee basis , partially under a processing contract and partially on an open market basis . we had zero revenues for the year ended december 31 , 2015 when the company 's activities were devoted to development of its mineral properties . cost of coal sold and cost of coal processing . in the year ended december 31 , 2016 , our cost of coal sold was $ 1.8 million and our cost of coal processing services was $ 2.6 million .
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accordingly , upon adoption of the asu , the discount recorded story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes thereto included elsewhere in this annual report . this discussion and analysis contains forward-looking statements that are based upon current expectations and involve risks , assumptions and uncertainties . you should review the “ risk factors ” section of this annual report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis . overview we are a medical device company that develops and commercializes innovative platforms for performing minimally invasive surgical procedures in the brain under direct , intra-procedural mri guidance . our principal product platform is our clearpoint system , which is in commercial use and is used to perform minimally invasive surgical procedures in the brain . the clearpoint system utilizes intra-procedural mri to guide the procedures and are designed to work in a hospital 's existing mri suite . we believe that this product platform delivers better patient outcomes , enhances revenue potential for both physicians and hospitals , and reduces costs to the healthcare system . in 2010 , we received regulatory clearance from the fda to market our clearpoint system in the u.s. for general neurosurgery procedures . in 2011 , we also obtained ce marking approval for our clearpoint system , which enables us to sell our clearpoint system in the eu . substantially all our product revenues for the years ended december 31 , 2020 and 2019 relate to sales of our clearpoint system products and related services . we have financed our operations and internal growth primarily through the sale of equity securities , the issuance of convertible and other secured notes , and license arrangements . we have incurred significant losses since our inception in 1998 as we have devoted substantial efforts to research and development . as of december 31 , 2020 , we had accumulated losses of approximately $ 120 million . we may continue to incur operating losses as we expand our clearpoint system platform and our business generally . factors which may influence future results of operations the following is a description of factors which may influence our future results of operations , and which we believe are important to an understanding of our business and results of operations . covid-19 on march 11 , 2020 , the world health organization characterized the spread of a novel strain of coronavirus ( “ covid-19 ” ) as a global pandemic , and on march 13 , 2020 , the president of the united states proclaimed that the covid-19 outbreak in the united states constituted a national emergency . continued widespread infection in the united states is an ongoing possibility . although vaccinations to combat the covid-19 virus have commenced , we are unable to determine the timing and extent to which the vaccination process will affect the progression of the virus . extraordinary actions have been taken by federal , state and local governmental authorities to combat the spread of covid-19 , including issuance of “ stay-at-home ” directives and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations . these measures , while intended to protect human life , have led to reduced economic activity , including the postponement or cancellation of elective surgical procedures , which historically have represented approximately 80 % of the number of surgical procedures using our clearpoint system . furthermore , the recessionary conditions on the global economy caused by the covid-19 pandemic could have a material adverse effect on our business , as hospitals postpone or reduce capital purchases and overall spending . although most segments of the united states economy have reopened , the effects of the covid-19 pandemic remain intense in many areas of the country , and many public health experts continue to anticipate future surges of covid-19 in the coming months of 2021. accordingly , reinstatement of directives and mandates requiring businesses to again curtail or cease normal operations , including the postponement or cancellation of elective surgeries , remains a possibility . the continuing uncertainty as to whether the federal government will address the resulting fiscal condition in both the near and long-term with measures such as additional fiscal stimulus , as well as other geopolitical issues relating to the global economic slowdown , has increased domestic and global instability . the rapid development and fluidity of the situation precludes any prediction as to the ultimate impact covid-19 will have on our business , financial condition , results of operation and cash flows , which will depend largely on future developments directly or indirectly relating to the duration and scope of the covid-19 outbreak in the united states . 41 key performance indicators the key performance indicators we utilize on a tactical basis are integrated into our longer-term strategic plan within the following categories : ● functional neurosurgery navigation o case volume – underlying the revenue from sales of our functional neurosurgical navigation products reflected in the accompanying consolidated financial statements appearing elsewhere in this annual report are the procedures , or cases , performed in hospitals utilizing one or more of our products or our clinical services . case volume data is not influenced by variations in pricing or quantities of product used on a per case basis , and thus provide a more reliable indicator of the growth of our functional neurosurgery navigation line of business . management analyzes case volume by hospital and by type of procedure to gain information that informs targeted sales and marketing activities . during the year ended december 31 , 2020 , the clearpoint system was used in 682 cases , respectively , as compared to 801 cases during 2019 , representing a decrease of 15 % . story_separator_special_tag cost of revenues cost of revenues includes the direct costs associated with the assembly and purchase of components for functional neurosurgical products , drug delivery and biologic products , non-neurosurgical therapy products , and clearpoint capital equipment which we have sold , and for which we have recognized the revenue in accordance with our revenue recognition policy . cost of revenues also includes the allocation of manufacturing overhead costs and depreciation of loaned systems installed under our clearpoint placement program , as well as provisions for obsolete , impaired , or excess inventory . with the anticipated increases in the contribution to total revenues of sales of recurring products and services , as discussed above , we expect gross margin , as a percentage of total revenue , to increase over time . research and development costs our research and development costs consist primarily of costs associated with the conceptualization , design , testing , and prototyping of our clearpoint system products . such costs include salaries , travel , and benefits for research and development personnel , including related share-based compensation ; materials and laboratory supplies in research and development activities ; consultant costs ; and licensing costs related to technology not yet commercialized . we anticipate that , over time , our research and development costs may increase as we : ( i ) continue to develop enhancements to our clearpoint system ; and ( ii ) seek to expand the application of our technological platforms . from our inception through december 31 , 2020 , we have incurred approximately $ 61 million in research and development expenses . product development timelines , likelihood of success , and total costs can vary widely by product candidate . there are also risks inherent in the regulatory clearance and approval process . at this time , we are unable to estimate with any certainty the costs that we will incur in our efforts to expand the application of our technological platforms . sales and marketing , and general and administrative expenses our sales and marketing , and general and administrative expenses consist primarily of salaries , incentive-based compensation , travel and benefits , including related share-based compensation ; marketing costs ; professional fees , including fees for attorneys and outside accountants ; occupancy costs ; insurance ; and other general and administrative expenses , which include , but are not limited to , corporate licenses , director fees , hiring costs , taxes , postage , office supplies and meeting costs . our sales and marketing expenses are expected to increase due to costs associated with the commercialization of our clearpoint system and the increased headcount necessary to support growth in operations . 43 critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states , or gaap . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements as well as the reported expenses during the reporting periods . the accounting estimates that require our most significant , difficult and subjective judgments are discussed below . we evaluate our estimates and judgments on an ongoing basis . actual results may differ materially from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 2 to our consolidated financial statements included elsewhere in this annual report , we believe that the following accounting policies and estimates are most critical to a full understanding and evaluation of our reported financial results . revenue recognition . our revenues are comprised primarily of : ( 1 ) product revenues resulting from the sale of functional neurosurgery , navigation , therapy , and biologics and drug delivery disposable products ; ( 2 ) product revenues resulting from the sale of clearpoint capital equipment and software ; ( 3 ) revenues resulting from the service , installation , training and shipping related to clearpoint capital equipment and software ; and ( 4 ) clinical case support revenues in connection with customer-sponsored clinical trials . we recognize revenue when control of our products and services is transferred to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products and services . this process involves identifying the contract with a customer , determining the performance obligations in the contract , determining the contract price , allocating the contract price to the distinct performance obligations in the contract , and recognizing revenue when the performance obligations have been satisfied . a performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract . when a contract calls for the satisfaction of multiple performance obligations for a single contract price , we allocate the contract price among the performance obligations based on the relative stand-alone prices for each such performance obligation we customarily charge . we consider a performance obligation satisfied once we have transferred control of a good or service to the customer , meaning the customer has the ability to use and obtain the benefit of the good or service . we recognize revenue for satisfied performance obligations only when we determine there are no uncertainties regarding payment terms or transfer of control .
| results of operations comparison of the year ended december 31 , 2020 to the year ended december 31 , 2019 replace_table_token_1_th nm – the percentage change is not meaningful . revenue . total revenues were approximately $ 12.8 million and $ 11.2 million for the years ended december 31 , 2020 and 2019 , respectively . functional neurosurgery navigation and therapy product and service revenues , which consists of disposable product commercial sales related to cases utilizing the clearpoint system and related services , decreased 12 % to $ 6.3 million during the year ended december 31 , 2020 from $ 7.1 million for the same period in 2019. this decrease was due primarily to the effects of the covid-19 pandemic , in which elective surgical procedures , historically representing approximately 80 % of our clearpoint system case volume , were postponed or cancelled for a substantial portion of 2020. although vaccinations to combat the covid-19 virus have commenced , we are unable to determine the timing and extent to which the vaccination process will affect virus progression ; the timing , adoption or viability of periodic resumption , if any , of elective procedures ; and the resulting length of time that the covid-19 pandemic will adversely affect our product revenues . there were no increases in functional neurosurgery navigation product prices during the period between the year ended december 31 , 2020 and the same period in 2019 that would be reasonably expected to affect a typical customer order .
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the discussion and analysis should be read together with our consolidated financial statements and related notes in “ part ii , item 8. financial statements and supplementary data ” of this form 10-k. results for the fiscal year ended may 31 , 2020 are not necessarily indicative of results that may be attained in the future . the following generally discusses fiscal 2020 and 2019 items and fiscal year comparisons between fiscal 2020 and 2019. discussions of fiscal 2018 items and fiscal year comparisons between fiscal 2019 and 2018 that are not included in this form 10-k can be found in “ part ii , item 7. management 's discussion and analysis of financial condition and results of operations ” of our annual report on form 10-k for the fiscal year ended may 26 , 2019 , which we filed with the securities and exchange commission on july 25 , 2019 . the fiscal years for the consolidated financial statements presented consist of a 53-week period for fiscal 2020 and a 52-week period for fiscal 2019 . overview lamb weston , along with its joint venture partners , is a leading global producer , distributor , and marketer of value-added frozen potato products . we , along with our joint venture partners , are the number one supplier of value-added frozen potato products in north america . we , along with our joint venture partners , are also a leading supplier of value-added frozen potato products internationally , with a strong and growing presence in high-growth emerging markets . we , along with our joint venture partners , offer a broad product portfolio to a diverse channel and customer base in over 100 countries . french fries represent the majority of our value-added frozen potato product portfolio . on november 9 , 2016 , we separated from conagra and became an independent publicly traded company through the pro rata distribution by conagra of 100 % of our outstanding common stock to conagra stockholders . in connection with the separation , conagra transferred substantially all of the assets and liabilities and operations of the lamb weston business to us . management 's discussion and analysis of our results of operations and financial condition , which we refer to in this filing as “ md & a , ” is provided as a supplement to the consolidated financial statements and related notes included elsewhere in this form 10-k to help provide an understanding of our financial condition , changes in financial condition and results of our operations . our md & a is based on financial data derived from the financial statements prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) and certain other financial data ( adjusted ebitda , adjusted ebitda including unconsolidated joint ventures and adjusted diluted eps ) that is prepared using non-gaap financial measures . see “ reconciliations of non-gaap financial measures to reported amounts ” below for the definitions of adjusted ebitda , adjusted ebitda including unconsolidated joint ventures and adjusted diluted eps , and a reconciliation of these non-gaap financial measures to net income or diluted earnings per share . executive summary on march 11 , 2020 ( during our fiscal fourth quarter ) , the world health organization declared that the spread of covid-19 qualified as a global pandemic . local , state , and national governments emphasized the importance of food supply and asked that food manufacturers and retailers remain open to meet the needs of their communities . throughout 25 this pandemic , our primary focus and attention has remained directed towards the health and well-being of our employees , and we have taken numerous steps to keep our employees safe , including implementing enhanced sanitation protocols and preventative screenings at all our manufacturing facilities , providing masks and requiring social distancing for employees across all our facilities , providing benefits that help support our employees and their families , and implementing remote work arrangements for functional support areas to comply with shelter-in-place orders and federal and local government recommendations . if an employee at one of our manufacturing facilities tests positive for covid-19 , we have developed plans to temporarily close the facility at which the employee works in order to sanitize and disinfect the facility before allowing employees to return to the facility and restart operations . lamb weston delivered solid sales and earnings growth through the first three quarters of fiscal 2020. however , efforts by governments worldwide to control the spread of covid-19 have resulted in significant social and economic restrictions , which included quarantines , travel bans , shutdowns , closures of many sit down restaurants , and shelter-in-place or stay-at-home orders . these restrictions have had , and continue to have , a negative effect on portions of our business and the u.s. and global economy . as a result , our sales in the fiscal fourth quarter declined , offsetting most of the growth that we generated earlier in our fiscal year . following the government-imposed restrictions on restaurants and other foodservice operations and stay-at-home orders , we saw significant changes in french fry consumption and purchasing patterns . as a result , we experienced favorable revenue and earnings impacts within our retail segment , which has historically contributed approximately 13 % of total lamb weston sales , but these favorable impacts were more than offset by the unfavorable impacts within our food-away-from-home businesses in our global and foodservice segments . specifically , through the end of fiscal 2020 , we observed the following : ● in the united states , prior to the pandemic-related government-imposed restrictions , approximately 65 % of all french fries were purchased at quick service restaurants ( “ qsrs ” ) , with another approximately 20 % purchased at full-service restaurants . the remaining approximately 15 % of french fries were purchased at retail locations . story_separator_special_tag 2019 contracts for raw potatoes that could not be used due to the pandemic 's near-term effect on demand for frozen potato products , as well as incremental warehousing , transportation and supply chain costs due to lower product throughput ; ● approximately $ 11 million of incremental selling , general and administrative ( “ sg & a ” ) and other expenses , largely comprised of costs to adopt and maintain enhanced employee safety and sanitation protocols , including purchases of safety and health screening equipment , costs to retain certain sales employees , net of cares act retention credits and other labor incentives , and expensing certain capitalized costs for manufacturing facility expansion projects that were stopped ; and ● approximately $ 16 million of production , raw potato contract , supply chain and sg & a costs ( including $ 4 million of costs , net of labor incentives , that were factory utilization-related and $ 12 million that were non-factory utilization-related ) at our unconsolidated joint ventures . 27 we expect that we will continue to incur some of these costs until the covid-19 pandemic no longer has an impact on our operations . during the fourth quarter , in response to the significant decrease in demand as the covid-19 virus spread throughout the world , we reduced production at our factories to align with demand , instituted a company-wide hiring freeze , and delayed non-essential expenditures . we took actions to enhance our liquidity , including working capital management ; significantly reducing our capital program ; raising over $ 1 billion of liquidity , including borrowing $ 495.0 million from our previously undrawn revolving credit facility , entering into a new $ 325.0 million term loan facility , issuing $ 500.0 million of senior notes , and suspending future share repurchases . in addition , at may 31 , 2020 , we qualified for and recorded a $ 9.5 million receivable for employee retention credits under the cares act and other labor incentives . the cares act also allows us to defer payment of the employer portion of social security taxes through the end of 2020 , with 50 % of the deferred amount due december 31 , 2021 , and the remaining 50 % due december 31 , 2022. considering the current environment , with a significant number of employees working remotely , we deferred work on the second phase of our new enterprise resource planning ( “ erp ” ) system . as a result of these actions , our cash and cash equivalents balance at may 31 , 2020 , was $ 1,364.0 million . see liquidity and capital resources in this md & a below for more information . outlook as discussed above , following the government-imposed restrictions on restaurants and other foodservice operations , which largely began during the fourth quarter of fiscal 2020 , the demand for frozen potato products decreased in north america , europe , and most of our key international markets . the outlook for the spread of covid-19 , as well as governments ' efforts to contain the virus , remains unpredictable , as does its potential impact on the global economy , restaurant traffic , customer and consumer demand , our supply chain , and availability of key commodities and other necessary services . because of uncertainty around government actions and consumer behaviors related to the virus , we expect the impact of the covid-19 pandemic on consumer demand and our sales volume may be pronounced in fiscal 2021 , especially for full-service restaurants and other operations that have traditionally relied on on-premise dining traffic , and other non-commercial foodservice operations , such as hotels , schools and universities , and sporting venues . while governments began easing restrictions on restaurants , and we realized improvements in our shipments in each of our primary sales channels through the first seven weeks of the first quarter of fiscal 2021 , we believe these improvements may become less pronounced , cease or reverse as the spread of covid-19 continues and government authorities reinstate or otherwise postpone on-premises dining restrictions . we have taken actions , and will continue to evaluate various options , to lower our cost structure and maximize the efficiency of our manufacturing and commercial operations . as we disclosed in our form 8-k filed with the sec on may 7 , 2020 , we reduced contracting of raw potatoes by approximately 20 % -25 % for the 2020 crop year , compared with our 2019 crop year purchases . we believe that there will likely be adequate non-contracted processing potatoes available for purchase in the event that frozen potato demand exceeds our initial forecast . we will continue to evaluate various options to adjust our operations , including temporarily closing facilities and or modifying production schedules to rebalance utilization rates across our manufacturing network . we expect that we will continue to incur costs as a result of the covid-19 pandemic 's impact on our manufacturing , supply chain , commercial and functional support operations . for example , these may include : costs to adopt and maintain enhanced employee safety and sanitation protocols , such as purchasing personal protection and health screening equipment and services ; costs to shut down , sanitize , and restart production facilities after a production employee has been infected by the virus ; production inefficiencies and labor retention costs arising from modifying production schedules , reducing run-times , and lower overall factory utilization ; incremental warehousing and transportation costs ; and costs to retain sales and functional support employees .
| results of operations we have four reportable segments : global , foodservice , retail , and other . for each period presented , we report net sales and product contribution margin by segment . net sales and product contribution margin are the primary measures reported to our chief operating decision maker for purposes of allocating resources to our segments and assessing their performance . we define product contribution margin as net sales less cost of sales and advertising and promotion expenses . product contribution margin excludes general corporate expenses and interest expense because management believes these amounts are not directly associated with segment performance for the period . for additional information on our reportable segments , see note 14 , segments , of the notes to consolidated financial statements in “ part ii , item 8. financial statements and supplementary data ” in this form 10-k. fiscal year ended may 31 , 2020 compared to fiscal year ended may 26 , 2019 net sales and product contribution margin ( dollars in millions ) replace_table_token_4_th net sales lamb weston 's net sales for fiscal 2020 increased $ 35.9 million , or 1 % , to $ 3,792.4 million , compared with $ 3,756.5 million in fiscal 2019. excluding the benefit of the 53 rd week , net sales declined 1 % . price/mix increased 1 % due to pricing actions and favorable mix , largely due to pricing actions in our foodservice and retail segments . volume was flat , or down 3 % excluding the benefit of the 53 rd week , as strong growth through the first three fiscal quarters was offset by the sharp and abrupt decline in demand for frozen potato products outside the home during the fiscal fourth quarter as a result of government-imposed restrictions on restaurants and other foodservice operations to slow the spread of the covid-19 virus , as well as customers destocking inventories as they adjusted to abrupt change in the business environment .
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this redevelopment is expected to open in 2019 and stabilize in 2021. one property in our portfolio is classified as under development , however we do not currently have any activity occurring at this property . the above property counts do not include undeveloped land parcels located in gainesville , florida and new garden township , pennsylvania because these properties were classified as “ held for sale ” as of december 31 , 2018. we hold our interest in our portfolio of properties through our operating partnership , preit associates , l.p. ( “ preit associates ” or the “ operating partnership ” ) . we are the sole general partner of the operating partnership and , as of december 31 , 2018 , held an 89.5 % controlling interest in the operating story_separator_special_tag the following analysis of our consolidated financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this report . overview pennsylvania real estate investment trust , a pennsylvania business trust founded in 1960 and one of the first equity real estate investment trusts ( “ reits ” ) in the united states , has a primary investment focus on retail shopping malls located in the eastern half of the united states , primarily in the mid-atlantic region . we currently own interests in 27 retail properties , of which 25 are operating properties and two are development or redevelopment properties . the 25 operating properties include 21 shopping malls and four other retail properties , have a total of 20.1 million square feet and are located in nine states . we and partnerships in which we hold an interest own 15.7 million square feet at these properties ( excluding space owned by anchors or third parties ) . there are 19 operating retail properties in our portfolio that we consolidate for financial reporting purposes . these consolidated properties have a total of 16.0 million square feet , of which we own 12.9 million square feet . the six operating retail properties that are owned by unconsolidated partnerships with third parties have a total of 4.1 million square feet , of which 2.8 million square feet are owned by such partnerships . “ same store ” properties are properties that have been owned for the full periods presented excluding wyoming valley mall and properties acquired or disposed of or under redevelopment during the periods presented . we have one property under redevelopment classified as “ retail ” ( redevelopment of the gallery at market east into fashion district philadelphia ) . this redevelopment is expected to open in 2019 and stabilize in 2021. we have one property in our portfolio that is classified as under development , however we do not currently have any activity occurring at this property . the above property counts do not include undeveloped land parcels located in gainesville , florida and new garden township , pennsylvania because these properties were classified as “ held for sale ” as of december 31 , 2018. our primary business is owning and operating retail shopping malls , which we do primarily through our operating partnership , preit associates , l.p. ( “ preit associates ” or the “ operating partnership ” ) . we provide management , leasing and real estate development services through preit services , llc ( “ preit services ” ) , which generally develops and manages properties that we consolidate for financial reporting purposes , and preit-rubin , inc. ( “ pri ” ) , which generally develops and manages properties that we do not consolidate for financial reporting purposes , including properties owned by partnerships in which we own an interest , and properties that are owned by third parties in which we do not have an interest . pri is a taxable reit subsidiary , as defined by federal tax laws , which means that it is able to offer additional services to tenants without jeopardizing our continuing qualification as a reit under federal tax law . our revenue consists primarily of fixed rental income , additional rent in the form of expense reimbursements , and percentage rent ( rent that is based on a percentage of our tenants ' sales or a percentage of sales in excess of thresholds that are specified in the leases ) derived from our income producing properties . we also receive income from our real estate partnership investments and from the management and leasing services pri provides . our net loss increased by $ 93.7 million to a net loss of $ 126.5 million for the year ended december 31 , 2018 from a net loss of $ 32.8 million for the year ended december 31 , 2017 . the change in our 2018 results of operations was primarily due to increased impairment losses in 2018 as compared to 2017 and dilution from asset sales . we evaluate operating results and allocate resources on a property-by-property basis , and do not distinguish or evaluate our consolidated operations on a geographic basis . due to the nature of our operating properties , which involve retail shopping , we have concluded that our individual properties have similar economic characteristics and meet all other aggregation criteria . accordingly , we have aggregated our individual properties into one reportable segment . in addition , no single tenant accounts for 10 % or more of our consolidated revenue , and none of our properties are located outside the united states . we hold our interest in our portfolio of properties through the operating partnership . we are the sole general partner of the operating partnership and , as of december 31 , 2018 , held a 89.5 % controlling interest in the operating partnership , and consolidated it for reporting purposes . we hold our investments in six of the 25 operating retail properties and the two development and redevelopment properties in our portfolio through unconsolidated partnerships with third parties in which we own a 25 % to 50 % interest . story_separator_special_tag critical accounting policies critical accounting policies are those that require the application of management 's most difficult , subjective , or complex judgments , often because of the need to make estimates about the effect of matters that are inherently uncertain and that might change in subsequent periods . in preparing the consolidated financial statements , management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements , and the reported amounts of revenue and expenses during the reporting periods . in preparing the consolidated financial statements , management has utilized available information , including our past history , industry standards and the current economic environment , among other factors , in forming its estimates and judgments , giving due consideration to materiality . management has also considered events and changes in property , market and economic conditions , estimated future cash flows from property operations and the risk of loss on specific accounts or amounts in determining its estimates and judgments . actual results may differ from these estimates . in addition , other companies may utilize different estimates , which may affect comparability of our results of operations to those of companies in a similar business . the estimates and assumptions made by management in applying critical accounting policies have not changed materially during 2018 , 2017 and 2016 , except as otherwise noted , and none of these estimates or assumptions have proven to be materially incorrect or resulted in our recording any significant adjustments relating to prior periods . we will continue to monitor the key factors underlying our estimates and judgments , but no change is currently expected . set forth below is a summary of the accounting policy that management believes is critical to the preparation of the consolidated financial statements . this summary should be read in conjunction with the more complete discussion of our accounting policies included in note 1 to our consolidated financial statements . asset impairment real estate investments and related intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the property might not be recoverable . a property to be held and used is considered 48 impaired only if management 's estimate of the aggregate future cash flows , less estimated capital expenditures , to be generated by the property , undiscounted and without interest charges , are less than the carrying value of the property . this estimate takes into consideration factors such as expected future operating income , trends and prospects , as well as the effects of demand , competition and other factors . the determination of undiscounted cash flows requires significant estimates by management , including the expected course of action at the balance sheet date that would lead to such cash flows . subsequent changes in estimated undiscounted cash flows arising from changes in the anticipated action to be taken with respect to the property could impact the determination of whether an impairment exists and whether the effects could materially affect our net income . to the extent estimated undiscounted cash flows are less than the carrying value of the property , the loss will be measured as the excess of the carrying amount of the property over the estimated fair value of the property . assessment of our ability to recover certain lease related costs must be made when we have a reason to believe that the tenant might not be able to perform under the terms of the lease as originally expected . this requires us to make estimates as to the recoverability of such costs . an other than temporary impairment of an investment in an unconsolidated joint venture is recognized when the carrying value of the investment is not considered recoverable based on evaluation of the severity and duration of the decline in value . to the extent impairment has occurred , the excess carrying value of the asset over its estimated fair value is charged to income . if there is a triggering event in relation to a property to be held and used , we will estimate the aggregate future cash flows , less estimated capital expenditures , to be generated by the property , undiscounted and without interest charges . in addition , this estimate may consider a probability weighted cash flow estimation approach when alternative courses of action to recover the carrying amount of a long-lived asset are under consideration or when a range of possible values is estimated . new accounting developments see note 1 to our consolidated financial statements for descriptions of new accounting developments . off balance sheet arrangements we have no material off-balance sheet items other than ( i ) the partnerships described in note 3 to our consolidated financial statements and in the “ overview ” section above and ( ii ) specifically with respect to our joint venture formed with macerich to develop fashion district philadelphia , our operating partnership , preit associates , has jointly and severally guaranteed the obligations of the joint venture to commence and complete a comprehensive redevelopment of that property costing not less than $ 300.0 million within 48 months after commencement of construction , which was march 14 , 2016 , and has severally guaranteed its 50 % share of the fdp term loan ( see note 3 to our consolidated financial statements ) , which currently has $ 150.0 million outstanding ( our share of which is $ 75.0 million ) .
| results of operations overview net loss for the year ended december 31 , 2018 was $ 126.5 million , compared to a net loss for the year ended december 31 , 2017 of $ 32.8 million . the change in our 2018 results of operations was primarily due to increased impairment losses in 2018 as compared to 2017 and dilution from asset sales . net loss for the year ended december 31 , 2017 was $ 32.8 million , compared to net loss for the year ended december 31 , 2016 of $ 12.7 million . the change in our 2017 results of operations was primarily due to gains from real estate sales of $ 23.0 million in 2016 , as well as a $ 18.2 million decrease in non same store net operating income due to property sales in 2016 and 2017. these factors were partially offset by a $ 12.3 million decrease in interest expense and a $ 6.8 million decrease in impairment of assets . 49 occupancy the tables below set forth certain occupancy statistics for our retail properties in total and our core malls as of december 31 , 2018 , 2017 and 2016 : replace_table_token_16_th ( 1 ) occupancy for all periods presented includes all tenants irrespective of the term of their agreement . ( 2 ) combined occupancy is calculated by using occupied gross leasable area ( “ gla ” ) for consolidated and unconsolidated properties and dividing by total gla for consolidated and unconsolidated properties . ( 3 ) retail portfolio includes all retail properties excluding fashion district philadelphia because that property is under redevelopment . ( 4 ) core malls excludes fashion district philadelphia , exton square mall , valley view mall , wyoming valley mall , power centers and gloucester premium outlets .
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we are a relationship-focused , locally-managed , community banking institution that has grown to become the largest thrift holding company in the state of delaware , one of the top commercial lenders in the state and the third largest bank in terms of delaware deposits . we state our mission simply : we stand for service. our strategy of engaged associates delivering stellar service growing customer advocates and value for our owners focuses on exceeding customer expectations , delivering stellar service and building customer advocacy through highly-trained , relationship-oriented , friendly , knowledgeable and empowered associates . our core banking business is commercial lending funded by customer-generated deposits . we have built a $ 2.4 billion commercial loan portfolio by recruiting the best seasoned commercial lenders in our markets and offering a high level of service and flexibility typically associated with a community bank . we fund this business primarily with deposits generated through retail deposits and commercial relationships . we service our customers primarily from our 52 offices located in delaware ( 42 ) , pennsylvania ( 8 ) , virginia ( 1 ) and nevada ( 1 ) and through our website at www.wsfsbank.com . we also offer a broad variety of consumer loan products , retail securities and insurance brokerage through our retail branches . in july 2013 we added two new business units to wsfs bank with the asset purchase of array financial group , inc. ( array ) , a mortgage banking company specializing in a variety of residential mortgage and refinancing solutions , and a related entity , arrow land transfer company ( arrow ) , an abstract and title company . our cash connect division is a premier provider of atm vault cash and related services in the united states . cash connect manages nearly $ 476 million in vault cash in nearly 15,000 atms nationwide and also provides online reporting and atm cash management , predictive cash ordering , armored carrier management , atm processing and equipment sales . cash connect also operates over 450 atms for the bank , which has , by far , the largest branded atm network in delaware . as a leading provider of atm vault cash to the u.s. atm industry , cash connect is exposed to substantial operational risk , including theft of cash from atms , armored vehicles , or armored carrier terminals , as well as general risk of accounting errors or fraud . this risk is managed through a series of financial controls , automated tracking and settlement systems , contracts , and other risk mitigation strategies , including both loss prevention and loss recovery strategies . throughout its 13-year history , cash connect periodically has been exposed to theft from armored courier companies and consistently has been able to recover any losses through its risk management strategies . the wealth management division provides a broad array of fiduciary , investment management , credit and deposit products to clients through four businesses . wsfs investment group , inc. provides insurance and brokerage products primarily to our retail banking clients . cypress capital management , llc ( cypress ) is a registered investment advisor with over $ 614 million in assets under management . cypress ' primary market segment is high net worth individuals , and offers a balanced ' investment style focused on preservation of capital and current income . christiana trust , with $ 8.9 billion in assets under administration , provides fiduciary and investment services to personal trust clients , and trustee , agency , custodial and commercial domicile services to corporate and institutional clients . wsfs private banking serves high net worth clients by delivering credit and 40 deposit products and partnering with cypress , christiana trust and wsfs investment group to deliver investment management and fiduciary products and services . we have two consolidated subsidiaries , wsfs bank and montchanin capital management , inc. , or montchanin . we also have one unconsolidated affiliate , wsfs capital trust iii , or the trust . wsfs bank has two wholly-owned subsidiaries , wsfs investment group , inc. and monarch entity services llc , or monarch . montchanin has one wholly-owned subsidiary , cypress . in addition to the subsidiaries listed above , we also have one consolidated variable interest entity ( vie ) , sasco 2002-rm1 ( sasco ) , which is a reverse mortgage securitization trust . story_separator_special_tag purchased and securities sold under agreement to repurchase 44 provision for loan losses . we maintain an allowance for loan losses at an appropriate level based on our assessment of estimable and probable losses in the loan portfolio , pursuant to accounting literature , which is discussed further in nonperforming assets . our evaluation is based upon a review of the portfolio and requires significant , complex and difficult judgments . for the year ended december 31 , 2013 , we recorded a provision for loan losses of $ 7.2 million compared to $ 32.1 million in 2012 and $ 28.0 million in 2011. this decrease was primarily due to a broad improvement in the portfolio credit quality as indicated through significantly improved credit metrics , offset in part by loan growth experienced in 2013. noninterest income . noninterest income decreased $ 6.5 million to $ 80.2 million in 2013 from $ 86.7 million in 2012. excluding the non-routine and other one-time items listed in the table below , noninterest income increased $ 5.3 million , or 8 % , to $ 68.7 million in 2013 from $ 63.5 million in 2012. replace_table_token_16_th ( 1 ) a change in the method of billing for armored car services by our cash connect division caused revenues and expenses for these services to be reported separately rather than netted together in our statement of operations beginning in the third quarter of 2012 . ( 2 ) during the third quarter of 2013 , we obtained the right to execute a clean-up call on the underlying collateral for our pool of reverse mortgages . a non-routine gain resulted from this transaction . story_separator_special_tag billion at december 31 , 2013. this increase was primarily the result of an increase in fhlb advances of $ 261.8 million as of december 31 , 2013 compared to december 31 , 2012 and was partially offset by a decrease in customer deposits of $ 86.1 million . cash in non-owned atms . during 2013 , cash in non-owned atms managed by cash connect , our atm unit , decreased $ 17.3 million , or 4 % . cash connect serviced nearly 15,000 atms at december 31 , 2013 , as well as more than 450 wsfs-owned atms to serve customers in our markets . investment securities . investment securities decreased $ 83.7 million to $ 817.1 million during 2013. our portfolio of available-for-sale mbs was comprised of all gse as of december 31 , 2013. our mbs were predominantly of short duration with a weighted average duration of 5.3 years at december 31 , 2013. we own no collateralized debt obligations , bank trust preferred securities , agency preferred securities or equity securities in other fdic insured banks or thrifts . during 2013 , we purchased $ 94.6 million of municipal bonds . the purpose was to improve return , diversify our investment portfolio and reduce our effective tax rate . in addition , we own 50,833 shares of visa class b stock . the shares are restricted until a group of four distinct legal cases known collectively as the covered litigation are resolved . two of the four cases have been definitively resolved . once the covered litigation is concluded the shares will convert to class a shares at a conversion rate which currently stands at 0.4206 and subject to change as the covered litigation are resolved . as of december 31 , 2013 , the carrying value of these shares was $ 0 on our consolidated statement of condition . loans , net . net loans ( including those held for sale ) increased $ 199.8 million , or 7 % , during 2013. loan growth included commercial and industrial loans increases of $ 121.4 million , or 8 % as well as $ 93.1 million , or 15 % , in commercial real estate loan growth . partially offsetting these increases were construction loans which decreased by $ 27.4 million , or 21 % . goodwill and intangibles . goodwill and intangibles increased $ 5.7 million during 2013 due to the acquisition of array and arrow during 2013. as a result of this acquisition ; we recorded goodwill of $ 4.1 million and other intangibles of $ 2.4 million . customer deposits . customer deposits decreased $ 86.1 million , or 3 % , during 2013 to $ 3.0 billion . this decrease consisted of a decrease in jumbo certificates of deposit of $ 73.1 million , or 25 % , and a decrease in customer time deposits ( cds under $ 100,000 ) , of $ 80.0 million , or 25 % . partially offsetting these decreases was an increase in core deposit relationships ( demand deposits , money market and savings accounts ) of $ 67.0 million , or 3 % , during 2013. the table below depicts the changes in customer deposits during the last three years : replace_table_token_18_th reverse mortgage related assets . reverse mortgage related assets include reverse mortgage loans , sasco 2002-rm1 's class o certificates and the bbb-rated tranche of this reverse mortgage security . for additional information on these reverse mortgage related assets , see note 6 to our consolidated financial statements 47 borrowings and brokered deposits . borrowing and brokered deposits increased by $ 242.7 million during 2013. included in the increase was $ 261.8 million of federal home loan bank advances . partially offsetting this increase was a decrease of $ 13.0 million in federal funds purchased and securities sold under agreements to repurchase , $ 4.2 million in other borrowed funds and $ 1.9 million in brokered deposits . stockholders ' equity . stockholders ' equity decreased $ 38.0 million , or 9 % , to $ 383.1 million at december 31 , 2013 compared to $ 421.1 million at december 31 , 2012. capital in excess of par value decreased $ 44.5 million as a result of our redemption of preferred stock . in addition , other comprehensive income decreased $ 34.2 million during 2013 , mainly due to a decrease in unrealized gains on available-for-sale securities . partially offsetting these decreases was retained earnings which increased $ 40.7 million , or 9 % , to $ 474.0 million during 2013 , primarily as a result of earnings from the year less dividends paid . asset/liability management our primary asset/liability management goal is to optimize long term net interest income opportunities within the constraints of managing interest rate risk , ensuring adequate liquidity and funding and maintaining a strong capital base . in general , interest rate risk is mitigated by closely matching the maturities or repricing periods of interest-sensitive assets and liabilities to ensure a favorable interest rate spread . we regularly review our interest-rate sensitivity , and use a variety of strategies as needed to adjust that sensitivity within acceptable tolerance ranges established by management and the board of directors . changing the relative proportions of fixed-rate and adjustable-rate assets and liabilities is one of our primary strategies to accomplish this objective . the matching of assets and liabilities may be analyzed using a number of methods including by examining the extent to which such assets and liabilities are interest-rate sensitive and by monitoring our interest-sensitivity gap . an interest-sensitivity gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of interest-rate sensitive liabilities repricing within a defined period , and is considered negative when the amount of interest-rate sensitive liabilities exceeds the amount of interest-rate sensitive assets repricing within a defined period . for additional information related to interest rate sensitivity , see item 7a . quantitative and qualitative disclosures about market risk .
| results of operations we recorded net income of $ 46.9 million for the year ended december 31 , 2013 , a $ 15.6 million or 50 % increase compared to $ 31.3 million for the year ended december 31 , 2012 , and a $ 24.2 million increase from $ 22.7 million for the year ended december 31 , 2011. income allocable to common stockholders ( after preferred stock dividends ) was $ 45.2 million , or $ 5.06 per diluted common share for the year ended december 31 , 2013 , compared to income allocable to common shareholders of $ 28.5 million , or $ 3.25 per diluted common share ( a 55 % increase in diluted eps ) , and income of $ 19.9 million , or $ 2.28 per common share , for the years ended december 31 , 2012 and 2011 , respectively . earnings for 2013 were impacted by a lower provision for loan losses which decreased $ 24.9 million to $ 7.2 million partially offset by securities gains which decreased by $ 17.9 million to $ 3.5 million . net interest income increased during the year due to continued franchise loan growth and prudent balance sheet management . additionally , we continue to have significant increases in wealth management income , credit/debit card and atm income and mortgage banking activities . noninterest expense decreased $ 416,000 when compared to december 31 , 2012 due to management 's continued careful monitoring of operating expenses despite the growth in core revenue and corporate development costs . salaries and benefits increased due to additional performance-driven incentive compensation costs , while loan workout and other real estate owned expenses continued to decrease due to our improved performance and the continued improvement in nonperforming assets and fdic expenses from prior year levels . net interest income . net interest income increased $ 4.6 million , or 4 % , to $ 131.6 million in 2013 from $ 127.0
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the non-employee director plan provides for the grant of nonstatutory stock options , stock awards , and restricted stock units to our non-employee directors . the non-employee director plan is effective as of september 3 , 2015. authorized shares . as of the date of this report , a total of 1,706,761 ordinary shares have been reserved for issuance pursuant to the non-employee director plan . the ordinary shares that we have reserved for issuance pursuant to the non-employee director plan ( the “ share pool ” ) will be increased on the first day of each fiscal year , in an amount equal to one-half percent ( 0.5 % ) of the outstanding shares on the last day of the immediately preceding fiscal year . the share pool will be reduced on the date of grant , by one ordinary share for each award under the non-employee director plan ; provided that awards that are valued by reference to our ordinary shares but are required to be paid in cash pursuant to their terms will not reduce the share pool . if and to the extent options terminate , expire , or are canceled , forfeited , exchanged , or surrendered without having been exercised , or if any stock awards or awards of restricted stock units ( including restricted stock received upon the exercise of options ) are forfeited , the ordinary shares subject to such awards will again be available for awards under the share pool . notwithstanding the foregoing , shares tendered by individual grantees , or withheld by us , as full or partial payment to us upon the exercise of options will not become available for issuance again under the non-employee director plan . plan administration . our board administers the non-employee director plan . subject to the provisions of the non-employee director plan , our board has the power to determine the terms of the awards , including the exercise price , the number of ordinary shares subject to each such award , the exercisability of the awards and the form of consideration , 72 if any , payable upon exercise . to the maximum extent permitted by law , no member of our board will be liable for any action taken or decision made in good faith relating to the non-employee director plan or any award granted thereunder . stock options . the exercise price of options granted under the non-employee director plan may be equal to or greater than the fair market value of our ordinary shares on the date of grant . the term of an option may not exceed ten years . after the termination of service of a non-employee director for any reason other than death , disability or cause ( as defined in the non-employee director plan ) , he or she may exercise the vested portion of his or her option for 90 days . if termination is due to death ( or death occurs within 90 days after the director 's termination date ) or disability , the vested portion of the option will remain exercisable for one year . however , in no event may an option be exercised later than the story_separator_special_tag of operations the following discussion summarizes the significant factors affecting the operating results , financial condition , liquidity and cash flows of our company as of and for the periods presented below . the following discussion and analysis should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this annual report . the statements in this discussion regarding industry outlook , our expectations regarding our future performance , liquidity and capital resources and all other non-historical statements in this discussion are forward-looking statements and are based on the current beliefs of our management , as well as assumptions made by , and information currently available to , our management . actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors , including those discussed below and elsewhere in this annual report , particularly in the section titled “ risk factors. ” for our discussion of comparison between 2019 and 2018 please see our previous form 10-k filed with the sec on february 28 , 2020 overview we are a global , commercial-stage biopharmaceutical company focused on the development and commercialization of therapies for rare diseases with significant unmet needs . our first commercial product is keveyis ( dichlorphenamide ) , the first and only treatment approved by the u.s. food and drug administration ( the “ fda ” ) for hyperkalemic , hypokalemic , and related variants of primary periodic paralysis ( “ ppp ” ) , a group of rare hereditary disorders that cause episodes of muscle weakness or paralysis . we have two clinical-stage product candidates for rare endocrine diseases , recorlev and veldoreotide . recorlev ( levoketoconazole ) , the pure 2s,4r enantiomer of the enantiomeric pair comprising ketoconazole , is a next-generation steroidogenesis inhibitor being investigated as a chronic therapy for adults with endogenous cushing 's syndrome . 52 veldoreotide is a next-generation somatostatin analog being investigated for potential applications in conditions amenable to somatostatin receptor activation . both levoketoconazole and veldoreotide have received orphan designation from the fda and the european medicines agency ( “ ema ” ) . recent developments we have submitted our nda for recorlev with the fda . effective march 3 , 2021 , richard s. kollender , who has served as chief operating officer of strongbridge since september 2019 , will be promoted to president and chief financial officer . story_separator_special_tag we received a $ 6 million payment in connection with such termination , which is reflected in other income . we no longer provide services to novo . critical accounting policies and estimates this operating and financial review of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( “ u.s . gaap ” ) . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as expenses incurred during the reporting periods . our estimates are based 54 on our historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this annual report on form 10-k , we believe the following accounting policies and estimates are critical . revenue recognition revenues from sales of our products are recorded at the net sales price ( transaction price ) , which includes estimates of variable consideration for which reserves are established and that result from rebates , co-pay assistance and other allowances that are offered by us and the patients ' payors . these reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable ( if the amount is payable to our customer ) or a current liability ( if the amount is payable to a party other than our customer ) . where appropriate , these estimates may take into consideration a range of possible outcomes that are probability-weighted for relevant factors such as our historical experience , current contractual and statutory requirements , specific known market events and trends , industry data and forecasted customer buying and payment patterns . overall , these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the contract . for a complete discussion of accounting for net product revenue , see note 3 , `` revenue recognition '' to our consolidated financial statements . long-term debt our long-term debt includes multiple features and redemption options . we evaluated if these features needed to be accounted for as stand-alone derivatives . when that was required , we used the black-scholes option-pricing model to determine their fair value . inputs used to determine estimated fair value include the fair value of the underlying stock at the valuation date , the term of the option or warrant , risk-free interest rates , and the expected volatility of the underlying stock . the intrinsic value of the equity conversion feature was calculated based on asc 470-20-30-5 to determine if it was beneficial conversion feature and how to allocate the proceeds . we have accounted for this term as a beneficial conversion feature , and the fair value is recorded in additional paid-in capital . warrant liability the fair values of certain outstanding warrants were measured using the black-scholes option-pricing model . inputs used to determine estimated fair value of the warrant liabilities include the fair value of the underlying stock at the valuation date , the term of the warrants , risk-free interest rates , and the expected volatility of the underlying stock . the significant unobservable input used in the fair value measurement of the warrant liabilities is the estimated term of the warrants . generally , increases ( decreases ) in the fair value of the underlying stock and estimated term result in a directionally similar impact to the periodic fair value measurement of the outstanding warrant liability . stock-based compensation we account for stock-based compensation awards in accordance with financial accounting standards board ( “ fasb ” ) asc topic 718 , compensation—stock compensation ( “ asc 718 ” ) . asc 718 requires all stock-based payments including grants of stock options and restricted stock and modifications to existing stock options , to be recognized in the consolidated statements of operations based on their fair values . we record compensation expense for service-based awards over the vesting period of the award on a straight-line basis . compensation expense related to awards with performance-based vesting conditions is recognized over the requisite service period using the accelerated attribution method to the extent achievement of the performance condition is probable . 55 we estimate the fair value of our awards with service conditions using the black-scholes option pricing model , which requires the input of subjective assumptions , including ( i ) the expected stock price volatility , ( ii ) the expected term of the award , ( iii ) the risk-free interest rate and ( iv ) expected dividends . we have estimated the expected term of employee service-based stock options using the “ simplified ” method , whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option , due to our lack of sufficient historical data . the risk-free interest rates for periods within the expected term of the option are based on the u.s. treasury bond rate with a maturity date commensurate with the expected term of the associated award . we have never paid dividends , and do not expect to pay dividends in the foreseeable future . we account for forfeitures as they occur as opposed to estimating forfeitures . we record stock-based compensation expense only for those awards that are expected to vest . story_separator_special_tag 30 , 2020. the remaining $
| results of operations comparison of the years ended december 31 , 2020 and 2019 the following table sets forth our results of operations for the years ended december 31 , 2020 and 2019. replace_table_token_2_th revenues and cost of sales net product sales were $ 30.7 million for the year ended december 31 , 2020 , an increase of $ 9.0 million compared to the year ended december 31 , 2019. product sales from keveyis increased primarily due to an increase in the number of patients on keveyis and an increase in price . cost of sales decreased due to changes in the assumptions underlying the allocation between the purchase price of our inventory and the supply agreement . 56 selling , general and administrative expenses the following table summarizes our selling , general and administrative expenses during the years ended december 31 , 2020 and 2019 : replace_table_token_3_th selling , general and administrative expenses were $ 40.9 million for the year ended december 31 , 2020 , a decrease of $ 8.2 million compared to the year ended december 31 , 2019 , primarily due to reduced personnel costs from headcount reductions , reduced spending due to covid-19 , and lower external expenses . additionally , in 2019 we had a $ 3.2 million one-time charge for severance . research and development expenses the following table summarizes our research and development expenses during the years ended december 31 , 2020 and 2019 : replace_table_token_4_th research and development expenses were $ 25.8 million for the year ended december 31 , 2020 , a decrease of $ 5.1 million compared to the year ended december 31 , 2019. the decrease was primarily due to decreases in product development and supporting activities resulting from the completion of our sonics trial in 2019 and higher costs related to our logics trial in 2019 , offset by an increase in costs from our optics trial in 2020 .
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management believes that the historical strength of the company 's growth and earnings is in large part attributable to the following main factors : industry leading order fill rates and responsive customer service product innovations and product line expansions based on listening to and understanding customer needs and market trends low cost manufacturing operations , resulting from a state-of-the-art manufacturing complex low distribution and freight costs due in large part to the “ one campus ” business model a focused management team leading an incentivized work force low general and administrative overhead costs , and a team of experienced independent manufacturers ' representatives with strong customer relationships across the united states . these factors , and others , have allowed encore wire to grow from a startup in 1989 to what management believes is one of the largest electric building wire companies in the united states of america . encore has built a loyal following of customers throughout the united states . these customers have developed a brand preference for encore wire in a commodity product line due to the reasons noted above , among others . the company prides itself on striving to grow sales by expanding its product offerings where profit margins are acceptable . senior management monitors gross margins daily , frequently extending down to the individual order level . management strongly believes that this “ hands-on ” focused approach to the building wire business has been an important factor in the company 's success , and will lead to continued success . the construction and remodeling industries drive demand for building wire . in 2018 , unit sales were up 4.5 % in copper wire versus 2017. in 2017 , unit sales increased 5.6 % in copper wire versus 2016. in 2016 , unit sales of copper wire sold increased 2.4 % versus 2015. general the company 's operating results are driven by several key factors , including the volume of product produced and shipped , the cost of copper and other raw materials , the competitive pricing environment in the wire industry and the resulting influence on gross margins and the efficiency with which the company 's plants operate during the period , among others . price competition for electrical wire and cable is intense , and the company sells its products in accordance with prevailing market prices . copper , a commodity product , is the principal raw material used by the company in manufacturing its products . copper accounted for approximately 73.0 % , 69.7 % and 65.2 % of the company 's cost of goods sold during 2018 , 2017 and 2016 , respectively . the price of copper fluctuates , depending on general economic conditions and in relation to supply and demand and other factors , which causes monthly variations in the cost of copper purchased by the company . additionally , the sec allows shares of physically backed copper exchange traded funds ( “ etfs ” ) to be listed and publicly traded . such funds and other copper etfs like it hold copper cathode as collateral against their shares . the acquisition of copper cathode by copper etfs may materially decrease or interrupt the availability of copper for immediate delivery in the united states , which could materially increase the company 's cost of copper . in addition to rising copper prices and potential supply shortages , we believe that etfs and similar copper-backed derivative products could lead to increased price volatility for copper . the company can not predict copper prices in the future or the effect of fluctuations in the cost of copper on the company 's future operating results . wire prices can , and frequently do change on a daily basis . this competitive pricing market for wire does not always mirror changes in copper prices , making margins highly volatile . historically , the cost of aluminum has been much lower and less volatile than copper . with the volatility of both raw material prices and wire prices in the company 's end market , hedging raw materials can be risky . historically , the company has not engaged in hedging strategies for raw material purchases . the tables below highlight the range of closing prices of copper on the comex exchange for the periods shown . 12 comex copper closing price 2018 replace_table_token_3_th comex copper closing price 2017 replace_table_token_4_th comex copper closing price 2016 replace_table_token_5_th comex copper closing price 2018 by quarter replace_table_token_6_th 13 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 820.7 million in 2016 . the copper costs included in cost of goods sold were $ 802.7 million in 2018 compared to $ 702.6 million in 2017 and $ 535.4 million in 2016 . copper costs as a percentage of net sales were 62.3 % in 2018 compared to 60.3 % in 2017 and 56.9 % in 2016 . the increase from 2017 to 2018 of copper costs as a percentage of net sales was due to copper costs increasing 5.7 % . as noted above , copper costs are the largest component of costs and therefore the most significant driver of sales prices of copper wire . accordingly , the increase in copper prices in 2018 caused most of the other costs to decrease slightly in terms of their percentage of net sales dollars . the cost of other raw materials as a percentage of net sales dropped from 15.0 % in 2016 and 12.9 % in 2017 to 12.8 % in 2018 . material cost percentages in 2018 were decreased by a 0.5 % lifo credit ( income ) , and increased in 2017 by a 1.7 % lifo debit ( expense ) , and also increased in 2016 by a 1.2 % lifo debit ( expense ) . story_separator_special_tag the differences between the provisions for income taxes and the income taxes computed using the federal income tax statutory rate are primarily due to changes in tax laws and the effects of permanent differences between transactions reported for financial reporting and tax purposes , primarily the domestic production activity deduction . the provisional favorable impact of the 2017 tax act reduced the 2017 effective tax rate by 16.9 % . the domestic production activity deduction reduced the effective tax rate by approximately 3.1 % in 2017 and 3.4 % in 2016. the 2017 tax act eliminated the qualified domestic production activities deduction beginning in 2018. as a result of the foregoing factors , the company 's net income was $ 78.2 million in 2018 , $ 67.0 million in 2017 and $ 33.8 million in 2016 . off-balance sheet arrangements the company does not currently have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the company 's financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to investors . liquidity and capital resources the following table summarizes the company 's cash flow activities ( in thousands ) : replace_table_token_9_th the company maintains a substantial inventory of finished products to satisfy customers ' prompt delivery requirements . as is customary in the industry , the company provides payment terms to most of its customers that exceed terms that it receives from 16 its suppliers . in general , the company 's standard payment terms result in the collection of a significant majority of net sales within approximately 75 days of the date of the invoice . therefore , the company 's liquidity needs have generally consisted of working capital necessary to finance receivables and inventory . capital expenditures have historically been necessary to expand and update the production capacity of the company 's manufacturing operations . the company has historically satisfied its liquidity and capital expenditure needs with cash generated from operations , borrowings under its various debt arrangements and sales of its common stock . at december 31 , 2018 and 2017 , the company had no debt outstanding . the company is party to a credit agreement ( as amended , the “ credit agreement ” ) with two banks , bank of america , n.a. , as administrative agent and letter of credit issuer , and wells fargo bank , national association as syndication agent . the credit agreement extends through october 1 , 2021 , and provides for maximum borrowings of $ 150.0 million . in the third quarter of 2016 , the company signed a third amendment to the credit agreement , which , along with other minor changes , eliminated the restriction of maximum borrowings based on the amount of eligible accounts receivable plus the amount of eligible finished goods and raw materials , less any reserves established by the banks . additionally , at our request and subject to certain conditions , the commitments under the credit agreement may be increased by a maximum of up to $ 100.0 million as long as existing or new lenders agree to provide such additional commitments . borrowings under the line of credit bear interest , at the company 's option , at either ( 1 ) libor plus a margin that varies from 0.875 % to 1.75 % depending upon the leverage ratio ( as defined in the credit agreement ) , or ( 2 ) the base rate ( which is the highest of the federal funds rate plus 0.5 % , the prime rate , or libor plus 1.0 % ) plus 0 % to 0.25 % ( depending upon the leverage ratio ) . a commitment fee ranging from 0.15 % to 0.30 % ( depending upon the leverage ratio ) is payable on the unused line of credit . at december 31 , 2018 , there were no borrowings outstanding under the credit agreement , and letters of credit outstanding in the amount of $ 1.3 million left $ 148.7 million of credit available under the credit agreement . obligations under the credit agreement are the only contractual borrowing obligations or commercial borrowing commitments of the company . obligations under the credit agreement are unsecured and contain customary covenants and events of default . the company was in compliance with the covenants as of december 31 , 2018 . the company paid interest totaling $ 0.3 million , $ 0.2 million and $ 0.2 million in 2018 , 2017 and 2016 , respectively , none of which was capitalized . on november 10 , 2006 , the board of directors approved a stock repurchase program authorizing the company to repurchase up to an authorized number of shares of its common stock on the open market or through privately negotiated transactions at prices determined by the president of the company during the term of the program . the company 's board of directors has authorized several increases and annual extensions of this stock repurchase program , and , as of december 31 , 2018 , 1,132,946 shares remained authorized for repurchase through march 31 , 2019 . the company did not repurchase any shares of its stock in 2018 , 2017 or 2016 . the company also has a broker agreement to repurchase stock in the open market at certain trigger points pursuant to a rule 10b5-1 plan announced on november 28 , 2007. net cash provided by operations was $ 81.6 million in 2018 compared to $ 48.0 million in 2017 and $ 58.6 million in 2016 . the increase in cash provided by operations of $ 33.6 million in 2018 versus 2017 was due to several factors .
| results of operations the following table presents certain items of income and expense as a percentage of net sales for the periods indicated . replace_table_token_7_th the following discussion and analysis relate to factors that have affected the operating results of the company for the years ended december 31 , 2018 , 2017 and 2016 . reference should also be made to the financial statements and the related notes included under “ item 8. financial statements and supplementary data ” of this annual report . net sales were $ 1.289 billion in 2018 compared to $ 1.164 billion in 2017 and $ 940.8 million in 2016 . the 10.7 % increase in net sales dollars in 2018 versus 2017 is primarily the result of a 11.8 % increase in copper wire sales . sales dollars were driven higher primarily by a 7.0 % increase in average selling price of copper wire , coupled with a 4.5 % increase in copper wire pounds shipped . average selling prices for wire sold were primarily driven higher by rising copper commodity prices . in the fourth quarter of 2018 , net sales dollars increased 6.1 % versus the fourth quarter of 2017 . the increase in net sales was due to a 6.4 % increase in copper net sales , driven by an increase in unit sales volume of copper of 10.5 % , offset somewhat by an average selling price decrease of 3.7 % in copper wire in the fourth quarter of 2018 versus the fourth quarter of 2017 . pre-tax income rose 42.8 % in fourth quarter of 2018 versus the fourth quarter of 2017 , fueled by a 7.4 % increase in copper wire spreads .
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statements that are not historical facts , without limitation , including statements that use terms such as `` anticipates , '' `` believes , '' `` expects , '' `` estimates , '' `` intends , '' `` may , '' `` plans , '' `` potential , '' `` projects , '' and `` will '' and that relate to future impacts caused by the covid-19 coronavirus pandemic and the related economic instability and market volatility , including the reaction of governments to the coronavirus , including any prolonged period of travel , commercial or other similar restrictions , the delay in commencement , or temporary or permanent halting of construction , infrastructure or other projects , requirements that we remove our employees or personnel from the field for their protection , and delays or reductions in planned initiatives by our governmental or commercial clients or potential clients ; future revenues , expenditures and business trends ; future reduction of our self-perform at-risk construction exposure ; future accounting estimates ; future contractual performance obligations ; future conversions of backlog ; future capital allocation priorities , including common stock repurchases , future trade receivables , future debt pay downs ; future post-retirement expenses ; future tax benefits and expenses ; future compliance with regulations ; future legal claims and insurance coverage ; future effectiveness of our disclosure and internal controls over financial reporting ; future costs savings ; and other future economic and industry conditions , are forward-looking statements . in light of the risks and uncertainties inherent in all forward-looking statements , the inclusion of such statements in this annual report should not be considered as a representation by us or any other person that our objectives or plans will be achieved . although management believes that the assumptions underlying the forward-looking statements are reasonable , these assumptions and the forward-looking statements are subject to various factors , risks and uncertainties , many of which are beyond our control , including , but not limited to , our business is cyclical and vulnerable to economic downturns and client spending reductions ; government shutdowns ; long-term government contracts and subject to uncertainties related to government contract appropriations ; governmental agencies may modify , curtail or terminate our contracts ; government contracts are subject to audits and adjustments of contractual terms ; losses under fixed-price contracts ; limited control over operations run through our joint venture entities ; liability for misconduct by our employees or consultants ; failure to comply with laws or regulations applicable to our business ; maintaining adequate surety and financial capacity ; high leverage and potential inability to service our debt and guarantees ; exposure to brexit and tariffs ; exposure to political and economic risks in different countries ; currency exchange rate fluctuations ; retaining and recruiting key technical and management personnel ; legal claims ; inadequate insurance coverage ; environmental law compliance and inadequate nuclear indemnification ; unexpected adjustments and cancellations related to our backlog ; partners and third parties who may fail to satisfy their legal obligations ; managing pension costs ; aecom capital 's real estate development ; cybersecurity issues , it outages and data privacy ; risks associated with the benefits and costs of the management services transaction , including the risk that the expected benefits of the management services transaction or any contingent purchase price will not be realized within the expected time frame , in full or at all ; the risk that costs of restructuring transactions and other costs incurred in connection with the management services transaction will exceed our estimates or otherwise adversely affect our business or operations ; as well as other additional risks and factors discussed in this annual report on form 10-k and any subsequent reports we file with the sec . accordingly , actual results could differ materially from those contemplated by any forward-looking statement . all subsequent written and oral forward-looking statements concerning the company or other matters attributable to the company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above . you are cautioned not to place undue reliance on these forward-looking statements , which speak only to the date they are made . the company is under no obligation ( and expressly disclaims any such obligation ) to update or revise any forward-looking statement that may be made from time to time , whether as a result of new information , future developments or otherwise . please review “ part i , item 1a—risk factors ” in this annual report for a discussion of the factors , risks and uncertainties that could affect our future results . our fiscal year consists of 52 or 53 weeks , ending on the friday closest to september 30. for clarity of presentation , we present all periods as if the year ended on september 30. we refer to the fiscal year ended september 30 , 2019 as “ fiscal 2019 ” and the fiscal year ended september 30 , 2020 as “ fiscal 2020. ” fiscal years 2020 , 2019 , and 2018 each contained 53 , 52 , and 52 weeks , respectively , and ended on october 2 , september 27 , and september 28 , respectively . 37 overview we are a leading global provider of professional , technical and management support services for governments , businesses and organizations throughout the world . we provide planning , consulting , architectural and engineering design , construction management services , and investment and development services to commercial and government clients worldwide in major end markets such as transportation , facilities , environmental , energy , water and government markets . our business focuses primarily on providing fee-based planning , consulting , architectural and engineering design services and , therefore , our business is labor intensive . we primarily derive income from our ability to generate revenue and collect cash from our clients through the billing of our employees ' time spent on client projects and our ability to manage our costs . story_separator_special_tag ● during the second half of fiscal 2020 , we benefited from government subsidies of approximately $ 23.2 million , which were received under various programs related to retaining employees . 39 acquisitions the aggregate value of all consideration for our acquisitions consummated during the year ended september 30 , 2018 was $ 5.6 million . there were no acquisitions consummated during the years ended september 30 , 2020 and 2019. all of our acquisitions have been accounted for as business combinations and the results of operations of the acquired companies have been included in our consolidated results since the dates of the acquisitions . components of income and expense replace_table_token_7_th revenue we generate revenue primarily by providing planning , consulting , architectural and engineering design services to commercial and government clients around the world . our revenue consists of both services provided by our employees and pass-through fees from subcontractors and other direct costs . we generally recognize revenue over time as performance obligations are satisfied and control over promised goods or services are transferred to our customers . we generally measure progress to completion using an input measure of total costs incurred divided by total costs expected to be incurred . cost of revenue cost of revenue reflects the cost of our own personnel ( including fringe benefits and overhead expense ) associated with revenue . amortization expense of acquired intangible assets included in our cost of revenue is amortization of acquired intangible assets . we have ascribed value to identifiable intangible assets other than goodwill in our purchase price allocations for companies we have acquired . these assets include , but are not limited to , backlog and customer relationships . to the extent we ascribe value to identifiable intangible assets that have finite lives , we amortize those values over the estimated useful lives of the assets . such amortization expense , although non-cash in the period expensed , directly impacts our results of operations . it is difficult to predict with any precision the amount of expense we may record relating to acquired intangible assets . equity in earnings of joint ventures equity in earnings of joint ventures includes our portion of fees charged by our unconsolidated joint ventures to clients for services performed by us and other joint venture partners along with earnings we receive from our return on investments in unconsolidated joint ventures . 40 general and administrative expenses general and administrative expenses include corporate expenses , including personnel , occupancy , and administrative expenses . acquisition and integration expenses acquisition and integration expenses are comprised of transaction costs , professional fees , and personnel costs , including due diligence and integration activities , primarily related to business acquisitions . goodwill impairment see critical accounting policies and consolidated results below . income tax expense ( benefit ) as a global enterprise , income tax expense/ ( benefit ) and our effective tax rates can be affected by many factors , including changes in our worldwide mix of pre-tax losses/earnings , the effect of non-controlling interest in income of consolidated subsidiaries , the extent to which the earnings are indefinitely reinvested outside of the united states , our acquisition strategy , tax incentives and credits available to us , changes in judgment regarding the realizability of our deferred tax assets , changes in existing tax laws and our assessment of uncertain tax positions . our tax returns are routinely audited by the taxing authorities and settlements of issues raised in these audits can also sometimes affect our effective tax rate . geographic information for geographic financial information , please refer to note 4 and note 19 in the notes to our consolidated financial statements found elsewhere in the form 10-k. critical accounting policies our financial statements are presented in accordance with accounting principles generally accepted in the united states ( gaap ) . highlighted below are the accounting policies that management considers significant to understanding the operations of our business . revenue recognition our accounting policies establish principles for recognizing revenue upon the transfer of control of promised goods or services to customers . we generally recognize revenues over time as performance obligations are satisfied . we generally measure our progress to completion using an input measure of total costs incurred divided by total costs expected to be incurred . in the course of providing these services , we routinely subcontract for services and incur other direct cost on behalf of our clients . these costs are passed through to clients , and in accordance with accounting rules , are included in our revenue and cost of revenue . revenue recognition and profit is dependent upon a number of factors , including the accuracy of a variety of estimates made at the balance sheet date , such as engineering progress , material quantities , the achievement of milestones , penalty provisions , labor productivity and cost estimates . additionally , we are required to make estimates for the amount of consideration to be received , including bonuses , awards , incentive fees , claims , unpriced change orders , penalties and liquidated damages . variable consideration is included in the estimate of transaction price only to the extent that a significant reversal would not be probable . we continuously monitor factors that may affect the quality of our estimates , and material changes in estimates are disclosed accordingly . 41 claims recognition claims are amounts in excess of the agreed contract price ( or amounts not included in the original contract price ) that we seek to collect from customers or others for delays , errors in specifications and designs , contract terminations , change orders in dispute or unapproved contracts as to both scope and price or other causes of unanticipated additional costs . we record contract revenue related to claims only if it is probable that the claim will result in additional contract revenue and only to the extent that a significant reversal would not be probable .
| results of operations by reportable segment americas replace_table_token_10_th the following table presents the percentage relationship of statement of operations items to revenue : replace_table_token_11_th revenue revenue for our americas segment for the year ended september 30 , 2020 decreased $ 251.1 million , or 2.4 % , to $ 10,131.5 million as compared to $ 10,382.6 million for the corresponding period last year . the decrease in revenue for the year ended september 30 , 2020 was primarily driven by near-term headwinds from the coronavirus pandemic and lower oil and gas prices . gross profit gross profit for our americas segment for the year ended september 30 , 2020 increased $ 69.0 million , or 13.5 % , to $ 580.5 million as compared to $ 511.5 million for the corresponding period last year . as a percentage of revenue , gross profit increased to 5.7 % of revenue for the year ended september 30 , 2020 from 4.9 % in the corresponding period last year . the increase in gross profit and gross profit as a percentage of revenue for the year ended september 30 , 2020 were primarily due to reduced costs resulting from restructuring activities that commenced during the prior year . international replace_table_token_12_th 50 the following table presents the percentage relationship of statement of operations items to revenue : replace_table_token_13_th revenue revenue for our international segment for the year ended september 30 , 2020 decreased $ 150.0 million , or 4.6 % , to $ 3,101.7 million as compared to $ 3,251.7 million for the corresponding period last year . the decrease in revenue for the year ended september 30 , 2020 was primarily attributable to declines in the united kingdom and greater china regions due to downtime caused by the impact of the coronavirus pandemic in those regions and the middle east was impacted by lower oil and gas prices .
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james sapirstein has served as our chief executive officer and a director since march 19 , 2014. mr. sapirstein was the chief executive officer of alliqua therapeutics at alliqua inc. , where he helped lead the transformation of transdermal wound care and drug delivery technology into a premier wound care organization from october 2012 to february 2014. mr. sapirstein was the chief executive officer of tobira therapeutics , a new jersey based biopharmaceutical company focused on the development of novel hiv and infectious disease compounds , from october 2006 to april 2011. from june 2002 until may 2005 , mr. sapirstein was executive vice president for serono laboratories where he led a team of over 100 professionals to rebuild a struggling hiv and pediatric growth hormone business . mr. sapirstein also served in the global marketing group at gilead , beginning in 2000 where he led and developed the global marketing strategy for its flagship hiv drug , viread as well as played a key role in the development of the drug combination strategy that resulted in gilead 's acquisition of triangle 's nucleoside portfolio . he held a number of positions at hoffmann-laroche , including product director and international operations manager , and was actively involved with numerous product launches including several antivirals . in 1996 , he became the director of international marketing of the infectious disease division at bristol myers squibb ( bms ) . mr. sapirstein directed the international hiv product marketing strategy at bms and was an integral part of the international development and launch of a number of infectious disease products while at bms . william hornung has served as our chief financial officer since june 23 , 2014. from april 2012 until march 2014 , mr. hornung served as the vice president of finance for ptc therapeutic , a public biotechnology company . from february 2009 until march 2012 , mr. hornung served as controller of 83 ptc therapeutics . mr. hornung received his bachelor of science from the william paterson state university of nj in 1992. john p. brancaccio , a retired cpa , has served as a director of our company since may 15 , 2013 and as a director of synergy pharmaceuticals , inc. since july 2008. since april 2004 , mr. brancaccio has been the chief financial officer of accelerated technologies , inc. , an incubator for medical device companies . from may 2002 until march 2004 , mr. brancaccio was the chief financial officer of memory pharmaceuticals corp. , a biotechnology company . from 2000 to 2002 , mr. brancaccio was the chief financial officer/chief operating officer of eline group , an entertainment and media company . mr. brancaccio is currently a director of tamir story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with `` selected financial data '' and our financial statements and the related notes appearing elsewhere in this annual report . in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those 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 '' included elsewhere in this annual report . all amounts in this report are in u.s. dollars , unless otherwise noted . jobs act we qualify as an `` emerging growth company '' as defined in the jumpstart our business startups act of 2012 , or the jobs act . as an emerging growth company , we may take advantage of specified 55 reduced disclosure and other requirements that are otherwise applicable generally to public companies . these provisions include : requirement to provide only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced `` management 's discussion and analysis of financial condition and results of operations '' disclosure ; reduced disclosure about our executive compensation arrangements ; no non-binding advisory votes on executive compensation or golden parachute arrangements ; and exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting . we have irrevocably elected not to use the extended transition period for complying with new or revised accounting standards under section 102 ( b ) ( 1 ) of the jobs act , and , therefore , we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies . we may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company . we would cease to be an emerging growth company on the date that is the earliest of ( i ) the last day of the fiscal year in which we have total annual gross revenues of $ 1 billion or more ; ( ii ) the last day of our fiscal year following the fifth anniversary of the date of the distribution ; ( iii ) the date on which we have issued more than $ 1 billion in nonconvertible debt during the previous three years ; or ( iv ) the date on which we are deemed to be a large accelerated filer under the rules of the securities and exchange commission . story_separator_special_tag based upon the analyses of the completed phase 2 study coupled with the additional market research , we are developing a comprehensive clinical strategy for future development of fv-100 which is being implemented in 2014. inhibitex filed for an ind ( ind 102,011 ) on march 19 , 2008 , which was approved by the fda on april 20 , 2008. this ind was transferred from inhibitex to its new sponsor , synergy , on august 27 , 2012 and was subsequently transferred to us in april 2014. as a result of this transfer , we will be able to run all clinical trials required to support fv-100 for the use in the treatment of shingles . separation from synergy pharmaceuticals inc. on august 8 , 2013 , synergy announced that it intended to separate its fv-100 assets from the remainder of its businesses through a pro rata distribution of the common stock of an entity holding the assets and liabilities associated with the fv-100 product candidate . we were incorporated in 57 delaware on may 15 , 2013 for the purpose of holding such businesses and were previously a subsidiary of synergy . on january 28 , 2014 , the synergy board of directors approved the distribution of the 9,000,000 issued and outstanding shares of our common stock currently held by synergy on the basis of 0.0986 shares of our common stock for each share of synergy common stock held on the record date . on january 28 , 2014 , synergy declared a dividend of our common stock . on the distribution date of february 18 , 2014 , synergy stockholders of record as of the close of business on february 6 , 2014 received .0986 shares of our common stock for every 1 share of synergy common stock they held . none of our fractional shares were issued . synergy stockholders received cash in lieu of fractional shares . we are no longer a wholly-owned subsidiary of synergy and synergy retains no ownership interest in us . we will incur increased costs as a result of becoming an independent , publicly-traded company , primarily from higher charges than in the past from synergy for shared services and from establishing or expanding the corporate support for our businesses , including information technology , human resources , treasury , tax , risk management , accounting and financial reporting , investor relations , legal , procurement and other services . in the first year following the separation , these annual operating costs are estimated to be significantly higher than the general corporate expenses historically allocated from synergy to us . we do not anticipate that increased costs solely from becoming an independent , publicly traded company will have an adverse effect on our growth rate in the future . financial operations overview from may 15 , 2013 ( inception ) through june 30 , 2014 , we have sustained cumulative net losses of approximately $ 5.4 million . from inception through june 30 , 2014 , we have not generated any revenue from operations and expect to incur additional losses to perform further research and development activities and do not currently have any commercial biopharmaceutical products . we do not expect to have such for several years , if at all . on february 4 , 2014 , we entered into a securities purchase agreement with accredited investors to sell securities and raise gross proceeds of $ 3,225,000 in a private placement and incurred expenses of approximately $ 15,000 related to this placement . we sold 9,485,294 units to the investors with each unit consisting of one share of our common stock and one warrant to purchase an additional one half share of our common stock . the purchase price paid by the investor was $ 0.34 for each unit . the warrants expire after six years and are exercisable at $ 0.37 per share . our product development efforts are thus in their early stages and we can not make estimates of the costs or the time they will take to complete . the risk of completion of any program is high because of the many uncertainties involved in bringing new drugs to market including the long duration of clinical testing , the specific performance of proposed products under stringent clinical trial protocols , the extended regulatory approval and review cycles , our ability to raise additional capital , the nature and timing of research and development expenses and competing technologies being developed by organizations with significantly greater resources . critical accounting policies this discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states of america , or gaap . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements and the reported 58 amounts of revenue and expenses during the reported period . in accordance with gaap , we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 2 to our audited financial statements appearing elsewhere in this annual report , we believe the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements . going concern as of june 30 , 2014 we had $ 1.8 million in cash . net cash used in operating activities was $ 1.4 million for the year ended june 30 , 2014. as of june 30 , 2014 we had an accumulated deficit of $ 5.4 million .
| results of operations comparison of year ended june 30 , 2014 and period from may 15 , 2013 ( inception ) thru june 30 , 2013 replace_table_token_4_th we had no revenues during the year ended june 30 , 2014 or during the period from may 15 , 2013 ( inception ) thru june 30 , 2013 because we do not have any commercial biopharmaceutical products and we do not expect to have such products for several years , if at all . research and development expenses for the year ended june 30 , 2014 amounted to $ 0.3 million , which were primarily scientific advisory fees and clinical data storage . research and development expenses during the period may 15 , 2013 ( inception ) to june 30 , 2013 amounted to $ 122,427 were primarily scientific advisory fees and clinical data storage . 61 general and administrative expenses for the year ended june 30 , 2014 amounted to $ 1.4 million , which were primarily corporate legal and accounting services related to patent maintenance , form 10 filings and independent accounting review and audit of our interim financial statements and sec filings . general and administrative expenses during the period may 15 , 2013 ( inception ) to june 30 , 2013 amounted to $ 17,740 , which were primarily corporate legal and accounting services related to the formation of the company , patent maintenance and independent audit of our financial statements . net loss for the year ended june 30 , 2014 was approximately $ 5.3 million which was a result of the operating expenses discussed above , and a loss resulting from the change in fair value of derivative instrumentswarrants of $ 3.6 million during the current year .
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the operating results of a portfolio company may be unaudited , projected or pro forma financial information and may require adjustments for certain non-recurring items . in determining the operating results input story_separator_special_tag the information in this section contains forward-looking statements that involve risks and uncertainties . please see “ risk factors ” and “ forward-looking statements ” for a discussion of the uncertainties , risks and assumptions associated with these statements . you should read the following discussion in conjunction with the combined financial statements and related notes and other financial information appearing elsewhere in this annual report . the following discussion is designed to provide a better understanding of our financial statements , including a brief discussion of our business , key factors that impacted our performance and a summary of our operating results . the following discussion should be read in conjunction with the financial statements and the notes thereto included in item 8 of this annual report on form 10-k. historical results and percentage relationships among any amounts in the financial statements are not necessarily indicative of trends in operating results for any future periods . overview of our business we are a maryland corporation which has elected to be treated and operates as an internally managed business development company , or bdc , under the investment company act of 1940 , as amended , or 1940 act . our wholly-owned subsidiaries , triangle mezzanine fund lllp , or triangle sbic , triangle mezzanine fund ii lp , or triangle sbic ii and triangle mezzanine fund iii lp , or triangle sbic iii , are licensed as small business investment companies , or sbics , by the united states small business administration , or sba . in addition , triangle sbic has also elected to be treated as a bdc under the 1940 act . we , triangle sbic , triangle sbic ii and triangle sbic iii invest primarily in debt instruments , equity investments , warrants and other securities of lower middle market privately-held companies located primarily in the united states . our business is to provide capital to lower middle market companies in the united states . we focus on investments in companies with a history of generating revenues and positive cash flows , an established market position and a proven management team with a strong operating discipline . our target portfolio company has annual revenues between $ 20.0 million and $ 300.0 million and annual earnings before interest , taxes , depreciation and amortization , or ebitda , between $ 5.0 million and $ 75.0 million . we invest primarily in subordinated debt securities secured by second lien security interests in portfolio company assets , coupled with equity interests . on a more limited basis , we also invest in senior debt securities secured by first lien security interests in portfolio company assets . our investments generally range from $ 5.0 million to $ 50.0 million per portfolio company . in certain situations , we have partnered with other funds to provide larger financing commitments . we generate revenues in the form of interest income , primarily from our investments in debt securities , loan origination and other fees and dividend income . fees generated in connection with our debt investments are recognized over the life of the loan using the effective interest method or , in some cases , recognized as earned . in addition , we generate revenue in the form of capital gains , if any , on warrants or other equity-related securities that we acquire from our portfolio companies . our debt investments generally have a term of between three and seven years and typically bear interest at fixed rates between 10.0 % and 15.0 % per annum . certain of our debt investments have a form of interest , referred to as payment-in-kind , or pik , interest , that is not paid currently but is instead accrued and added to the loan balance and paid at the end of the term . in our negotiations with potential portfolio companies , we generally seek to minimize pik interest . cash interest on our debt investments is generally payable monthly ; however , some of our debt investments pay cash interest on a quarterly basis . as of december 31 , 2016 and 2015 , the weighted average yield on our outstanding debt investments other than non-accrual debt investments was 11.7 % and 12.2 % , respectively . the weighted average yield on all of our outstanding investments ( including equity and equity-linked investments but excluding non-accrual debt investments ) was 10.2 % and 10.6 % as of december 31 , 2016 and 2015 , respectively . the weighted average yield on all of our outstanding investments ( including equity and equity-linked investments and non-accrual debt investments ) was 9.7 % and 10.2 % as of december 31 , 2016 and 2015 , respectively . triangle sbic , triangle sbic ii and triangle sbic iii are eligible to issue debentures to the sba , which pools these with debentures of other sbics and sells them in the capital markets at favorable interest rates , in part as 64 a result of the guarantee of payment from the sba . triangle sbic , triangle sbic ii and triangle sbic iii invest these funds in portfolio companies . we intend to continue to operate triangle sbic , triangle sbic ii and triangle sbic iii as sbics , subject to sba approval , and to utilize the proceeds from the issuance of sba-guaranteed debentures , referred to herein as sba leverage , to enhance returns to our stockholders . portfolio composition the total value of our investment portfolio was $ 1.0 billion as of december 31 , 2016 , as compared to $ 977.3 million as of december 31 , 2015 . as of december 31 , 2016 , we had investments in 88 portfolio companies with an aggregate cost of $ 1.1 billion . story_separator_special_tag as of december 31 , 2016 , the cost of our debt investments in datapath was $ 5.4 million and the fair value of such investments was $ 2.4 million . gerli and company in november 2008 , we placed our debt investments in gerli and company , or gerli , on non-accrual status . as a result , under u.s. gaap , we no longer recognize interest income on our debt investments in gerli for financial reporting purposes . in the year ended december 31 , 2016 , we recognized total unrealized depreciation on our debt investments in gerli of $ 0.8 million . as of december 31 , 2016 , the cost of our debt investments in gerli was $ 3.4 million and the fair value was zero . powerdirect marketing , llc in august 2014 , we placed our debt investment in powerdirect marketing , llc , or powerdirect , on non-accrual status effective with the monthly payment due july 31 , 2014. as a result , under u.s. gaap , we no longer recognize interest income on our debt investment in powerdirect for financial reporting purposes . during the year ended december 31 , 2016 , we recorded unrealized depreciation of $ 0.3 million on our debt investment in powerdirect . as of december 31 , 2016 , the cost of our debt investment in powerdirect was $ 5.1 million and the fair value of such investment was $ 0.9 million . women 's marketing , inc. during the three months ended september 30 , 2016 , we placed our debt investment in women 's marketing , inc. , or women 's marketing , on pik non-accrual status . in december 2016 , we placed our debt investment in 67 women 's marketing on non-accrual status effective with the monthly payment due november 30 , 2016. as a result , under u.s. gaap , we no longer recognize interest income on our debt investment in women 's marketing for financial reporting purposes . during the year ended december 31 , 2016 , we recorded unrealized depreciation of $ 5.0 million on our debt investment in women 's marketing . as of december 31 , 2016 , the cost of our debt investment in women 's market was $ 16.1 million and the fair value of such investment was $ 11.1 million . pik non-accrual assets in addition to our non-accrual assets , as of december 31 , 2016 , we had a debt investment in one portfolio company ( our subordinated note to community intervention services , inc. ( 7 % cash , 6 % pik ) ) that was on non-accrual only with respect to the pik interest component of the loan . as of december 31 , 2016 , the fair value of this debt investment was $ 14.1 million , or 1.4 % of the total fair value of our portfolio and the cost of this debt investment was $ 17.7 million , or 1.6 % of the total cost of our portfolio . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > in connection with mr. burgess ' resignation . the increases related to mr. tucker and mr. burgess were partially offset by decreased discretionary compensation expenses . for the year ended december 31 , 2016 , general and administrative expenses increased by 13.1 % to $ 4.4 million from $ 3.9 million for the year ended december 31 , 2015 . in addition , our efficiency ratio ( defined as compensation and general and administrative expenses as a percentage of total investment income ) increased to 24.7 % for the year ended december 31 , 2016 from 18.9 % for the year ended december 31 , 2015 . net investment income as a result of the $ 7.6 million decrease in total investment income and the $ 5.1 million increase in operating expenses , net investment income for the year ended december 31 , 2016 was $ 58.9 million compared to net investment income of $ 71.6 million during the year ended december 31 , 2015 . net increase in net assets resulting from operations for the year ended december 31 , 2016 , we recognized net realized gains totaling $ 2.0 million , which consisted primarily of net gains on the sales/repayments of seventeen non-control/non-affiliate investments totaling $ 15.3 million and net gains on the sales/write-off of seven affiliate investments totaling $ 4.4 million , partially off-set by a loss on the restructuring of one non-control/non-affiliate investment totaling $ 1.6 million and a loss on the write-off of one non-control/non-affiliate investment totaling $ 16.1 million . in addition , for the year ended december 31 , 2016 , we recorded net unrealized depreciation of investments totaling $ 26.2 million , consisting of net unrealized depreciation on our current portfolio of $ 26.8 million and net unrealized appreciation reclassification adjustments of $ 0.6 million related to the realized gains and losses noted above . for the year ended december 31 , 2015 , we recognized net realized losses totaling $ 27.5 million , which consisted of losses on the restructuring/write-off of two control investments totaling $ 38.8 million and a loss on the write-off of one affiliate investment totaling $ 0.5 million , partially offset by net gains related to the sales/repayments of seven affiliate investments of $ 2.8 million and net gains on the sales/repayments of fourteen non-control/non-affiliate investments totaling $ 9.0 million . in addition , for the year ended december 31 , 2015 , we recorded net unrealized appreciation of investments totaling $ 5.5 million , consisting of net unrealized depreciation on our current portfolio of $ 21.6 million and net unrealized appreciation reclassification adjustments of $ 27.1 million related to the realized gains and losses noted above . as a result of these events , our net increase in net assets from operations during the year ended december 31 , 2016 was $ 34.3 million as compared to $ 47.9 million for the year ended december 31 , 2015 .
| results of operations comparison of years ended december 31 , 2016 and december 31 , 2015 investment income for the year ended december 31 , 2016 , total investment income was $ 113.7 million , a 6.3 % decrease from $ 121.3 million of total investment income for the year ended december 31 , 2015 . this decrease was primarily attributed to a $ 4.7 million decrease in non-recurring fee income and a $ 3.0 million decrease in non-recurring dividend income . non-recurring fee income was $ 5.2 million for the year ended december 31 , 2016 , as compared to $ 9.9 million for the year ended december 31 , 2015 , and non-recurring dividend income was $ 2.0 million for the year ended december 31 , 2016 , as compared to $ 5.0 million for the year ended december 31 , 2015 . our non-recurring dividend income during the year ended december 31 , 2016 consisted of non-recurring dividend income of approximately $ 3.3 million and a negative true-up adjustment of $ 1.3 million related to a portfolio company distribution that was received in 2015. in 2015 , we received information that indicated that the tax character of the distribution was 100 % dividend income , but received updated information in 2016 indicating that only 14 % of the distribution was dividend income and the remainder was a return of capital , which necessitated the adjustment . operating expenses for the year ended december 31 , 2016 , operating expenses increased by 10.4 % to $ 54.8 million from $ 49.7 million for the year ended december 31 , 2015 . our operating expenses consist of interest and other financing fees , compensation expenses and general and administrative expenses . for the year ended december 31 , 2016 , interest and other financing fees were $ 26.7 million as compared to $ 26.8 million for the year ended december 31 , 2015 .
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deferred tax assets and liabilities are recognized for the anticipated future tax consequences of temporary differences between the balance sheet carrying amounts of assets and liabilities and their respective tax bases . deferred taxes are based on income tax rates in effect for the years in which temporary differences story_separator_special_tag the following discussion should be read in conjunction with , and is qualified in its entirety by reference to , the consolidated financial statements and related notes appearing elsewhere in this report . see also the section titled “ forward-looking statements. ” overview centrus energy corp. , a delaware corporation ( “ centrus ” or the “ company ” ) , is a trusted supplier of nuclear fuel and services for the nuclear power industry . references to “ centrus ” , the “ company ” , “ our ” , or “ we ” include centrus energy corp. and its wholly owned subsidiaries as well as the predecessor to centrus , unless the context otherwise indicates . centrus operates two business segments : ( a ) low-enriched uranium ( “ leu ” ) , which supplies various components of nuclear fuel to utilities , and ( b ) technical solutions , which provides advanced engineering , design , and manufacturing services to government and private sector customers . the technical solutions segment was formerly our contract services segment . the segment was renamed the technical solutions segment on december 31 , 2019 , to better reflect the nature of work performed and is consistent with our marketing of service offerings as centrus technical solutions . there was no change to the composition of the segment as a result of the re-naming . our leu segment provides most of the company 's revenue and involves the sale of leu , its components , and natural uranium to utilities operating commercial nuclear power plants . leu is a critical component in the production of nuclear fuel for reactors that produce electricity . we supply leu to both domestic and international utilities for use in nuclear reactors worldwide . we provide leu from multiple sources including our inventory , medium- and long- term supply contracts and spot purchases . as a long-term supplier of leu to our customers , our objective is to provide value through the reliability and diversity of our supply sources . our long-term goal is to resume commercial enrichment production , and we are exploring approaches to that end . our technical solutions segment utilizes the unique technical expertise , operational experience and specialized facilities that we developed over nearly two decades as part of our uranium enrichment technology program . we are leveraging these capabilities to expand and diversify our business beyond uranium enrichment , offering new services to existing and new customers in complementary markets . with the specialized capabilities and workforce at our technology and manufacturing center in oak ridge , tennessee , we are performing technical , engineering and manufacturing services for a range of commercial and government customers and actively working to secure new customers . our experience developing , licensing , manufacturing and operating advanced nuclear components and systems positions us to provide critical design , engineering , manufacturing and other services to a broad range of potential clients , including those involving sensitive or classified technologies . this work includes design , engineering , manufacturing and licensing services support for advanced reactor and fuel fabrication projects as well as decontamination and decommissioning ( “ d & d ” ) work . with several decades of experience in enrichment , we continue to be a leader in the development of an advanced u.s. uranium enrichment technology , which we believe could play a critical role in supplying fuel for advanced reactors , meeting u.s. national and energy security needs , and achieving our nation 's nonproliferation objectives . on october 31 , 2019 , we signed a three-year cost-share contract ( the “ haleu contract ” ) with doe to deploy a cascade of centrifuges to demonstrate production of high-assay , low-enriched uranium ( “ haleu ” ) fuel with existing united states origin enrichment technology and provide doe with haleu for near term use in its research and development for the advancement of civilian nuclear energy and national security , as well as other programmatic missions . the program has been under way since may 31 , 2019 , when the company and doe signed a preliminary agreement that allowed work to begin while the haleu contract was being finalized . 40 under the haleu contract , doe agreed to reimburse the company for 80 % of its costs incurred in performing the contract , up to a maximum of $ 115 million . the company 's cost share is the corresponding 20 % and any costs incurred above these amounts . costs under the haleu contract include program costs , including direct labor and materials and associated indirect costs that are classified as cost of sales , and an allocation of corporate costs supporting the program that are classified as selling , general and administrative expenses . services to be provided over the three-year contract include constructing and assembling centrifuge machines and related infrastructure in a cascade formation . when estimates of remaining program costs to be incurred for such an integrated , construction-type contract exceed estimates of total revenue to be earned , a provision for the remaining loss on the contract is recorded to cost of sales in the period the loss is determined . our corporate costs supporting the program are recognized as expense as incurred over the duration of the contract term . as of december 31 , 2019 , the portion of our anticipated cost share under the haleu contract representing our share of remaining projected program costs was recognized in cost of sales as an accrued loss of $ 18.3 million . the accrued loss on the contract will be adjusted over the remaining contract term based on actual results and remaining program cost projections . story_separator_special_tag during 2020 , two nuclear new build nations are expected to start their first commercial reactors . the new reactor builds will have the potential to improve market conditions in the long-term . revenue we have two reportable segments : the leu segment and the technical solutions segment . revenue from our leu segment is derived primarily from : sales of the swu component of leu ; sales of both the swu and uranium components of leu ; and sales of natural uranium . our technical solutions segment reflects our technical , manufacturing , engineering and operations services offered to public and private sector customers , including engineering and testing activities as well as technical and resource support currently being performed by the company . this includes our agreement with doe to demonstrate haleu production and a variety of other contracts with public and private sector customers . swu and uranium sales revenue from our leu segment accounted for approximately 81 % of our total revenue in 2019. the majority of our customers are domestic and international utilities that operate nuclear power plants , with international sales constituting approximately one-third of revenue from our leu segment in recent years . our agreements with electric utilities are primarily long-term , fixed-commitment contracts under which our customers are obligated to purchase a specified quantity of the swu component of leu from us . our agreements for natural uranium and 42 enriched uranium product sales , where we sell both the swu and uranium component of leu , are generally shorter-term , fixed-commitment contracts . our revenues , operating results and cash flows can fluctuate significantly from quarter to quarter and year to year . revenue is recognized at the time leu or uranium is delivered under the terms of our contracts . the timing of customer deliveries is affected by , among other things , electricity markets , reactor operations , maintenance and refueling outages , and customer inventories . in the current market environment , some customers are building inventories and may choose to take deliveries under annual purchase obligations later in the year . customer payments for the swu component of leu average roughly $ 10 million per order . as a result , a relatively small change in the timing of customer orders for leu may cause significant variability in operating results . utility customers in general have the option to defer receipt of uranium products purchased from centrus beyond the contractual sale period , resulting in the deferral of costs and revenue recognition . refer to note 2 , revenue and contracts with customers , in the consolidated financial statements for further details . our financial performance over time can be significantly affected by changes in prices for swu and uranium . since 2011 , market prices for swu and uranium have significantly declined . since our sales order book includes contracts awarded to us in previous years , the average swu price billed to customers typically lags behind published price indicators by several years . while newer sales reflect the low prices prevalent in recent years , certain contracts included in our order book have sales prices that are significantly above current market prices . the long-term swu price indicator , as published by tradetech , llc in nuclear market review , is an indication of base-year prices under new long-term enrichment contracts in our primary markets . the following chart summarizes tradetech 's long-term and spot swu price indicators , and tradetech 's spot price indicator for natural uranium hexafluoride ( “ uf6 ” ) : swu and uranium market price indicators * * source : nuclear market review , a tradetech publication , www.uranium.info 43 our contracts with customers are primarily denominated in u.s. dollars , and although revenue has not been directly affected by changes in the foreign exchange rate of the u.s. dollar , we may have a competitive price advantage or disadvantage obtaining new contracts in a competitive bidding process depending upon the weakness or strength of the u.s. dollar . costs of our primary competitors are denominated in other currencies . our contracts with suppliers have historically been denominated in u.s. dollars . in 2018 , however , we entered into an agreement with orano cycle ( “ orano ” ) for the long-term supply of swu . we may elect to begin deliveries as early as 2021. purchases under the contract with orano will be payable in a combination of u.s dollars and euros and we may be subject to exchange rate risk for the portion of purchases payable in euros . on occasion , we will accept payment in the form of uranium . revenue from the sale of swu under such contracts is recognized at the time leu is delivered and is based on the fair value of the uranium at contract inception , or as the quantity of uranium is finalized , if variable . cost of sales for swu and uranium is based on the amount of swu and uranium sold and delivered during the period and unit inventory costs . unit inventory costs are determined using the average cost method . changes in purchase costs have an effect on inventory costs and cost of sales over current and future periods . cost of sales includes costs for inventory management at off-site licensed locations . cost of sales also includes certain legacy costs related to former employees of the portsmouth and paducah gaseous diffusion plants . market uncertainties imports into the united states of leu and other uranium products produced in the russian federation , including leu imported by centrus under the russian supply agreement , are subject , through december 31 , 2020 , to quotas imposed under legislation enacted into law in september 2008 and under the 1992 russian suspension agreement ( “ rsa ” ) , as amended in 2008. these quotas limit the amount of russian leu that can be imported into the united states for u.s. consumption .
| results of operations segment information the following table presents elements of the accompanying consolidated statements of operations that are categorized by segment ( dollar amounts in millions ) : replace_table_token_1_th revenue revenue from the leu segment increased $ 5.0 million ( or 3 % ) in 2019 compared to 2018. swu revenue declined $ 6.9 million ( or 5 % ) in 2019 compared to 2018. the volume of swu sales declined 24 % and the average swu price billed to customers increased 24 % , reflecting the particular contracts under which swu were sold during the periods . uranium revenue increased $ 11.9 million ( or 35 % ) in 2019 compared to 2018. the volume of uranium sales increased 29 % and the average uranium price billed to customers increased 5 % . revenue from the technical solutions segment increased $ 11.7 million ( or 41 % ) in 2019 compared to 2018 , primarily the result of work performed under the haleu contract and the k-1600 d & d contract , partially offset by a decrease in work performed under the ut-battelle contract . revenue in 2018 included $ 9.5 million related to the january 2018 settlement with doe related to past work performed . cost of sales cost of sales for the leu segment declined $ 69.1 million ( or 37 % ) in 2019 compared to 2018 , primarily reflecting a decline in the average cost of sales per swu and the changes in swu and uranium sales volumes . in 2019 , the average cost of sales per swu declined 38 % , primarily due to lower pricing under the russian supply agreement .
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during the years ended december 31 , 2017 , 2016 and 2015 , the company entered into sales agreements with third-party firms whereby the company sold charged off customer loans to the third party . the agreements meet the sale criteria , and as a result , proceeds of approximately $ 31.8 million , $ 25.6 story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this annual report 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 , includes forward-looking statements that involve risks and uncertainties . you should review the “ risk factors ” and `` note about forward-looking statements '' sections of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . we generally refer to loans , customers and other information and data associated with each of rise , elastic and sunny as elevate 's loans , customers , information and data , irrespective of whether elevate directly originates the credit to the customer or whether such credit is originated by a third party . overview we provide online credit solutions to consumers in the us and the uk who are not well-served by traditional bank products and who are looking for better options than payday loans , title loans , pawn and storefront installment loans . non-prime consumers now represent a larger market than prime consumers but are risky to underwrite and serve with traditional approaches . we 're succeeding at it - and doing it responsibly - with best-in-class advanced technology and proprietary risk analytics honed by serving approximately 1.9 million customers with $ 5.2 billion in credit . our current online credit products , rise , elastic and sunny , reflect our mission to provide customers with access to competitively priced credit and services while helping them build a brighter financial future with credit building and financial wellness features . we call this mission `` good today , better tomorrow . '' we earn revenues on the rise and sunny installment loans and on the rise and elastic lines of credit . for all three products , our revenues , which primarily consist of finance charges , are driven by our average loan balances outstanding and by the average annual percentage rate ( “ apr ” ) associated with those outstanding loan balances . we calculate our average loan balances by taking a simple daily average of the ending loan balances outstanding for each period . we present certain key metrics and other information on a “ combined ” basis to reflect information related to loans originated by us and loans originated by republic bank , as well as loans originated by third-party lenders pursuant to cso programs , which loans originated through cso programs are not recorded on our balance sheet in accordance with us gaap . see “ —key financial and operating metrics ” and “ —non-gaap financial measures. ” we have experienced rapid growth since launching our current generation of product offerings in 2013. since their introduction , through december 31 , 2017 , rise , elastic and sunny , together , have provided approximately $ 3.8 billion in credit to approximately 1.1 million customers and generated strong growth in revenues and loans outstanding . our revenues for the year ended december 31 , 2017 grew 16 % compared to revenues for 2016 . our combined loan principal balances grew 29 % from $ 481.2 million as of december 31 , 2016 to $ 618.4 million as of december 31 , 2017 . for additional information about our combined loan balances please see “ —non-gaap financial measures—combined loan information. ” we use our working capital , funds provided by third-party lenders pursuant to cso programs and our credit facility with victory park management , llc ( `` vpc ” ) to fund the loans we make to our customers . prior to january 2014 , we funded all of our loans to customers out of our existing cash flows . on january 30 , 2014 , we entered into an agreement with vpc to provide a credit facility ( “ vpc facility ” ) in order to fund our rise and sunny products and provide working capital . since originally entering into the vpc facility , it has been amended several times to increase the maximum total borrowing amount available from the original amount of $ 250 million to approximately $ 433 million at december 31 , 2017 . see “ —liquidity and capital resources—debt facilities. ” 70 the elastic line of credit product is originated by a third-party lender , republic bank , which initially provides all of the funding for that product . republic bank retains 10 % of the balances of all loans originated and sells a 90 % loan participation in the elastic lines of credit . we purchased these loan participations ourselves through june 30 , 2015 and thus earned 90 % of the revenues and incurred 90 % of the losses associated with the elastic product through that date . due to the significant growth in elastic , commencing july 1 , 2015 , a new structure was implemented such that the loan participations are sold by republic bank to elastic spv , ltd. ( “ elastic spv ” ) and elastic spv receives its funding from vpc in a separate financing facility ( the “ espv facility ” ) , which was finalized on july 13 , 2015. we do not own elastic spv but we have a credit default protection agreement with elastic spv whereby we provide credit protection to the investors in elastic spv against elastic loan losses in return for a credit premium . story_separator_special_tag all loan balance metrics include only the 90 % participation in the related elastic line of credit advances ( we exclude the 10 % held by republic bank ) , but include the full loan balances on cso loans , which are not presented on our balance sheet . total combined loans originated- principal . the amount of loans originated in a period is driven primarily by loans to new customers as well as new loans to prior customers , including refinancings of existing loans to customers in good standing . average customer loan balance and effective apr of combined loan portfolio . the average loan amount and its related apr are based on the product and the underlying credit quality of the customer . generally , better credit quality customers are offered higher loan amounts at lower aprs . additionally , new customers have more potential risk of loss than prior or existing customers due to lack of payment history and the potential for fraud . as a result , newer customers typically will have lower loan amounts and higher aprs to compensate for that additional risk of loss . the effective apr is calculated based on the actual amount of finance charges generated from a customer loan divided by the average outstanding balance for the loan , and can be lower than the stated apr on the loan due to waived finance charges and other reasons . for example , a rise customer may receive a $ 2,000 installment loan with a term of 24 months and a stated rate of 180 % . in this example , the customer 's monthly installment loan payment would be $ 310.86. as the customer can prepay the loan balance at any time with no additional fees or early payment penalty , the customer pays the loan in full in month eight . the customer 's loan earns interest of $ 2,337.81 over the eight month period and has an average outstanding balance of $ 1,948.17. the effective apr for this loan is 180 % over the eight month period calculated as follows : ( $ 2,337.81 interest earned / $ 1,948.17 average balance outstanding ) x 12 months per year = 180 % 8 months 72 in addition , as an example for elastic , if a customer makes a $ 2,500 draw on the customer 's line of credit and this draw required bi-weekly minimum payments of 5 % ( equivalent to 20 bi-weekly payments ) , and if all minimum payments are made , the draw would earn finance charges of $ 1,148. the effective apr for the line of credit in this example is 109 % over the payment period and is calculated as follows : ( $ 1,148.00 fees earned / $ 1,369.05 average balance outstanding ) x 26 bi-weekly periods per year = 109 % 20 payments the actual amount of revenue we realize on a loan portfolio is also impacted by the amount of prepayments and charged-off customer loans in the portfolio . for a single loan , on average , we typically expect to realize approximately 60 % of the revenues that we would otherwise realize if the loan were to fully amortize at the stated apr . from the rise example above , if we waived $ 400 of interest for this customer , the effective apr for this loan would decrease to 149 % . number of new customer loans . we define a new customer loan as the first loan made to a customer for each of our products ( so a customer receiving a rise installment loan and then at a later date taking their first cash advance on an elastic line of credit would be counted twice ) . the number of new customer loans is subject to seasonal fluctuations . new customer acquisition is typically slowest during the first six months of each calendar year , primarily in the first quarter , compared to the latter half of the year , as our existing and prospective us customers usually receive tax refunds during this period and , thus , have less of a need for loans from us . further , many us customers will use their tax refunds to prepay all or a portion of their loan balance during this period , so our overall loan portfolio typically decreases during the first quarter of the calendar year . overall loan portfolio growth and the number of new customer loans tends to accelerate during the summer months ( typically june and july ) , at the beginning of the school year ( typically late august to early september ) and during the winter holidays ( typically late november to early december ) . customer acquisition costs . a key expense metric we monitor related to loan growth is our cac . this metric is the amount of direct marketing costs incurred during a period divided by the number of new customer loans originated during that same period . new loans to former customers are not included in our calculation of cac ( except to the extent they receive a loan through a different product ) as we believe we incur no material direct marketing costs to make additional loans to a prior customer through the same product . 73 the following tables summarize the changes in customer loans by product for the years ended december 31 , 2017 , 2016 and 2015 . replace_table_token_9_th replace_table_token_10_th replace_table_token_11_th recent trends . our revenues for the year ended december 31 , 2017 totaled $ 673.1 million , up 16 % versus the year ended december 31 , 2016 . our revenues for the year ended december 31 , 2016 totaled $ 580.4 million , up 34 % versus the year ended december 31 , 2015 .
| results of operations the following table sets forth our consolidated statements of operations data for each of the periods indicated : replace_table_token_20_th 86 replace_table_token_21_th comparison of the years ended december 31 , 2017 and 2016 revenues replace_table_token_22_th 87 revenues increased by $ 92.7 million , or 16 % , from $ 580.4 million for the year ended december 31 , 2016 to $ 673.1 million for the year ended december 31 , 2017 . this growth in revenues was primarily attributable to increased finance charges driven by growth in our average loan balances , partially offset by a decrease in our overall apr , as illustrated in the tables below . in addition , the delay in the 2017 tax refund season cost us approximately $ 10 million of revenue growth this year . we also recognized approximately $ 5 million less revenue this year , primarily related to elastic , resulting from the 2017 hurricanes . the september and october 2017 direct mail drops for acquiring elastic customers , which we committed to in early august 2017 , had much lower customer response rates in texas and florida . over time , we expect our average customer loan balance to continue to increase and the related overall effective apr of our loan portfolio to decrease as our loan portfolio continues to grow and mature with more existing and repeat customers who pay lower interest rates over time . the increase in other revenues was due to an increase in marketing and licensing fees received from the originating lenders related to the elastic product and rise cso programs . the tables below break out this change in revenue ( including cso fees and cash advance fees ) by product : replace_table_token_23_th _ ( 1 ) average combined loans receivable – principal is calculated using daily principal balances .
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ft. store in union , new jersey and closed our existing 40,000 sq . ft. store . village is the second largest member of wakefern food corporation ( “ wakefern ” ) , the nation 's largest retailer-owned food cooperative and owner of the shoprite name . this ownership interest in wakefern provides village many of the economies of scale in purchasing , distribution , advanced retail technology , marketing and advertising associated with larger chains . the company 's stores , six of which are owned , average 59,000 total square feet . these larger store sizes enable the company 's stores to provide a “ one-stop ” shopping experience and to feature expanded higher margin specialty departments such as an on-site bakery , an expanded delicatessen , a variety of natural and organic foods , ethnic and international foods , prepared foods and pharmacies . during fiscal 2014 , sales per store were $ 52,367 and sales per average square foot of selling space were $ 1,153. management believes these figures are among the highest in the supermarket industry . the supermarket industry is highly competitive and characterized by narrow profit margins . the company competes directly with multiple retail formats , including national , regional and local supermarket chains as well as warehouse clubs , supercenters , drug stores , discount general merchandise stores , fast food chains , restaurants , dollar stores and convenience stores . village competes by using low pricing , superior customer service , and a broad range of consistently available quality products , including shoprite private labeled products . the shoprite price plus card also strengthens customer loyalty . 11 many of our stores emphasize a power alley , which features high margin , fresh , convenience offerings in an area within the store that provides quick customer entry and exit for those customers shopping for today 's lunch or dinner . the greater morristown and union stores include the village food garden concept previously introduced in our remodeled livingston store . village food garden features a restaurant style kitchen , and several kiosks offering a wide variety of store prepared specialty foods for both take-home and in-store dining . village also has on-site registered dieticians in thirteen stores that provide customers with free , private consultations on healthy meals and proper nutrition , as well as leading health related events both in store and in the community as part of the live right with shoprite program . wakefern and village have responded to customers increased use of the internet by creating a smart phone app and shoprite.com to provide weekly advertising and other shopping information . in addition , on-line shopping is available in twelve store locations with store pick-up and delivery options servicing our current market . we consider a variety of indicators to evaluate our performance , such as same store sales ; percentage of total sales by department ( mix ) ; shrink ; departmental gross profit percentage ; sales per labor hour ; and hourly labor rates . the company utilizes a 52 - 53 week fiscal year , ending on the last saturday in the month of july . fiscal 2014 , 2013 and 2012 contain 52 weeks . story_separator_special_tag are distributions received from two partnerships that exceeded the invested amounts . the company 's partnership interests resulted from its leasing of supermarkets in two shopping centers . the company remains a tenant in one of these shopping centers . interest expense interest expense was $ 3,602 , $ 3,771 and $ 4,415 , in fiscal 2014 , 2013 and 2012 , respectively . interest expense decreased in fiscal 2014 and 2013 compared to fiscal 2012 due to interest costs capitalized in fiscal 2014 and 2013 , and interest incurred on a pension withdrawal liability included in fiscal 2012. interest income interest income was $ 2,622 , $ 2,783 and $ 2,571 in fiscal 2014 , 2013 and 2012 , respectively . income taxes the company 's effective income tax rate was 82.5 % , 42.2 % and 41.5 % in fiscal 2014 , 2013 and 2012 , respectively . as described in note 5 to the consolidated financial statements , income taxes in fiscal 2014 includes a $ 10,052 charge related to tax positions taken in prior years as a result of the unfavorable ruling by the new jersey tax court . excluding this charge , the effective tax rate was 47.6 % in fiscal 2014 compared to 42.2 % in the prior year . the increase in the effective tax rate is due to the impact of new jersey tax court decision including increased accrued interest and penalties in the current year . 13 net income net income was $ 5,045 in fiscal 2014 compared to $ 25,784 in fiscal 2013. fiscal 2014 includes a $ 11,608 increase to income tax expense as a result of the unfavorable ruling by the new jersey tax court , a charge for future lease obligations due to the closure of the morris plains and union stores of $ 2,551 ( net of tax ) and pre-opening costs for the replacement stores in greater morristown and union of $ 1,141 ( net of tax ) , while fiscal 2013 includes income from the national credit card lawsuit of $ 693 ( net of tax ) , income from a partnership distribution of $ 840 ( net of tax ) and a charge for the settlement of a landlord dispute of $ 376 ( net of tax ) . excluding these items from both fiscal years , net income in fiscal 2014 declined 17 % compared to the prior year primarily due to flat same store sales , higher operating expenses as a percentage of sales , and higher depreciation expense . story_separator_special_tag sensitivity to changes in the major assumptions used in the calculation of the company 's pension plans is as follows : percentage point change projected benfit obligation decrease ( increase ) expense decrease ( increase ) discount rate + / - 1.0 % $ 10,214 ( $ 12,844 ) $ 403 ( $ 482 ) expected return on assets + / - 1.0 % - $ 425 ( $ 425 ) village contributed $ 3,320 and $ 3,254 in fiscal 2014 and 2013 , respectively , to these company-sponsored pension plans . village expects to contribute $ 6,000 in fiscal 2015 to these plans . the 2014 and 2013 contributions are substantially all voluntary contributions . the company also contributes to several multi-employer pension plans based on obligations arising from collective bargaining agreements . these plans provide retirement benefits to participants based on their service to contributing employers . we recognize expense in connection with these plans as contributions are funded . uncertain tax positions the company is subject to periodic audits by various taxing authorities . these audits may challenge certain of the company 's tax positions such as the timing and amount of deductions and the allocation of income to various tax jurisdictions . accounting for these uncertain tax positions requires significant management judgment . actual results could materially differ from these estimates and could significantly affect the effective tax rate and cash flows in future years . as discussed in note 5 of the accompanying notes to the consolidated financial statements , the company is currently in the process of appealing an unfavorable decision by the new jersey tax court regarding tax assessments received from the state of new jersey . as a result of the decision , we have increased our accrued tax liability to reflect the estimated total tax , interest and penalties due if the company is unable to overturn the court 's decision upon appeal . a favorable resolution would result in a material reduction in gross unrecognized tax benefits and related accrued interest and penalties . recently issued accounting standards in may 2014 , the financial accounting standards board issued accounting standards update ( `` asu '' ) no . 2014-09 , “ revenue from contracts with customers , ” which provides guidance for revenue recognition . the standard 's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services . the new guidance is effective for annual reporting periods beginning after december 15 , 2016 , including interim periods within that reporting period . early application is not permitted . the company is currently assessing the potential impact of asu no . 2014-09 on its financial statements . 15 liquidity and capital resources cash flows net cash provided by operating activities was $ 52,447 in fiscal 2014 compared to $ 51,273 in the corresponding period of the prior year . during fiscal 2014 , village used cash to fund capital expenditures of $ 50,322 , dividends of $ 12,432 and invested an additional $ 18,177 in notes receivable from wakefern . capital expenditures include the construction of two replacement stores . net cash provided by operating activities was $ 51,273 in fiscal 2013 compared to $ 43,432 in the corresponding period of the prior year . this increase is primarily attributable to the prior year including a settlement of a $ 7,028 pension liability and changes in the timing of payables . during fiscal 2013 village used cash to fund capital expenditures of $ 21,888 and dividends of $ 24,048. capital expenditures include substantial remodels of three stores and the site work and beginning of construction of a replacement store . dividends paid include $ 12,009 of special dividends . liquidity and debt working capital was $ 16,782 , $ 94,299 , and $ 71,672 at july 26 , 2014 , july 27 , 2013 and july 28 , 2012 , respectively . the decrease in working capital in fiscal 2014 compared to prior year is due primarily to the $ 40,598 investment in long-term notes receivable , increased income tax liabilities as result of the new jersey tax court decision and capital expenditures . working capital ratios at the same dates were 1.11 , 1.85 , and 1.72 to one , respectively . the company 's working capital needs are reduced , since inventories are generally sold by the time payments to wakefern and other suppliers are due . village has budgeted approximately $ 25,000 for capital expenditures in fiscal 2015. planned expenditures include three major remodels and several smaller remodels . the company 's primary sources of liquidity in fiscal 2015 are expected to be cash and cash equivalents on hand at july 26 , 2014 and operating cash flow generated in fiscal 2015. on february 15 , 2014 , village received $ 23,420 as prepayment of notes receivable due from wakefern . these notes earned interest at a fixed rate of 7 % . the company invested the proceeds received and additional funds previously invested in demand deposits at wakefern in variable rate notes receivable from wakefern of $ 40,000 on february 15 , 2014. half of these notes earn interest at the prime rate plus .25 % and mature in 3.5 years and half earn interest at the prime rate plus 1.25 % and mature in 5 years . wakefern has the right to prepay these notes at any time . under certain conditions , the company can require wakefern to prepay the notes , although interest earned since inception would be reduced as if it was earned based on overnight money market rates as paid by wakefern on demand deposits . village has an unsecured revolving credit agreement providing a maximum amount available for borrowing of $ 25,000. this loan agreement expires on december 31 , 2015. the revolving credit line can be used for general corporate purposes .
| results of operations the following table sets forth the components of the consolidated statements of operations of the company as a percentage of sales : replace_table_token_6_th sales sales were $ 1,518,636 in fiscal 2014 , an increase of $ 42,179 , or 2.9 % from the prior year . sales increased due to the opening of the greater morristown replacement store on november 6 , 2013 and union replacement store on april 30 , 2014. same store sales increased .2 % due to increased sales in both maryland stores and in stores that were closed for periods of up to eight days in the prior year due to superstorm sandy , partially offset by lower sales due to three store openings by competitors , very high sales in the prior year as customers prepared for superstorm sandy , and reduced sales in stores that reopened quickly after the storm . new stores and replacement stores are included in same store sales in the quarter after the store has been in operation for four full quarters . store renovations are included in same store sales immediately . sales were $ 1,476,457 in fiscal 2013 , an increase of $ 54,214 , or 3.8 % from the prior year . sales increased due to the acquisition of a store in old bridge , nj on january 29 , 2012 and a same store sales increase of 2.9 % . same store sales increased due to higher sales as customers prepared for superstorm sandy , improved sales at the stores that reopened quickly after that storm and higher sales in the two stores in maryland . sales continued to be impacted by economic weakness , high gas prices and high unemployment , which has resulted in increased sale item penetration and trading down . 12 gross profit gross profit as a percentage of sales decreased .04 % in fiscal 2014 compared to the prior year primarily due to decreased departmental gross margin percentages ( .33 % ) .
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see `` caution regarding forward-looking statements '' at the beginning of this report . forward-looking statements are not guarantees of future performance , and our actual results may differ significantly from the results discussed in the forward-looking statements . factors that might cause such differences include , but are not limited to , those discussed in the subsection entitled `` risk factors '' above . we assume no obligation to revise or update any forward-looking statements for any reason , except as required by law . overview we are a leading national provider of managed network services , specializing in business ethernet , data networking , converged , ip vpn , internet access , voice , including voip , and network security services to enterprise organizations , including public sector entities , and carriers throughout the u.s. , including their global locations . our revenue is derived from business communication services , including data , high-speed internet access , network and voice services . our customers include enterprise organizations in a wide variety of industry segments including , among others , the financial services , technology and scientific , health care , distribution , manufacturing and professional services industries , data centers , cloud application providers , public sector entities , system integrators and communications service providers , including ilecs , clecs , wireless communications companies and cable companies . through our subsidiaries , we serve 75 metropolitan markets with local fiber networks that are connected to our regional fiber facilities and national ip backbone . as of december 31 , 2013 , our fiber network spanned over 30,000 route miles ( including approximately 23,000 metropolitan route miles ) connecting to 20,255 buildings served directly by our metropolitan fiber facilities . included in the total buildings served directly by our local fiber facilities are approximately 470 third party data centers across the country where customers deploy their own equipment or connect to cloud application providers . in 2013 , we added approximately 2,300 new buildings directly connected to our network . in addition , we are able to extend our reach beyond our fiber networks by providing off-network solutions to customers within and outside our 75 markets . we continue to extend our fiber footprint within our existing markets by connecting our network into additional locations and to expand our data , voice and ip networking capabilities between our markets , supporting secure end-to-end business ethernet , ip vpn and converged solutions for customers . unless otherwise indicated , information contained in this annual report on form 10-k regarding our u.s. metropolitan markets and fiber network route miles does not give effect to our strategic market expansion discussed below . in november 2013 , we announced a strategic market expansion , which we expect to increase our addressable market by expanding our metropolitan fiber route miles by approximately 17 % , including entry into five new markets and accelerating density of our metropolitan fiber footprint in 27 existing markets . the new markets are boston , philadelphia , cleveland , richmond and salt lake city . as part of this expansion , we are also increasing our regional fiber footprint for greater capacity , increased network control and more cost effective connectivity . to facilitate this expansion , we entered into long-term capital leases for fiber that we plan to light with our own electronics . the initial term of the leases is 20 years , with two ten-year renewals at our option , and automatic annual renewals thereafter until termination by either party . we plan to integrate our expanded fiber with our networks , technology , data and tools by the end of 2014 in order to be able to provide our advanced services to those areas , and throughout 2013 to activate new routes in our new and existing markets for sales of services to our customers . we recognized a right-to-use asset and corresponding capital lease obligation of $ 119.8 million in the three months ended december 31 , 2013 , representing the present value of the minimum commitment under the fiber leases , which are expected to result in aggregate committed lease payments over the initial 20 year lease term of $ 216.5 million . revenue trends although we analyze revenue by customer type , we present our financial results as one segment across the u.s. because our business is centrally managed . the percentage of revenue by customer type for each of the past three years is as follows : replace_table_token_10_th 33 total revenue our revenue has grown sequentially for the past 37 consecutive quarters through december 31 , 2013 , including throughout various economic cycles . our annual year-over-year revenue growth rate increased over each of the years ended december 31 , 2010 , 2011 and 2012 and was 5.1 % , 7.4 % and 7.6 % , respectively . these higher year-over-year revenue growth rates were primarily due to increased demand , low revenue churn and an increase in certain taxes and fees that are reported on a gross versus net basis in revenue and expense . we also believe that our new and enhanced services , our customer experience initiatives to increase customer loyalty and retention and improved economic conditions contributed to our growing revenue . in 2012 , we began to experience lower year-over-year quarterly revenue growth rates compared to the same periods in the prior year and continued to experience a lower year-over-year revenue growth rate in the three months ended december 31 , 2013. in addition , our 2013 annual revenue growth rate of 6.4 % was lower than the prior year . in 2013 , we commenced several growth initiatives focused on increasing sales to capture growing market demand and share and designed to increase our revenue growth rate . in the second half of 2013 , we had higher growth in our sales , or `` bookings '' ( i.e . , signed contracts ) , and service installations year over year , which we believe was the result of our growth initiatives . story_separator_special_tag as a component of revenue churn , revenue lost from customers fully disconnecting services was 0.2 % for each of the years ended december 31 , 2011 , 2012 and 2013 . we continue our initiatives to maintain revenue churn that is low relative to our industry , but do not expect contribution to our revenue growth rate from a lower revenue churn rate . if our revenue churn were to increase , our revenue growth would likely be negatively impacted . if we experience another adverse economic cycle , we could experience higher revenue churn that would likely negatively impact our revenue growth . we can not predict the total impact on revenue from future customer disconnections or the timing of such disconnections or whether these favorable churn trends will continue . customer churn , defined as the average monthly customer turnover for the period compared to the average monthly customer count for the period , was 1.0 % , 1.0 % and 0.9 % for the years ended december 31 , 2011 , 2012 and 2013 , respectively . the majority of this churn came from our smaller customers , which we expect will continue . pricing we experience significant price competition from the ilecs , clecs and cable companies across our service categories that impacts our revenue . we also believe that technology advancements over the years in the telecommunications industry have resulted in lower unit costs for some electronics and equipment that drives customer demand for higher bandwidth at the same or lower prices . service agreements in our industry typically range from two to five years , with fixed pricing for the contract term . when contracts are renewed with no changes to the services , pricing is frequently reduced to current market levels as a renewal incentive . the impact of those price reductions on our revenue may fluctuate from quarter to quarter . in addition , during the terms of agreements , customers often purchase additional services or increase or decrease the bandwidth of existing services , subject to applicable early termination charges , depending on their business needs . in some cases , the impact of re-pricing is mitigated by customers ' purchases of additional bandwidth or services . expenses and modified ebitda trends pricing of special access services we purchase a substantial amount of special access services primarily from ilecs to expand the reach of our network . while these ilec services are regulated in part , the ilecs are advocating before the fcc for less regulation ( see `` business -- regulatory environment '' ) . if the special access services we buy from the ilecs were to be further deregulated , ilecs would have a greater ability to increase the prices and reduce the service quality of special access services they sell to us . as the prices we must pay for special access services increase , our margins may be pressured . modified ebitda trends and growth initiatives we regularly implement various initiatives designed to expand our revenue growth , modified ebitda margin ( see note 6 to the table under `` item 6. selected financial data '' for a definition of modified ebitda margin ) and cash flow that require both capital and operating investments , which can temporarily impact our modified ebitda margin until growth in revenue 35 absorbs the increased costs . we believe that these initiatives resulted in growth of our revenue , modified ebitda margin and cash flows during the three years ended december 31 , 2012. modified ebitda ( see note 4 to the table under item 6. selected financial data for a definition of modified ebitda ) grew 7.4 % , 8.6 % , and 2.2 % in the years ended december 31 , 2011 , 2012 and 2013 , respectively , each compared to the prior year . modified ebitda margin was 36.4 % , 36.8 % and 35.3 % for the years ended december 31 , 2011 , 2012 and 2013 , respectively . these margins reflected the absorption of increased costs for network access due to higher prices and greater off-network reach and costs associated with growth initiatives designed to increase the rate of revenue growth , including further expansion of our sales and support staff and it and technical personnel . these margins were also impacted by the dilutive effect of certain taxes and fees that are reported on a gross versus net basis in revenue and expense ( see “ revenue ” in note 1 to the consolidated financial statements ) . costs associated with growth initiatives had a greater impact on modified ebitda margin in the year ended december 31 , 2013 than in the years ended december 31 , 2012 and 2011. in 2013 our growth initiatives required both capital and operating investments and we expect to continue these investments in 2014 , including hiring additional sales , support and other operational personnel to support our strategic market expansion . our capital investments in support of our growth initiatives include new service development , automation and strategic network expansions to reach additional customers . the majority of the decline in modified ebitda margin for the year ended december 31 , 2013 compared to the prior year , was the result of the costs associated with our growth initiatives . we expect the continued investments and expenses associated with our growth initiatives and market expansion ( see `` overview '' above ) will continue to pressure our modified ebitda margin and cash flow in the near term until we can achieve consistently higher service installations and an acceleration of our rate of revenue growth sufficient to absorb these higher costs . while these initiatives and market expansion are designed to increase sales in the longer term to accelerate our future revenue growth rate , we can not assure that these and other initiatives will be sufficient to achieve our objectives of increased revenue growth , margins and cash flow or the timing of such anticipated benefits .
| results of operations the following discussion provides analysis of our results of operations and should be read together with our audited consolidated financial statements , including the notes thereto , appearing elsewhere in this report : 2013 compared to 2012 revenue revenue by line of business was as follows ( amounts in thousands ) : replace_table_token_11_th _ ( 1 ) we classify certain taxes and fees billed to customers and remitted to government authorities on a gross versus net basis in revenue and expense . the total amounts classified as revenue , primarily included in voice services , associated with such taxes and fees were approximately $ 83.2 million and $ 79.8 million for the years ended december 31 , 2013 and 2012 , respectively . this has no impact on modified ebitda or net income but is dilutive to modified ebitda margin . 39 the primary driver of total revenue growth was increased data and internet services revenue from installed services to enterprise customers . the increase in data and internet services revenue primarily resulted from installations of strategic ethernet and vpn-based services and other services to enterprise customers , partially offset by service disconnections and re-pricing of renewed customer contracts at lower rates . strategic services , which includes ethernet and ip vpn services , constituted 55 % of data and internet services revenue for the year ended december 31 , 2013 compared to 53 % for the year ended december 31 , 2012 , representing 19 % year over year growth in revenue from these services . voice services revenue increased primarily as a result of certain taxes and fees remitted to government authorities that we classify on a gross versus net basis in revenue and expense and installations of converged and other voice services , partially offset by service disconnections and re-pricing of renewed customer contracts at lower rates .
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the forward-looking statements contained in this section involve a number of risks and uncertainties , including : statements concerning the impact of a protracted decline in the liquidity of credit markets ; the general economy , including the impact of interest and inflation rates and the covid-19 pandemic , on the industries in which we invest ; our future operating results , our business prospects , the adequacy of our cash resources and working capital , and the impact of the covid-19 pandemic thereon ; the ability of our portfolio companies to achieve their objectives and the impact of the covid-19 pandemic thereon ; our ability to make investments consistent with our investment objectives , including with respect to the size , nature and terms of those investments ; the ability of new mountain finance advisers bdc , l.l.c . ( the `` investment adviser '' ) or its affiliates to attract and retain highly talented professionals ; actual and potential conflicts of interest with the investment adviser and new mountain capital group , l.p. ( together with new mountain capital , l.l.c . and its affiliates , `` new mountain capital '' ) whose ultimate owners include steven b. klinsky and related other vehicles ; and the risk factors set forth in part i — item 1a.—risk factors , contained in this annual report on form 10-k. forward-looking statements are identified by their use of such terms and phrases such as `` anticipate '' , `` believe '' , `` continue '' , `` could '' , `` estimate '' , `` expect '' , `` intend '' , `` may '' , `` plan '' , `` potential '' , `` project '' , `` seek '' , `` should '' , `` target '' , `` will '' , `` would '' or similar expressions . actual results could differ materially from those projected in the forward-looking statements for any reason , including the factors set forth in part i — item 1a.—risk factors contained in this annual report on form 10-k. we have based the forward-looking statements included in this annual report on form 10-k on information available to us on the date of this annual report on form 10-k. we assume no obligation to update or revise publicly any forward-looking statements , whether as a result of new information , future events or otherwise , except as required by law . although we undertake no obligation to revise or update any forward-looking statements , you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the u.s. securities and exchange commission ( the `` sec '' ) , including annual reports on form 10-k , registration statements on form 10 , quarterly reports on form 10-q and current reports on form 8-k . story_separator_special_tag conformity with accounting principles generally accepted in the u.s. ( `` gaap '' ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the consolidated financial statements , and revenues and expenses during the periods reported . actual results could materially differ from those estimates . we have identified the following items as critical accounting policies . 57 basis of accounting we consolidate our wholly-owned direct subsidiary slf i spv . we are an investment company following accounting and reporting guidance as described in accounting standards codification topic 946 , financial services—investment companies , ( `` asc 946 '' ) . valuation and leveling of portfolio investments at all times , consistent with gaap and the 1940 act , we conduct a valuation of assets , which impacts our net asset value . we value our assets on a quarterly basis , or more frequently if required under the 1940 act . in all cases , our board of directors is ultimately and solely responsible for determining the fair value of our portfolio investments on a quarterly basis in good faith , including investments that are not publicly traded , those whose market prices are not readily available and any other situation where our portfolio investments require a fair value determination . security transactions are accounted for on a trade date basis . because ( i ) `` benefit plan investors '' , as defined in section 3 ( 42 ) of the employee retirement income security act of 1974 , as amended ( `` erisa '' ) , and any regulations promulgated thereunder ( `` benefit plan investors '' ) , hold 25 % or more of our outstanding shares , and ( ii ) our shares are not listed on a national securities exchange , an unaffiliated third-party ( `` sub-administrator '' ) has been engaged to independently value our investments , in consultation with the investment adviser . our quarterly valuation procedures , which are the procedures that will be followed by such sub-administrator are set forth in more detail below : ( 1 ) investments for which market quotations are readily available on an exchange are valued at such market quotations based on the closing price indicated from independent pricing services . ( 2 ) investments for which indicative prices are obtained from various pricing services and or brokers or dealers are valued through a multi-step valuation process , as described below , to determine whether the quote ( s ) obtained is representative of fair value in accordance with gaap . a. bond quotes are obtained through independent pricing services . internal reviews are performed by the personnel of the sub-administrator , in consultation with the investment professionals of the investment adviser , to ensure that the quote obtained is representative of fair value in accordance with gaap and , if so , the quote is used . story_separator_special_tag level ii—pricing inputs are observable for the investments , either directly or indirectly , as of the reporting date , but are not the same as those used in level i. level ii inputs include the following : quoted prices for similar assets or liabilities in active markets ; quoted prices for identical or similar assets or liabilities in non-active markets ( examples include corporate and municipal bonds , which trade infrequently ) ; pricing models whose inputs are observable for substantially the full term of the asset or liability ( examples include most over-the-counter derivatives , including foreign exchange forward contracts ) ; and pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability . level iii—pricing inputs are unobservable for the investment and include situations where there is little , if any , market activity for the investment . the inputs used to measure fair value may fall into different levels . in all instances when the inputs fall within different levels of the hierarchy , the level within which the fair value measurement is categorized is based on the lowest level of input that is significant to the fair value measurement in its entirety . as such , a level iii fair value measurement may include inputs that are both observable and unobservable . gains and losses for such assets categorized within the level iii table below may include changes in fair value that are attributable to both observable inputs and unobservable inputs . the inputs into the determination of fair value require significant judgment or estimation by management and consideration of factors specific to each investment . a review of the fair value hierarchy classifications is conducted on a quarterly basis . changes in the observability of valuation inputs may result in the transfer of certain investments within the fair value hierarchy from period to period . 59 the following table summarizes the levels in the fair value hierarchy that our portfolio investments fall into as of december 31 , 2020 : replace_table_token_8_th we generally use the following framework when determining the fair value of investments where there are little , if any , market activity or observable pricing inputs . we typically determine the fair value of our performing debt investments utilizing an income approach . additional consideration is given using a market based approach , as well as reviewing the overall underlying portfolio company 's performance and associated financial risks . the following outlines additional details on the approaches considered : company performance , financial review , and analysis : prior to investment , as part of our due diligence process , we evaluate the overall performance and financial stability of the portfolio company . post investment , we analyze each portfolio company 's current operating performance and relevant financial trends versus prior year and budgeted results , including , but not limited to , factors affecting our revenue and ebitda growth , margin trends , liquidity position , covenant compliance and changes to our capital structure . we also attempt to identify and subsequently track any developments at the portfolio company , within its customer or vendor base or within the industry or the macroeconomic environment , generally , that may alter any material element of our original investment thesis . this analysis is specific to each portfolio company . we leverage the knowledge gained from our original due diligence process , augmented by this subsequent monitoring , to continually refine our outlook for each of our portfolio companies and ultimately form the valuation of our investment in each portfolio company . when an external event such as a purchase transaction , public offering or subsequent sale occurs , we will consider the pricing indicated by the external event to corroborate the private valuation . for debt investments , we may employ the market based approach ( as described below ) to assess the total enterprise value of the portfolio company , in order to evaluate the enterprise value coverage of our debt investment . for equity investments or in cases where the market based approach implies a lack of enterprise value coverage for the debt investment , we may additionally employ a discounted cash flow analysis based on the free cash flows of the portfolio company to assess the total enterprise value . after enterprise value coverage is demonstrated for our debt investments through the method ( s ) above , the income based approach ( as described below ) may be employed to estimate the fair value of the investment . market based approach : we may estimate the total enterprise value of each portfolio company by utilizing market value cash flow ( ebitda ) multiples of publicly traded comparable companies and comparable transactions . we consider numerous factors when selecting the appropriate companies whose trading multiples are used to value our portfolio companies . these factors include , but are not limited to , the type of organization , similarity to the business being valued , and relevant risk factors , as well as size , profitability and growth expectations . we may apply an average of various relevant comparable company ebitda multiples to the portfolio company 's latest twelve month ( `` ltm '' ) ebitda or projected ebitda to calculate the enterprise value of the portfolio company . significant increases or decreases in the ebitda multiple will result in an increase or decrease in enterprise value , which may result in an increase or decrease in the fair value estimate of the investment . in applying the market based approach as of december 31 , 2020 , we used the relevant ebitda multiple ranges set forth in the table below to determine the enterprise value of our portfolio companies . we believe these were reasonable ranges in light of current comparable company trading levels and the specific portfolio companies involved . income based approach : we also may use a discounted cash flow analysis to estimate the fair value of the investment .
| overview we are a maryland corporation formed on january 23 , 2019. we are a closed-end , non-diversified management investment company that has elected to be regulated as a business development company ( `` bdc '' ) under the investment company act of 1940 , as amended ( the `` 1940 act '' ) . we intend to elect 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 '' ) . the investment adviser is a wholly-owned subsidiary of new mountain capital . new mountain capital is a firm with a track record of investing in the middle market . the investment adviser manages our day-to-day operations and provides us with investment advisory and management services . the investment adviser also manages other funds that may have investment mandates that are similar , in whole or in part , to ours . new mountain finance administration , l.l.c . ( the `` administrator '' ) , a wholly-owned subsidiary of new mountain capital , provides the administrative services necessary to conduct our day-to-day operations . the administrator has hired a third-party sub-administrator to assist with the provision of administrative services . we conducted a private offering ( the `` private offering '' ) of our common stock to investors in reliance on exemptions from the registration requirements of the securities act of 1933 , as amended . at the closing of any private offering , each investor in the private offering will make a capital commitment ( a `` capital commitment '' ) to purchase common stock pursuant 56 to a subscription agreement entered into with us ( a `` subscription agreement '' ) .
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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 consolidated 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 consolidated 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 , 2019 , describes the significant accounting policies that we have used in preparing our consolidated financial statements . on an ongoing basis , we evaluate our estimates , including , but not limited to , those related to revenue/collectability , stock-based compensation , income taxes and business combinations . 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 . the most critical judgments required in applying topic 606 and our revenue recognition policy relate to the determination of distinct performance obligations and the evaluation of the standalone selling price ( ssp ) for each performance obligation . many of our customer contracts include multiple performance obligations . judgment is required in determining whether each performance obligation within a customer contract is distinct . the company 's products and services generally do not require a significant amount of integration or interdependency . therefore , multiple products and services contained within a customer contract are generally considered to be distinct and are not combined for revenue recognition purposes . we allocate the transaction price for each customer contract to each performance obligation based on the relative ssp ( the determination of ssp is discussed below ) for each performance obligation within each contract . we recognize the amount of transaction price allocated to each performance obligation within a customer contract as revenue as each performance obligation is delivered . we use judgment in determining the ssp for products and services . for substantially all performance obligations except on-premise licenses , we are able to establish the ssp based on the observable prices of products or services sold separately in comparable circumstances to similar customers . we typically establish an ssp range for our products and services , which is reassessed on a periodic basis or when facts and circumstances change . ssp for our products and services can evolve over time due to changes in our pricing practices that are influenced by intense competition , changes in demand for our products and services , and economic factors , among others . our on-premise licenses have not historically been sold on a standalone basis , as substantially all customers elect to purchase license support contracts at the time of a on-premise license purchase . license support contracts are generally priced as a percentage of the net fees paid by the customer to access the license . we are unable to establish the ssp for our on-premise licenses based on observable prices given the same products are sold for a broad range of amounts ( that is , the selling price is highly variable ) and a representative ssp is not discernible from past transactions or other observable evidence . as a result , the ssp for an on-premise license included in a contract with multiple performance obligations is determined by applying a residual approach whereby all other performance obligations within a contract are first allocated a portion of the transaction price based upon their respective ssps , with any residual amount of transaction price allocated to on-premise license revenues . income taxes . we provide for the effect of income taxes on our financial position and results of operations in accordance with the income tax topic of the financial accounting standards board ( `` fasb '' ) accounting standards codification ( `` asc '' ) . under this accounting guidance , income tax expense is recognized for the amount of income taxes payable or refundable for the current year 39 and for the change in net deferred tax assets or liabilities resulting from events that are recorded for financial reporting purposes in a different reporting period than recorded in the tax return . management must make significant assumptions , judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax asset . our judgments , assumptions and estimates relative to the current provision for income tax take into account current tax laws , our interpretation of current tax laws , allowable deductions , tax planning strategies , projected tax credits and possible outcomes of current and future audits conducted by foreign and domestic tax authorities . changes in tax laws or our interpretation of tax laws and the resolution of current and future tax audits could significantly impact the amounts provided for income taxes in our financial position and results of operations . story_separator_special_tag for the year ended april 30 , 2018 , the 6 % increase in total revenues was attributable primarily to a 102 % increase in subscription fees , a 3 % increase in maintenance and a 2 % increase in professional services and other revenues partially offset by a 2 % decrease in license revenues . due to intensely competitive markets , we discount license fees from our published list price due to pricing pressure in our industry . numerous factors contribute to the amount of the discounts provided , such as previous customer purchases , the number of customer sites utilizing the software , the number of modules purchased and the number of users , the type of platform deployment , as well as the overall size of the contract . while all these factors affect the discount amount of a particular contract , the overall percentage discount has not materially changed in the recent reported fiscal periods . the change in our revenues from period to period is primarily due to the volume of products and related services sold in any period and the amounts of products or modules purchased with each sale . international revenues represented approximately 20 % of total revenues for the year ended april 30 , 2019 , 19 % of total revenues for the year ended april 30 , 2018 , and 18 % for the year ended april 30 , 2017 . our international revenues may fluctuate substantially from period to period primarily because we derive these revenues from a relatively small number of customers . 42 license revenues replace_table_token_5_th for the year ended april 30 , 2019 , license fee revenues decreased by 54 % when compared to the previous year due primarily to lower overall business information technology spending . scm experienced a 54 % decrease in license fees primarily due to the increased sales of our products on our cloud services platform that require revenue to be deferred over the life of the contracted period , which is typically one to three years . our other business segment experienced a 20 % decrease in license fees for the year ended april 30 , 2019 when compared to the same period in the prior year due to the timing of selling into the installed customer base . scm constituted 98 % , 99 % and 99 % of our total license fee revenues for the years ended april 30 , 2019 , 2018 and 2017 , respectively . for the year ended april 30 , 2018 , license fee revenues decreased by 2 % when compared to the previous year due primarily to lower overall business information technology spending . scm experienced a 1 % decrease in license fees primarily due to the increased sales of our products on our cloud services platform that require revenue to be deferred over the life of the contracted period , which is typically one to three years . our other business segment experienced a 12 % decrease in license fees for the year ended april 30 , 2018 when compared to the same period in the prior year due to the timing of selling into the installed customer base . the direct sales channel provided approximately 84 % of license fee revenues for the year ended april 30 , 2019 , compared to approximately 85 % in fiscal 2018 and 77 % in fiscal 2017 . the decrease in direct license fees from fiscal 2018 to fiscal 2019 was largely the result of increased sales of our products on our cloud services platform that require revenue to be deferred over the life of the contracted period . the decrease in indirect license fees from fiscal 2017 to fiscal 2018 was largely due to lower overall business information technology spending . for the year ended april 30 , 2019 , our margins after commissions on direct sales were approximately 87 % , and our margins after commissions on indirect sales were approximately 55 % . for the year ended april 30 , 2018 , our margins after commissions on direct sales were approximately 84 % , and our margins after commissions on indirect sales were approximately 36 % . for the year ended april 30 , 2017 , our margins after commissions on direct sales were approximately 85 % , and our margins after commissions on indirect sales were approximately 46 % . the margins after commissions for direct were relatively consistent in a range of 84 % to 87 % , while the range for indirect sales had a wider spread of 36 % to 55 % . the indirect channel margins for the fiscal year ended april 30 , 2018 decreased when compared to the same periods in the prior year due to the mix of value-added reseller ( “ var ” ) commission rates . dmi is the source of the bulk of our indirect sales and the commission percentage varies based on whether the sale is domestic or international . subscription fees replace_table_token_6_th for the year ended april 30 , 2019 , cloud services annual contract value ( `` acv '' ) increased approximately 36 % to $ 17.3 million compared to $ 12.7 million in the same period of the prior year due to increased sales of our products on our cloud services platform that require revenue to be deferred over the life of the contracted period , which is typically one to three years . acv is a forward-looking operating measure used by management to better understand cloud services ( saas and other related cloud services ) revenue trends within our business , as it reflects our current estimate of revenue to be generated under existing client contracts in the forward 12-month period . 43 professional services and other revenues replace_table_token_7_th the 6 % decrease in total professional services and other revenues for the year ended april 30 , 2019 was due to a 16 % decrease in professional services and other revenues from our scm segment due primarily to the timing of implementation project work .
| 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 , 2019 , 2018 , and 2017 and the percentage increases and decreases in those items for the years ended april 30 , 2019 and 2018 : replace_table_token_3_th economic overview and significant trends in our business corporate capital spending trends and commitments are the primary determinants of the size of the market for business software . corporate capital spending is , in turn , a function of general economic conditions in the u.s. and abroad and in particular may be affected by conditions in u.s. and global credit markets . in recent years , the weakness in the overall global economy and the u.s. economy in particular has resulted in reduced expenditures in the business software market . in april 2019 , the international monetary fund ( “ imf ” ) provided an update to the world economic outlook for the 2019 and 2020 world economic growth forecast . the update noted that , “ after strong growth in 2017 and early 2018 , global economic activity slowed notably in the second half of last year , reflecting a confluence of factors affecting major economies . china 's growth declined following a combination of needed regulatory tightening to rein in shadow banking and an increase in trade tensions with the united states . the euro area economy lost more momentum than expected as consumer and business confidence weakened and car production in germany was disrupted by the introduction of new emission standards ; investment dropped in italy as sovereign spreads widened ; and external demand , especially from emerging asia , softened .
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treasury stock the company may from time to time utilize treasury stock when vested stock options are story_separator_special_tag overview the following discussion provides an analysis of our results of operations and reasons for material changes for 2019 as compared to 2018 and should be read together with the financial statements included in this annual report on form 10-k. for a detailed discussion of year-to-year comparisons between fiscal 2018 and fiscal 2017 , please refer to “ management 's discussion and analysis of financial condition and results of operations ” contained in part ii , item 7 of our annual report on form 10-k for the fiscal year ended december 31 , 2018 , filed with the sec on february 21 , 2019. cautionary statement regarding forward-looking statements statements contained in this report may constitute forward-looking statements within the meaning of the private securities litigation reform act of 1995. these statements involve known and unknown risks , uncertainties and other factors , which may cause actual results to be materially different from those expressed or implied in such statements . you can identify these forward-looking statements by words such as “ may , ” “ will , ” “ should , ” “ could , ” “ expect , ” “ anticipate , ” “ believe , ” “ estimate , ” “ intend , ” “ plan , ” “ goal ” and other similar expressions . you should consider our forward-looking statements in light of the risks discussed under the heading “ risk factors , ” as well as our consolidated financial statements , related notes , and the other financial information appearing elsewhere in this report and our other filings with the united states securities and exchange commission . the forward-looking statements contained in this report are made as of the date hereof and the company assumes no obligation to update or supplement any forward-looking statements . general the first international house of pancakes restaurant opened in 1958 in toluca lake , california . shortly thereafter , the company 's predecessor began developing and franchising additional restaurants . the company was incorporated under the laws of the state of delaware in 1976 with the name ihop corp. in november 2007 , the company completed the acquisition of applebee 's international , inc. , which became a wholly-owned subsidiary of the company . effective june 2 , 2008 , the name of the company was changed to dineequity , inc. and on february 20 , 2018 , the name of the company was changed to dine brands global , inc. sm ( “ dine brands global , ” “ we ” or “ our ” ) . through various subsidiaries ( see exhibit 21 , subsidiaries of dine brands global , inc. ) , we own , franchise and operate the applebee 's neighborhood grill + bar ® ( “ applebee 's ” ) concept in the bar and grill segment within the casual dining category of the restaurant industry and we own and franchise the international house of pancakes ® ( “ ihop ” ) concept in the family dining category of the restaurant industry . references herein to applebee 's ® and ihop ® restaurants are to these two concepts , whether operated by franchisees , area licensees or us . domestically , applebee 's and ihop franchise restaurants are in all 50 states and two ihop franchise restaurants are in the district of columbia . internationally , ihop restaurants are in three united states territories and 13 countries ; applebee 's restaurants are in two united states territories and 12 countries . with over 3,600 restaurants combined , we believe we are the largest full-service restaurant company in the world . the june 17 , 2019 issue of nation 's restaurant news reported that ihop was the largest restaurant system in the family dining category and applebee 's was the second largest restaurant system in the casual dining category , respectively , in terms of united states system-wide sales during 2018. we have a 52/53 week fiscal year ending on the sunday nearest to december 31 of each year . for convenience , in this annual report on form 10-k , we refer to all fiscal years as ending on december 31 and all interim fiscal quarters as ending on march 31 , june 30 and september 30 of the respective fiscal year . there were 52 calendar weeks in our 2019 , 2018 and 2017 fiscal years that ended on december 29 , 2019 , december 30 , 2018 and december 31 , 2017 , respectively . our 2020 fiscal year will contain 53 calendar weeks and will end on january 3 , 2021. story_separator_special_tag style= '' line-height:120 % ; font-size:10pt ; padding-left:0px ; '' > ( d ) “ domestic same-restaurant sales change ” reflects the percentage change in sales in any given fiscal year , compared to the same weeks in the prior year , for domestic restaurants that have been operated throughout both fiscal years that are being compared and have been open for at least 18 months . because of new restaurant openings and restaurant closures , the domestic restaurants open throughout the fiscal years being compared may be different from year to year . domestic same-restaurant sales percentage change does not include data on ihop area license restaurants for 2018 and 2017 . ( e ) the franchise sales percentage change for 2019 was impacted by the acquisition of 69 franchise restaurants in december 2018 now reported as company-operated . ( f ) ihop same-restaurant sales data includes area license restaurants beginning in 2019 34 domestic same-restaurant sales trends applebee 's domestic same-restaurant sales decreased 2.5 % for the three months ended december 31 , 2019 from the same period in 2018. the decrease in the fourth quarter of 2019 was primarily due to a decrease in customer traffic that was slightly offset by a small increase in average customer check . story_separator_special_tag closures generally fall into one of two categories : restaurants in older locations whose retail , residential and traffic demographics have changed unfavorably over time , and restaurants with non-viable unit economics . the majority of applebee 's restaurant closures from 2017 to 2019 were due to these factors . we believe 2019 marks the completion of a three-year strategic initiative to close approximately 200 underperforming , low-volume domestic restaurants . the total number of ihop restaurants open at december 31 , 2019 increased 0.5 % from the number open at december 31 , 2018 , as ihop franchisees and area licensees opened 51 restaurants in 2019 and closed 41 restaurants , resulting in net development of 10 restaurants . we believe the number of ihop closures in 2019 was unusually high , and that trend is not expected to continue in 2020 . 36 internationally , franchisees of both brands opened 15 restaurants and closed 32 , a net decrease of 17 international restaurants . this international development activity is included in the total activity for each brand cited above . the following tables summarize applebee 's and ihop restaurant development and franchising activity over the past three years : replace_table_token_10_th ( a ) in december 2018 , the company acquired 69 applebee 's restaurants from a former franchisee . 37 replace_table_token_11_th ( a ) during the twelve months ending december 31 , 2017 , nine company-operated restaurants were refranchised and one was permanently closed . for the full year of 2020 , we expect development activity by applebee 's domestic franchisees to result in net closures of between zero and 10 restaurants . for the full year of 2020 , we expect development activity by ihop domestic franchisees and area licensees to result in net openings of between 40 and 50 restaurants . the actual number of openings may differ from both our expectations and development commitments . historically , the actual number of restaurants developed in a particular year has been less than the total number committed to be developed due to various factors , including economic conditions and franchisee noncompliance with development agreements . the timing of new restaurant openings also may be affected by various factors including weather-related and other construction delays , difficulties in obtaining timely regulatory approvals and the impact of currency fluctuations on our international franchisees . the actual number of closures also may differ from our expectations . our franchisees are independent businesses and decisions to close restaurants can be impacted by numerous factors in addition to changes in same-restaurant sales that are outside of our control , including but not limited to , franchisees ' agreements with landlords and lenders . 38 consolidated results of operations - fiscal 2019 , 2018 and 2017 the tables in the following section of this form 10-k present information from our consolidated statements of comprehensive income ( loss ) for our 2019 , 2018 and 2017 fiscal years . a detailed discussion of year-to-year comparisons between fiscal 2019 and fiscal 2018 can be found below . events impacting comparability of financial information franchisor contributions to the applebee 's naf we contributed $ 30.0 million to the applebee 's naf during the year ended december 31 , 2018 to mitigate the decline in franchisee contributions due to restaurant closures and the non-timely payment of advertising fees by certain franchisees . our contributions ceased as of june 30 , 2018 and we made no such contributions to the applebee 's naf during the year ended december 31 , 2019. temporary increase in franchisee contribution rate to the applebee 's naf all domestic applebee 's franchisees have either entered into an amendment to their franchise agreements to increase their contribution to the applebee 's naf or entered into new franchise agreements in connection with renewals , with virtually all agreeing to a 0.25 % increase to 3.50 % of their gross sales and a decrease in their minimum local promotional expenditures to 0.25 % of their gross sales for the period from january 1 , 2018 to december 31 , 2019. such franchisees who entered into amendments also agreed to an incremental temporary increase of 0.75 % in the advertising contribution rate to 4.25 % effective july 1 , 2018 to january 1 , 2021. the franchisees who entered into new franchise agreements in connection with renewals agreed to contribute between 4 % and 4.25 % of their gross sales to the applebee 's naf through december 31 , 2019 and have agreed to extend such contribution through january 1 , 2021. as a result , the advertising contribution rate for virtually all applebee 's franchisees was 4.25 % throughout the year ended december 30 , 2019 , as compared to 3.50 % during the first six months of 2018 and 4.25 % during the last six months of 2018. this increased advertising revenue by approximately $ 15 million for the year ended december 30 , 2019 compared to the same period of 2018. acquisition of franchise restaurants in december 2018 , we acquired 69 applebee 's restaurants in north carolina and south carolina from a former applebee 's franchisee . we operated these restaurants for 12 months in 2019 as compared to approximately three weeks in 2018. while we currently intend to own and operate these restaurants for the near term , we will assess and monitor opportunities to refranchise these restaurants under favorable circumstances . we believe this transaction was a unique circumstance and should not be considered a change in our business strategy to operate as a highly franchised company . financial review replace_table_token_12_th our 2019 total revenue increased $ 129.3 million compared to 2018 , primarily due to the operation of 69 applebee 's restaurants , as discussed above under events impacting comparability of financial information . franchise operations revenue increased due to the increase in applebee 's advertising revenue also cited above , as well as to ihop 's restaurant development and 1.1 % increase in domestic same-restaurant sales , partially offset by applebee 's restaurant closures and 0.7 % decrease in domestic same-restaurant sales .
| executive summary of 2019 results highlights we reported net income of $ 104.3 million , or $ 5.85 per diluted share , in 2019 , compared to net income of $ 80.4 million , or $ 4.37 per diluted share , in 2018 ; we refinanced $ 1.3 billion of 4.277 % fixed rate senior secured notes , effectively due in 2021 , with two tranches of new notes : $ 700 million of 4.194 % fixed rate senior secured notes , effectively due in 2024 and $ 600 million of 4.723 % fixed rate senior secured notes , effectively due in 2026 ; 31 we generated cash from operating activities of $ 155.2 million and adjusted free cash flow ( cash provided by operating activities , plus receipts from notes and equipment contract receivables , less additions to property and equipment ) of $ 148.8 million in 2019 ; we returned over $ 156 million to our stockholders , comprised of $ 109.7 million in the form of stock repurchases and $ 46.9 million in cash dividends , with cash dividends reflecting a 10 % increase in our quarterly dividend to $ 0.69 per share , effective with the dividend declared in the first quarter 2019. the 1.3 million shares repurchased in 2019 represented nearly 8 % of total shares outstanding at the end of 2018. we signed the largest multi-unit development agreement in ihop 's history , calling for the development , with travelcenters of america , of nearly 100 ihop restaurants over the next five years ; and ihop franchisees remodeled 208 domestic restaurants in 2019 under our new rise ‘ n ' shine design .
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( hasbro or the company ) is a global company dedicated to creating the world 's best play experiences . the company strives to do this through deep consumer engagement and the application of consumer insights , the use of immersive storytelling to build brands , product innovation and development of global business reach . hasbro applies these principles to leverage its beloved owned and controlled brands , including littlest pet shop , magic : the gathering , monopoly , my little pony , nerf , play-doh and transformers , as well as the licensed brands of its strategic partners . from toys and games , to television programming , motion pictures , digital gaming and a comprehensive consumer products licensing program , hasbro fulfills the fundamental need for play and connection for children and families around the world . the company 's wholly-owned hasbro studios creates entertainment brand-driven storytelling across mediums , including television , film , digital and more . each of these principles is executed globally in alignment with hasbro 's strategic plan , its brand blueprint . at the center of this blueprint , hasbro re-imagines , re-invents and re-ignites its owned and controlled brands and imagines , invents and ignites new brands , through toy and game innovation , immersive entertainment offerings , including television programming and motion pictures , and a broad range of consumer product licensing . utilizing consumer engagement and insights coupled with immersive storytelling and product innovation , hasbro generates revenue and earns cash by developing , marketing and selling global branded-entertainment products in a broad variety of consumer goods categories , including toy and game products and distribution of television programming based on the company 's properties , as well as through the out-licensing of rights for third parties to use its properties in connection with products , including digital media and games and lifestyle products . hasbro also leverages its competencies to develop and market products based on well-known licensed brands owned by strategic partners , including , but not limited to , disney 's descendants , disney princess and frozen , jurassic world , marvel , sesame street and star wars . in 2016 , the company expects to develop and market products based on the following licensed entertainment brands , trolls and yokai-watch . disney 's descendants , disney princess , frozen , marvel and star wars are owned by the walt disney company . the company 's business is separated into three principal business segments : u.s. and canada , international and entertainment and licensing . the u.s. and canada segment markets and sells both toy and game products primarily in the united states and canada . the international segment consists of the company 's european , asia pacific and latin and south american toy and game marketing and sales operations . the company 's entertainment and licensing segment includes the company 's consumer products licensing , digital licensing and gaming , and movie and television entertainment operations . in addition to these three primary segments , the company 's product sourcing operations are managed through its global operations segment . story_separator_special_tag magic : the gathering , monopoly , my little pony , nerf and play-doh . consolidated net revenues for 2014 grew 5 % from $ 4,082.2 million for the year ended december 29 , 2013 and were impacted by unfavorable foreign currency translation of $ 93.4 million . absent the impact of foreign currency translation , 2014 net revenues grew 7 % compared to 2013. in 2014 , net revenues from franchise brands grew 31 % compared to 2013 reflecting growth in six of the seven brands : magic : the gathering , monopoly , my little pony , nerf , play-doh and transformers . franchise brands comprised approximately 55 % of consolidated net revenues in 2014. the following chart presents net revenues by product category for each year in the three years ended december 27 , 2015 . 2015 versus 2014 net revenue growth in the boys , games and preschool categories in 2015 compared to 2014 more than offset lower net revenues from the girls category . boys the boys ' category grew 20 % in 2015 compared to 2014. higher net revenues from franchise brand nerf and partner brands jurassic world , marvel and star wars were slightly offset by lower net revenues from franchise brand transformers . within the boys ' category , there are a number of entertainment-based brands which , from year to year , may be supported by major theatrical releases . as such , boys ' category net revenues by brand fluctuate from year-to-year depending on movie popularity , release dates and related product line offerings and success . in 2015 , three partner brands were supported by major theatrical releases jurassic world was supported by the june 32 2015 release of jurassic world , marvel was supported by the may 2015 release of avengers : age of ultron and star wars was supported by the december 2015 release of star wars : the force awakens . these benefits were partially offset by lower 2015 net revenues from franchise brand transformers in a non-movie year as compared to 2014 with the june theatrical release of transformers : age of extinction . games the games category grew 1 % in 2015 compared to 2014. higher net revenues resulted from franchise brands magic : the gathering and monopoly as well as from other games brands , including , but not limited to , pie face , duel masters , dungeons & dragons , life , ouija , risk , rubiks , trouble and yahtzee . these higher net revenues were almost wholly offset by lower net revenues from various other games brands , including , but not limited to , elefun & friends , jenga and taboo . girls the girls ' category declined 22 % in 2015 compared to 2014 , primarily due to expected lower net revenues from furby products , as well as declines in my little pony , nerf rebelle and littlest pet shop . story_separator_special_tag and canada segment net revenues grew 1 % in 2014 compared to 2013 and were impacted by unfavorable foreign currency translation of $ 5.5 million . higher net revenues from the boys ' category were almost wholly offset by lower net revenues from the games , girls ' and preschool categories . in the boys ' category , higher net revenues from transformers , nerf , marvel and star wars in 2014 compared to 2013 were only partially offset by expected lower sales of beyblade products . in the games category , higher net revenues from franchise brands , specifically magic : the gathering and monopoly , as well as other games brands , were more than offset by lower net revenues from duel masters and twister , and certain other game brands . in the girls ' category , higher net revenues from franchise brands littlest pet shop , my little pony , nerf and play-doh , as well as higher net revenues from furreal friends , were more than offset by an expected decline in net revenues from furby products . in the preschool category , higher net revenues from the franchise brands play-doh and transformers were more than offset by lower net sales from core playskool as well as key partner brands , particularly sesame street , marvel and star wars . international considering the significant changes in foreign currency , discussing fluctuations in international segment net revenue absent the impact of foreign currency translation provides a more meaningful explanation of the segment 's results . to calculate the year-over-year percentage change in net revenues absent the impact of foreign currency translation , net revenues were recalculated using those foreign currency translation rates in place for the prior year 's comparable period . the table below presents international segment net revenues by geographic region as well as the year-over-year percentage change including and excluding the impact of foreign currency translation . replace_table_token_5_th 35 2015 versus 2014 international segment net revenues declined approximately 3 % in 2015 compared to 2014. net revenues grew in certain developed markets , including the united kingdom and germany ; however , this was offset by declines in other markets . emerging markets , including russia , brazil and china , net revenues declined 9 % in 2015 compared to 2014 . 2015 international segment net revenues included unfavorable foreign currency translation of $ 379.4 million ( europe $ 247.9 million , latin america $ 105.3 million , asia pacific $ 26.2 million ) . unfavorable foreign currency translation reflects the weakening of certain foreign currencies , primarily the euro , russian ruble , brazilian real , and other latin american currencies compared to the u.s. dollar . absent the impact of foreign currency translation , international segment net revenues grew 16 % in 2015 compared to 2014. in 2015 excluding the impact of foreign exchange , net revenues grew 15 % in emerging markets . higher net revenues from the boys ' and preschool categories were offset by lower net revenues from the girls ' and games category . in the boys ' category , higher net revenues from franchise brand nerf and partner brands jurassic world , marvel and star wars were slightly offset by expected lower net revenues from transformers products , which , in 2014 , were supported by a major theatrical release . in the games category , higher net revenues from franchise brand monopoly as well as higher net revenues from certain other games brands , including pie face was more than offset by lower revenues from franchise brand magic : the gathering and various other game brands . in the girls ' category , higher net revenues from franchise brand play-doh and the introduction of partner brand disney descendants were more than offset by expected lower net revenues from furby products , as well as declines in my little pony products . in the preschool category , higher net revenues from franchise brand play-doh and partner brand jurassic world , as well as the introduction of playskool friends my little pony , were only slightly offset by lower net revenues from core playskool and tonka products . 2014 versus 2013 international segment net revenues grew approximately 8 % in 2014 compared to 2013. international segment net revenues included unfavorable foreign currency translation of $ 87.7 million ( europe $ 61.2 million , latin america $ 21.5 million , asia pacific $ 5.0 million ) in 2014. unfavorable foreign currency translation reflects the weakening of certain foreign currencies , primarily the euro , russian ruble , brazilian real , and other latin american currencies compared to the u.s. dollar . absent the impact of foreign currency translation , international segment net revenues grew 13 % in 2014 compared to 2013. in 2014 , net revenues grew in certain developed markets , including the united kingdom , italy and spain , partially offset by lower net revenues in france . furthermore , net revenues from emerging markets , including , but not limited to , russia , brazil and china , increased 20 % in 2014 compared to 2013. higher net revenues in 2014 from the boys ' , girls ' , and preschool categories were partially offset by lower net revenues from the games category . in the boys ' category , higher net revenues from transformers , marvel and nerf products were only partially offset by expected lower sales of beyblade products . in the games category , growth in franchise brands , specifically magic : the gathering and monopoly , were more than offset by lower net revenues from angry birds , twister and certain other game brands . in the girls ' category , franchise brands my little pony , nerf and play-doh contributed to growth that was only partially offset by lower net revenues from furby and littlest pet shop products . in the preschool category , higher net revenues from franchise brands play-doh and transformers were only partially offset by lower net revenues from core playskool products .
| 2015 highlights net revenues grew 4 % to $ 4,447.5 million in 2015 from $ 4,277.2 million in 2014. absent unfavorable foreign currency translation of approximately $ 394.5 million , 2015 net revenues grew 13 % compared to 2014 . 29 2015 net revenues from franchise brands decreased 2 % compared to 2014. absent unfavorable foreign currency translation , 2015 net revenues from franchise brands grew 7 % compared to 2014. excluding the impact of foreign exchange , growth from magic : the gathering , monopoly , my little pony , nerf and play-doh was only partially offset by declines from transformers and to a lesser extent , littlest pet shop . growth from the boys , games and preschool categories in 2015 compared to 2014 was partially offset by declines in the girls category , both as reported and excluding the impact of foreign currency translation . 2015 net revenues from the u.s. and canada and entertainment and licensing segments were up 10 % and 11 % , respectively , while net revenues from the international segment declined 3 % . absent unfavorable foreign currency translation of approximately $ 379.4 million , 2015 international segment net revenues increased 16 % . operating profit improved 9 % in 2015 compared to 2014 and was up 23 % absent unfavorable foreign currency translation of approximately $ 92.0 million . 2014 highlights net revenues grew 5 % in 2014 to $ 4,277.2 million from $ 4,082.2 million in 2013. absent unfavorable foreign currency translation of approximately $ 93.4 million , net revenues grew 7 % in 2014 compared to 2013. net revenues from franchise brands grew 31 % in 2014 compared to 2013 , reflecting growth across six of the seven franchise brands . higher net revenues from magic : the gathering , monopoly , my little pony , nerf , play-doh and transformers were only partially offset by lower net revenues from littlest pet shop .
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additionally under the new guidance , the company will use qualitative factors , such as exercise behavior and expected term to establish the term of the awards , story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements included in item 15 of this 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 '' and elsewhere in this annual report on form 10-k , our actual results may differ materially from those anticipated in these forward-looking statements . please also refer to the section under heading `` forward-looking statements . '' overview we are a leading biopharmaceutical company in the discovery and development of tgf-beta superfamily therapeutics to treat serious and rare diseases . our research focuses on key natural regulators of cellular growth and repair , particularly the transforming growth factor-beta , or tgf-beta , protein superfamily . by combining our discovery and development expertise , including our proprietary knowledge of the tgf-beta superfamily , and our internal protein engineering and manufacturing capabilities , we have generated several innovative therapeutic candidates , all of which encompass novel potential first-in-class mechanisms of action . we have focused and prioritized our research and development activities within three key therapeutic areas : hematologic , neuromuscular and pulmonary . if successful , these candidates could have the potential to significantly improve clinical outcomes for patients across these areas of high , unmet need . luspatercept , our lead program , and sotatercept , are partnered with celgene corporation , or celgene . luspatercept is an investigational erythroid maturation agent designed to promote red blood cell production through a novel mechanism , and is being developed to treat chronic anemia and associated complications in myelodysplastic syndromes , or mds , beta-thalassemia , and myelofibrosis . in 2018 , we and celgene announced positive results for two phase 3 clinical trials with luspatercept ; one for the treatment of patients with lower-risk mds with ring sideroblasts , known as the medalist trial , and another for the treatment of patients with transfusion-dependent beta-thalassemia , also known as the believe trial . in the medalist trial , luspatercept achieved a highly statistically significant improvement in the primary endpoint of red blood cell ( rbc ) transfusion independence of at least 8 consecutive weeks during the first 24 weeks compared to placebo . in the believe trial , luspatercept achieved a highly statistically significant improvement in the primary endpoint of erythroid response , which was defined as at least a 33 percent reduction from baseline in red blood cell ( rbc ) transfusion burden with a reduction of at least 2 units during the protocol-defined period of 12 consecutive weeks , from week 13 to week 24 , compared to placebo . results from the medalist and believe trials were then presented during plenary and oral sessions , respectively , at the 60th american society of hematology annual meeting and exposition in december 2018 , and we expect to submit these results for publication during 2019. both of these presentations were selected for `` best of ash , '' chosen from among the thousands of meeting abstracts as `` the biggest breakthroughs from the meeting 's scientific presentations . '' we and celgene are planning regulatory application submissions for luspatercept in both mds and beta-thalassemia in the united states in april 2019 and in europe in the first half of 2019. in addition to the medalist and believe phase 3 clinical trials with luspatercept , celgene is currently conducting a phase 2 clinical trial in non-transfusion-dependent beta-thalassemia patients , referred to as the beyond trial , with preliminary top-line results currently expected in 2020. celgene has also initiated a phase 3 clinical trial , the commands trial , in first-line , lower-risk mds patients and enrollment is ongoing . enrollment is also currently ongoing in a phase 2 clinical trial being conducted by celgene for the treatment of patients with myelofibrosis , a rare bone marrow disorder , with preliminary top-line results currently expected in the second half of 2019. if luspatercept were to receive regulatory approval for each of these indications in the united states and europe , we believe that there is an annual peak sales opportunity for luspatercept in excess of $ 2 billion across the indications in the beyond trial and the luspatercept phase 3 clinical trials , and an annual peak sales opportunity for luspatercept in excess of $ 1 billion in myelofibrosis . we and celgene are also evaluating further research of luspatercept for the treatment of anemia in potential new indications that could provide additional sales opportunities . for sotatercept , we have the rights to fund , develop , and lead the global commercialization of sotatercept in pulmonary hypertension , which we refer to as the ph field , including pulmonary arterial hypertension , or pah . pah is a rare and chronic , rapidly progressing disorder characterized by the constriction of small pulmonary arteries , resulting in abnormally high blood pressure in the pulmonary arteries . we are currently enrolling the pulsar phase 2 clinical trial of sotatercept for the treatment of patients with pah with preliminary results expected in the first half of 2020 , and we recently initiated an exploratory study , called spectra , in the first quarter of 2019 to provide us with further understanding of sotatercept 's impact on pah . if sotatercept is commercialized to treat pah and we recognize such revenue , then celgene will be eligible to receive a royalty in the low 20 % range on global net sales . story_separator_special_tag we expect to incur losses for the foreseeable future , and we expect these losses to increase as we continue our development of , and seek regulatory approvals for , our therapeutic candidates and potentially begin to commercialize any approved products . for a description of the numerous risks and uncertainties associated with product development , see `` risk factors '' . financial operations overview revenue collaboration revenue we have not generated any revenue from the sale of products . our revenue to date has been predominantly derived from collaboration revenue , which includes license and milestone revenues and cost-sharing revenue , generated through collaboration and license agreements with partners for the development and commercialization of our therapeutic candidates . cost-sharing revenue represents amounts reimbursed by our collaboration partners for expenses incurred by us for research and development activities and , potentially , co-promotion activities , under our collaboration agreements . cost-sharing revenue is recognized in the period that the related activities are performed . costs and expenses research and development expenses research and development expenses consist primarily of costs directly incurred by us for the development of our therapeutic candidates , which include : direct employee-related expenses , including salaries , benefits , travel and stock-based compensation expense of our research and development personnel ; expenses incurred under agreements with clinical research organizations , or cros , and investigative sites that will conduct our clinical trials ; the cost of acquiring and manufacturing preclinical and clinical study materials and developing manufacturing processes ; allocated facilities , depreciation , and other expenses , which include rent and maintenance of facilities , insurance and other supplies ; expenses associated with obtaining and maintaining patents ; and costs associated with preclinical activities and regulatory compliance . research and development costs are expensed as incurred . costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites . we can not determine with certainty the duration and completion costs of the current or future clinical trials of our therapeutic candidates or if , when , or to what extent we will generate revenues from the commercialization and sale of any of our therapeutic candidates for which we or any partner obtain regulatory approval . we or our partners may never succeed in achieving regulatory approval for any of our therapeutic candidates . the duration , costs and timing of clinical trials and development of therapeutic candidates will depend on a variety of factors , including : the scope , rate of progress , and expense of our ongoing , as well as any additional , clinical trials and other research and development activities ; future clinical trial results ; potential changes in government regulation ; and the timing and receipt of any regulatory approvals . 55 a change in the outcome of any of these variables with respect to the development of a therapeutic candidate could mean a significant change in the costs and timing associated with the development of that therapeutic candidate . for example , if the u.s. food and drug administration , or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of the clinical development of therapeutic candidates , or if we experience significant delays in the enrollment in any clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . from inception through december 31 , 2018 , we have incurred $ 658.7 million in research and development expenses . we plan to increase our research and development expenses for the foreseeable future as we continue the development of our tgf-beta platform therapeutic candidates , the discovery and development of preclinical therapeutic candidates , and the development of our clinical programs . research and development expenses associated with luspatercept , and outside of pulmonary hypertension , sotatercept , are generally reimbursed 100 % by celgene . these reimbursements are recorded as revenue . we are expensing the costs of a phase 1 clinical trial for ace-2494 , and phase 2 clinical trials for luspatercept , sotatercept , and ace-083 , of which the luspatercept clinical trials are reimbursed by celgene . our phase 2 clinical trials for dalantercept have been discontinued . we manage certain activities such as clinical trial operations , manufacture of therapeutic candidates , and preclinical animal toxicology studies through third-party cros . the only costs we track by each therapeutic candidate are external costs such as services provided to us by cros , manufacturing of preclinical and clinical drug product , and other outsourced research and development expenses . we do not assign or allocate to individual development programs internal costs such as salaries and benefits , facilities costs , lab supplies and the costs of preclinical research and studies , except for luspatercept costs for the purposes of billing celgene . our external research and development expenses during the years ended december 31 , 2018 , 2017 and 2016 , were as follows : replace_table_token_6_th _ ( 1 ) these expenses associated with luspatercept are reimbursed 100 % by celgene . ( 2 ) these expenses are associated with our development of sotatercept in pulmonary arterial hypertension . ( 3 ) development of dalantercept has been discontinued . ( 4 ) other expenses include employee and unallocated contractor-related expenses , facility expenses , lab supplies and miscellaneous expenses . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs for personnel , including stock-based compensation and travel expenses for our employees in executive , operational , finance and human resource functions and other general and administrative expenses including directors ' fees and professional fees for accounting and legal services .
| results of operations comparison of the years ended december 31 , 2018 and 2017 replace_table_token_7_th revenue . we recognized revenue of $ 14.0 million in the year ended december 31 , 2018 , compared to $ 13.5 million in the year ended december 31 , 2017 . all of the revenue in both periods was derived from the celgene agreements . significant factors resulting in this $ 0.5 million increase include : an increase in cost-sharing revenue of $ 1.1 million primarily due to an increase in external expenses in preparation for the commercial launch of luspatercept ; offset by a decrease in license and milestone revenue of $ 0.6 million resulting from the adoption of accounting standards codification topic 606 , revenue from contracts with customers , ( asc 606 ) , the impact of which is discussed further in note 2 to the financial statements in this annual report on form 10-k. research and development expenses . research and development expenses were $ 103.9 million in the year ended december 31 , 2018 , compared to $ 89.7 million in the year ended december 31 , 2017 . this $ 14.2 million increase is primarily related to growth in order to support our wholly-owned therapeutic candidates and preclinical programs and includes : an increase in personnel expenses totaling $ 7.3 million ; an increase in external clinical trial expenses of $ 8.6 million related to our sotatercept and ace-083 phase 2 clinical trials ; an increase in facility expenses of $ 1.9 million ; offset by a decrease in toxicology expenses of $ 4.5 million as compared to the same period in 2017. general and administrative expenses . general and administrative expenses were $ 34.5 million in the year ended december 31 , 2018 , compared to $ 33.7 million in the year ended december 31 , 2017 .
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factors that might cause such differences include , but are not limited to , those discussed in part i , item 1a of this form 10-k under the heading “ risk factors , ” which are incorporated herein by reference . the following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in part ii , item 8 of this form 10-k. all information presented herein is based on the company 's fiscal calendar . unless otherwise stated , references to particular years or quarters refer to the company 's fiscal years ended in april and the associated quarters of those fiscal years . the company assumes no obligation to revise or update any forward-looking statements for any reason , except as required by law . 26 overview since 1967 , dataram corporation ( “ dataram ” or the “ company ” ) has been a leading independent manufacturer of memory products and provider of performance solutions . the company provides customized memory solutions for original equipment manufacturers ( oems ) and compatible memory for leading brands including cisco , dell , fujitsu , hp , ibm , lenovo and oracle as well as a line of memory products for intel and amd motherboard based servers . dataram manufactures its memory in-house to meet three key criteria - quality , compatibility , and selection - and tests its memory for performance and original equipment manufacturer ( oem ) compatibility as part of the production process . with memory designed for over 50,000 systems and with products that range from energy-efficient ddr4 modules to legacy sdr offerings , dataram offers one of the most complete portfolios in the industry . backed by in-depth quality test programs , nearly fifty years of manufacturing expertise , and a limited lifetime warranty , dataram memory products are built to last . the company is a cmtl premier participant and iso 9001 ( 2008 certified ) . its products are fully compliant with jedec specifications . dataram 's customers include an international network of distributors , resellers , retailers , oem customers and end users . dataram competes with several other large independent memory manufacturers and the oems noted above . the primary raw material used in producing memory boards is dynamic random access memory ( dram ) chips . the purchase cost of drams is the largest single component of the total cost of a finished memory board . consequently , average selling prices for computer memory boards are significantly dependent on the pricing and availability of dram chips . story_separator_special_tag text-indent : 0.5in '' > as of april 30 , 2015 , we had cash and cash equivalents totaling $ 327,000. during the year then ended , we had a net loss of $ 3,829,000 and used cash in operating activities of $ 2,581,000. we believe our existing capital resources should be sufficient to fund the activities contemplated by our current operating plan into the second quarter of fiscal 2016. we intend to seek external funding prior to that time , however , most likely through bank debt and the issuance and sale of securities . we can not predict with any certainty when we will need additional funds or how much we will need or if additional funds will be available to us . our need for future funding will depend on numerous factors , many of which are outside our control . on november 12 , 2014 , the company completed a private placement of 600,000 shares of its series a preferred stock ( “ series a stock ” ) together with warrants to purchase shares of its common stock ( “ preferred warrant ” ) at a price of $ 5.00 per share , in accordance with the series a preferred stock purchase agreement dated october 20 , 2014 ( the “ purchase agreement ” ) . the net proceeds to the company from the sale of the series a stock and preferred warrant , after deducting the estimated offering expenses incurred by the company were approximately $ 2,700,000. at any time from november 17 , 2014 , the date of closing , and prior to october 20 , 2019 ( the “ put/call exercise period ” ) , and the investors may exercise a right to purchase and require the company to sell up to an additional 700,000 shares of series a stock . if the investors have not exercised this right during the put/call exercise period , the company may exercise a right to cause and require the investors to purchase up to an additional 700,000 shares of series a stock , for an aggregate purchase price of $ 3,500,000. on february 2 , 2015 , the company completed a private placement of 26,600 shares of its series a stock ( “ series together with preferred warrants to purchase an additional 66,500 shares at an exercise of its common stock at a price of $ 2.5 per share , in accordance with the purchase agreement . the net proceeds to the company from the sale of the series a stock and preferred warrant were approximately $ 133,000. as of april 30 , 2015 the company has remaining 673,400 series a shares available . 29 net cash used in operating activities totaled approximately $ 2,581,000 for the fiscal year ended april 30 , 2015. net loss totaled approximately $ 3,829,000 and included stock-based compensation expense of approximately $ 14,000 , depreciation and amortization expense of approximately $ 127,000 and bad debt expense of approximately $ 50,000. amortization of debt discount of approximately $ 750,000 was recorded . inventories decreased by approximately $ 202,000. the decrease in inventories was a management decision to reduce inventory levels and conserve working capital . accounts payable increased by approximately $ 559,000. accrued liabilities decreased by approximately $ 645,000. trade receivables decreased by approximately $ 1,442,000. net cash used in investing activities totaled approximately $ 394,000 , primarily the result of capitalizing software development costs . story_separator_special_tag on september 23 , 2013 , the offering of 350,000 shares and warrants was closed with net proceeds to the company of approximately $ 695,491 after accounting for all expenses of the offering . the exercisability of the warrants may be limited if , upon exercise , the holder or any of its affiliates would beneficially own more than 4.99 % of the common stock . after the one year anniversary of the initial exercise date of the warrants , the company had the right to call the warrants for cancellation for $ .001 per share in the event that the volume weighted average price of the common stock for 20 consecutive trading days exceeds $ 10.00. on march 20 , 2014 , the company and certain investors entered into a common stock purchase agreement ( the “ purchase agreement ” ) in connection with the offering , pursuant to which the company agreed to sell an aggregate of 219,754 shares of its common stock to such investors for aggregate proceeds , after deducting fees to the placement agent and other estimated offering expenses payable by the company , of approximately $ 559,000. the purchase price was $ 3.00 per share . on march 20 , 2014 , holders of warrants issued in connection with the sale of common stock on september 18 , 2013 , exercised 86,100 of those warrants at the exercise price of $ 3.50 per share resulting in net proceeds of approximately $ 306,350. the exercise of these warrants resulted in the issuance of 86,100 shares of the company 's common stock . the pricing model the company used for determining fair values of the warrants is the black-scholes pricing model . the model uses market-sourced inputs such as interest rates , dividend yields , market prices and volatilities . the risk-free interest rate used of 1.26 % is based on the rate of u.s treasury zero-coupon issues with a remaining term equal to the expected life of the warrants . expected dividend yield assumes the current dividend rate of zero . expected volatility of approximately 100 % was calculated using the daily closing price over a five year period of the company 's common stock . 31 the value of the warrants was derived and used as a basis to allocate the proceeds received between the warrants and bridge notes . the proportionate value ascribed to the warrants amounted to approximately $ 562,000 and was reflected as a discount on notes payable . further the company estimated a value of beneficial conversion feature of approximately $ 188,000 ( limited to the amount of proceeds allocated to the notes payable ) and reflected such as an additional discount on the bridge notes . the discount on notes payable is being amortized using the straight line amortization over ninety days . this resulted in a non-cash interest charge of approximately $ 617,000 in the quarter ended october 31 , 2014 and approximately $ 133,000 in this year 's fiscal first quarter ended july 31 , 2014. on july 15 , 2014 , the company entered into the purchase agreement governing the issuance of $ 750,000 aggregate principal amount of bridge notes and bridge warrants . the bridge notes and bridge warrants were issued on july 15 , 2014. the company issued $ 600,000 aggregate principal amount of the bridge notes to certain institutional investors and $ 150,000 aggregate principal amount of the bridge notes to certain members of management . the bridge notes , the initial maturity date of which was october 15 , 2014 ( which was subject to a three-month extension at the option of the holders that occurred ; see below ) , are convertible into shares of the company 's common stock . the initial conversion price for institutional investors is $ 2.50 per share ( which was subsequently reduced ; see below ) , and the initial conversion price for management is equal to the closing price of the company 's common stock on the closing date of the purchase agreement , $ 2.94. the bridge notes are secured obligations of the company and bear interest at a rate of 8 % per year . the bridge warrants are exercisable for five years after the closing date of the purchase agreement , or july 15 , 2019. for each $ 1,000 of principal amount of bridge notes , the holder received 1,200 bridge warrants , each exercisable for the purchase of one share of the company 's common stock . each holder is entitled to exercise one-third of all bridge warrants received at an exercise price of $ 3.00 , one-third of all bridge warrants received at an exercise price of $ 3.50 , and one-third of all bridge warrants received at an exercise price that is equal to the closing price on the closing date of the purchase agreement , $ 2.94. pursuant to the terms of the purchase agreement , the company has agreed to register for re-sale the shares underlying the bridge notes and the bridge warrants . on october 15 , 2014 , the original maturity date of the bridge notes , the maturity date of the bridge notes was extended to january 15 , 2015 for all holders of the bridge notes . on november 17 , 2014 the company closed the sale of 600,000 shares of its series a stock , which resulted in the reduction of the conversion price of the bridge notes held by the institutional investors to $ 2.00 from $ 2.50 to equal the conversion price of the series a preferred stock ( see below ) . in addition , two additional 90-day extensions were provided to the institutional investors , which could extend the final maturity date to july 15 , 2015. the extensions expired on january 15 , 2015 and at the quarter ended january 31 , 2015 the bridge notes were in default .
| results of operations the following table sets forth consolidated operating data expressed as a percentage of revenues for the periods indicated . replace_table_token_5_th 27 fiscal 2015 compared with fiscal 2014 revenues for the fiscal year ended april 30 , 2015 were $ 28,258,000 compared to $ 30,399,000 in the fiscal year ended april 30 , 2014 , a 7 % decrease . average selling prices decreased approximately 6 % from the prior year periods , attributable to a decline in the price of dram chips , the primary raw material used in the company 's products . revenues for the fiscal years ended april 30 , 2015 and 2014 by geographic region were : replace_table_token_6_th the company expects that the entire backlog on hand will be filled during the fiscal year ending april 30 , 2016 and mostly in the first quarter . the company 's backlog at april 30 , 2015 was $ 98,000. at april 30 , 2014 , the company 's backlog was $ 216,000. cost of sales was $ 24,068,000 in the fiscal year ended april 30 , 2015 or 85.2 % of revenues compared to $ 24,353,000 or 80.1 % of revenues in the fiscal year ended april 30 , 2014. fluctuations in cost of sales as a percentage of revenues are not unusual and can result from many factors , some of which are a rapid change in the price of drams , or a change in product mix possibly resulting from a large order or series of orders for a particular product or a change in customer mix .
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in addition , the impact of the adoption on noncontrolling interests in consolidated affiliate will be a reduction of $ 1.1 billion on january 1 , 2016. subsequent to adoption , our consolidated revenues will consist primarily of fees received from residential under the new ama , and our consolidated expenses will consist primarily of general and administrative expenses , including salaries and employee benefits , professional and legal fees , occupancy expenses and other general and administrative expenses . see note 9 for further discussion of the new ama . such revenues and expenses for the years ended december 31 , 2015 , 2014 and 2013 are presented below ( $ in thousands ) : replace_table_token_25_th in may 2014 , the fasb issued asu 2014-09 revenue from contracts with customers . asu 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of story_separator_special_tag overview our primary business is to provide asset management and certain corporate governance services to institutional investors . in october 2013 , we applied for and were granted registration by the sec as a registered investment adviser under section 203 ( c ) of the investment advisers act of 1940. our primary clients is residential . we have a capital light operating strategy . residential is currently our primary source of revenue and will drive our results . on march 31 , 2015 , we entered into the new ama with an effective date of april 1 , 2015. the original ama had a different incentive fee structure that gave us a share of residential 's cash flow available for distribution to its stockholders as well as reimbursement for certain overhead and operating expenses . although the new ama provides for a new fee structure in which we are entitled to a base management fee , an incentive management fee and a conversion fee for loans and reo properties that become rental properties during each quarter , our operating results are highly dependent on residential 's operating results . we have concluded that residential is a vie because residential 's equity holders lack the ability through voting rights to make decisions about residential 's activities that have a significant effect on the success of residential . we have also concluded that we are the primary beneficiary of residential 's financial condition and results of operations because under the residential asset management agreement we have the power to direct the activities of residential that most significantly impact residential 's economic performance including establishing residential 's investment and business strategy . as a result , we consolidate residential 's financial results in our consolidated financial statements . as discussed in note 1 to the consolidated financial statements , we expect to deconsolidate residential from our consolidated financial statements effective january 1 , 2016 after our adoption accounting standards update ( “ asu ” ) 2015-02 , consolidation ( topic 810 ) – amendments to the consolidation analysis . additionally , we provide management services to newsource . on december 2 , 2013 , newsource became registered as a licensed reinsurer with the bma . because we own 100 % of voting common stock of newsource and there are no substantive kick-out rights granted to other equity owners , we consolidate newsource in our consolidated financial statements . 48 ( ) the 2015 fiscal year has been a period of marked change for residential . we advised residential through many crucial steps that we believe are necessary and appropriate for residential to become one of the preeminent single family rental operators in the industry and position it for future growth and success . among others , these important steps include : we facilitated residential 's transfer of approximately two-thirds of servicing , representing almost all of its non-securitized loans , away from ocwen to its two new mortgage loan servicing vendors , fay servicing and bsi financial services . these servicing transfers diversified residential 's servicing base and provided it with more bandwidth to service and convert its loan portfolio into single-family rentals . we advised residential on its renewal , extension and upsize of its repurchase and loan facilities with its lenders throughout 2015 and continued to securitize its non-performing loan portfolios . residential 's amended repurchase and loan facilities have also provided it with substantially more financing capacity for its reo portfolio as its total portfolio has been transitioning from one dominated by non-performing loans to a portfolio with substantial reo and single-family rental properties . we expect that the amended agreements will also enable residential to leverage and sell more properties that do not meet its rental criteria , providing it with more liquidity to purchase properties for its rental portfolio . residential 's total funding capacity under these new and amended facilities as of december 31 , 2015 was $ 1.3 billion , and its remaining available financing capacity as of december 31 , 2015 was approximately $ 512.4 million . we advised residential on the diversification of its single-family acquisition strategies to acquire single-family rentals in bulk and or directly purchase reos on a one-by-one basis to more quickly and efficiently build its rental portfolio , as non-performing loans have become higher priced and economically unattractive . in august 2015 , residential purchased a portfolio of 1,314 single-family rental properties in atlanta , of which more than 94 % were occupied by tenants with stabilized rental income . in december 2015 , residential also bid for , and was awarded , a portfolio of 627 rental properties in illinois , north carolina , south carolina , georgia and florida . on february 9 , 2016 , residential executed the purchase agreement for this portfolio and , subject to completing confirmatory due diligence , expects to close this transaction prior to the end of the first quarter of 2016. since residential commenced this diversified acquisition strategy , it has increased its rental portfolio from properties 787 at december 31 , 2014 to 2,732 properties at december 31 , 2015 , a 247 % increase . story_separator_special_tag we expect to continue to review and acquire portfolios of non-performing loan portfolios at attractive prices , but we expect to be disciplined in doing so , rather than acquiring non-performing loans at inflated prices that do not fit residential 's investment criteria . overview of residential 's portfolio real estate assets as of december 31 , 2015 , residential owned 6,516 reo properties with an aggregate carrying value of $ 986.4 million , of which 4,933 were held for use and 1,583 were held for sale . of the 4,933 reo properties held for use , 2,118 properties had been leased , 264 were listed and ready for rent , and 350 were in varying stages of renovation and unit turn status . with respect to the remaining 2,201 reo properties held for use , we will make a final determination whether each property meets residential 's rental profile after ( a ) applicable state redemption periods have expired , ( b ) the foreclosure sale has been ratified , ( c ) residential has recorded the deed for the property , ( d ) utilities have been activated and ( e ) we have secured access for interior inspection . as of december 31 , 2014 , residential had 3,960 reo properties , consisting of 3,349 reo properties held for use and 611 properties held for sale . of the 3,349 properties held for use , 336 had been leased , 197 were listed and ready for rent and 254 50 ( ) were in various stages of renovation . with respect to the remaining 2,562 reo properties at december 31 , 2014 , we were in the process of determining whether these properties would meet residential 's rental profile . real estate acquisitions on august 18 , 2015 , residential completed the acquisition of 1,314 single-family residential properties in the atlanta , georgia market , of which 94 % were leased as of the acquisition date , from an unrelated third party for an aggregate purchase price of approximately $ 111.4 million . acquisition costs related to this portfolio acquisition of $ 0.6 million were recognized in general and administrative expenses . the value of in-place leases was estimated at $ 1.3 million based upon the costs we would have incurred to lease the properties and is being amortized over the weighted-average remaining life of the leases of 7 months as of the acquisition date . in december 2015 , residential also bid for , and was awarded , a portfolio of 627 rental properties in illinois , north carolina , south carolina , georgia and florida . on february 9 , 2016 , residential executed the purchase agreement for this portfolio and , subject to completing confirmatory due diligence , expects to close this transaction prior to the end of the first quarter of 2016. during the third quarter of 2015 , residential initiated a program to purchase single-family residential properties on a one-by-one basis , sourcing listed properties from the multiple listing service and alternative listing sources . residential acquired 98 properties under this program during 2015. during the year ended december 31 , 2014 , residential acquired 237 reo properties as part of its mortgage loan portfolio acquisitions . the aggregate purchase price attributable to these acquired reo properties was $ 34.1 million . during the year ended december 31 , 2013 , residential acquired 40 reo properties as part of its mortgage loan portfolio acquisitions . the aggregate purchase price attributable to these acquired reo properties was $ 6.2 million . real estate dispositions during the year ended december 31 , 2015 , residential disposed of 1,321 reo properties and recorded $ 50.9 million of net realized gains on real estate . during the year ended december 31 , 2014 , residential disposed of 221 reo properties and recorded $ 9.5 million of net realized gains on real estate . during the year ended december 31 , 2013 , residential disposed of four residential properties . there were no significant gains or losses on the dispositions in 2013. mortgage loan assets as of december 31 , 2015 , residential 's portfolio of mortgage loans at fair value consisted of 5,739 loans , substantially all of which were non-performing , having an aggregate upb of approximately $ 1.4 billion and an aggregate market value of underlying properties of $ 1.3 billion . residential also owned 1,297 mortgage loans held for sale having an aggregate upb of approximately $ 440.4 million and an aggregate market value of underlying properties of approximately $ 465.0 million as of december 31 , 2015 . as of december 31 , 2014 , residential 's portfolio of mortgage loans consisted of 10,963 residential mortgage loans , substantially all of which were non-performing , having an aggregate upb of approximately $ 2.9 billion and an aggregate market value of underlying properties of $ 2.7 billion . residential also owned 102 mortgage loans held for sale having an aggregate upb of approximately $ 18.4 million and an aggregate market value of underlying properties of approximately $ 22.5 million as of december 31 , 2014. mortgage loan acquisitions residential did not complete any residential mortgage loan portfolio acquisitions during the year ended december 31 , 2015 . 51 ( ) during 2014 , residential completed the acquisition of an aggregate of 7,326 residential mortgage loans , substantially all of which were non-performing , having an aggregate upb of approximately $ 1.9 billion and an aggregate market value of underlying properties of approximately $ 1.8 billion . the aggregate purchase price for these acquisitions was approximately $ 1.2 billion . additionally , in june 2014 , residential acquired 879 re-performing mortgage loans with an aggregate market value of underlying properties of $ 271.1 million for an aggregate purchase price of $ 144.6 million .
| results of operations the following sets forth discussion of our results of operations for the years ended december 31 , 2015 , 2014 and 2013 . because the results of residential are consolidated into our financial statements , the results of operations disclosures set forth below include the results of residential . we eliminate all intercompany amounts in our consolidated financial statements , including the fees due from residential under the respective asset management agreements . however , the effect of such amounts received from residential is still recognized in net income attributable to our stockholders through the adjustment for earnings attributable to noncontrolling interest . fiscal year ended december 31 , 2015 compared to fiscal year ended december 31 , 2014 rental revenues residential 's rental revenues increased to $ 13.2 million for the year ended december 31 , 2015 from $ 1.6 million for the year ended december 31 , 2014 . the number of leased properties increased to 2,118 leased properties at december 31 , 2015 from 336 at december 31 , 2014 , primarily due to residential 's acquisition of 1,314 rental properties in august 2015 and its other efforts to achieve scale in our rental portfolio . we expect residential to generate increasing rental revenues as it continues to renovate , list and rent additional residential rental properties . residential 's rental revenues will depend primarily on occupancy levels and rental rates for its residential rental properties . because residential 's lease terms generally are expected to be two or fewer years , residential 's occupancy levels and rental rates will be highly dependent on localized residential rental markets , its ability to manage maintenance and upkeep costs and its renters ' desire to remain in its properties .
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during the second quarter of 2013 , we and certain of our subsidiaries filed a registration statement on form s-4 , pursuant to which we and such subsidiaries offered to exchange $ 900 million in aggregate principal amount of registered 6.375 % senior notes due 2020 ( the new notes ) and related guarantees for the existing notes and related guarantees . the new notes are substantially identical to the existing notes . on september 17 , 2013 , tronox finance story_separator_special_tag the following discussion and analysis should be read in conjunction with the information contained in tronox limited 's audited consolidated financial statements for the years ended december 31 , 2013 and 2012 , eleven months ended december 31 , 2011 , and one month ended january 31 , 2011 , and the related notes thereto . this discussion contains forward-looking statements that involve risks and uncertainties , and actual results could differ materially from those discussed in the forward-looking statements as a result of numerous factors . see special note regarding forward-looking statements. executive overview we are a global leader in the production and marketing of titanium bearing mineral sands and titanium dioxide pigment ( tio 2 ) . we are the third largest global producer and marketer of tio 2 manufactured via chloride technology , as well as the third largest global producer of titanium feedstock and a leader in global zircon production . we have operations in north america , europe , south africa , and the asia-pacific region . we operate three tio 2 facilities at the following locations : hamilton , mississippi ; botlek , the netherlands ; and kwinana , western australia , representing approximately 465,000 metric tons of annual tio 2 production capacity . additionally , we operate three separate mining operations : kwazulu-natal ( kzn ) sands located in south africa , namakwa sands located in south africa and cooljarloo sands located in western australia , which have a combined annual production capacity of approximately 753,000 metric tons of titanium feedstock and approximately 265,000 metric tons of zircon . we have two reportable operating segments , mineral sands and pigment . corporate and other is comprised of our electrolytic manufacturing and marketing operations , as well as our corporate activities . the mineral sands segment includes the exploration , mining , and beneficiation of mineral sands deposits . these operations produce titanium feedstock , including chloride slag , slag fines , and rutile , as well as zircon and pig iron . titanium feedstock is used primarily to manufacture tio 2 . zircon is a mineral which is primarily used as an opacifier in ceramic glazes for tiles , plates , dishes , and industrial products . pig iron is a metal material used in the steel and metal casting industries to create wrought iron , cast iron , and steel . the pigment segment primarily produces and markets tio 2 , which is used in a wide range of products due to its ability to impart whiteness , brightness , and opacity . tio 2 is used extensively in the manufacture of paint and other coatings , plastics and paper , and in a wide range of other applications , including inks , fibers , rubber , food , cosmetics , and pharmaceuticals . moreover , it is a critical component of everyday consumer applications due to its superior ability to cover or mask other materials effectively and efficiently relative to alternative white pigments and extenders . we believe that , at present , tio 2 has no effective substitute because no other white pigment has the physical properties for achieving comparable opacity and brightness or can be incorporated in a cost-effective manner . acquisition of mineral sands business because we believed that becoming vertically integrated would benefit us by assuring our access to critical supply , retaining our cash and margin , and enabling general operating flexibility , we acquired a global producer of mineral sands with production facilities and sales and marketing presence strategically positioned throughout the world . specifically , we acquired 74 % of exxaro resources ltd. 's ( exxaro ) south african mineral sands operations , including its namakwa and kzn sands mines , separation and slag furnaces , along with its 50 % share of the tiwest joint venture in western australia ( together the mineral sands business ) ( the transaction ) . on june 15 , 2012 , the date of the transaction ( the transaction date ) , the existing business of tronox incorporated was combined with the mineral sands business under tronox limited . as of the transaction date , we own 100 % of the operations formerly operated by the tiwest joint venture . emergence from chapter 11 in connection with its emergence from bankruptcy , tronox incorporated applied fresh-start accounting under accounting standards codification ( asc ) 852 , reorganizations ( asc 852 ) as of january 31 , 2011. accordingly , the financial information of tronox incorporated set forth in this form 10-k , unless otherwise expressly set forth or as the context otherwise indicates , reflects the consolidated results of operations and financial condition on a fresh-start basis for the period beginning february 1 , 2011 ( successor ) , and on a historical basis for the period through january 31 , 2011 ( predecessor ) . recent developments dividends declared on february 25 , 2014 , the board of directors declared a quarterly dividend of $ 0.25 per share to holders of our class a ordinary shares ( class a shares ) and class b ordinary shares ( class b shares ) at the close of business on march 10 , 2014 , totaling $ 29 million , which will be paid on march 24 , 2014. during 2013 , we paid dividends of $ 115 million . see note 19 of notes to consolidated financial statements . 35 liquidation of non-operating subsidiaries during 2013 , we completed the liquidation of two non-operating subsidiaries : tronox ( luxembourg ) holdings s.a.r.l. story_separator_special_tag these deductions will accrue over the life of the trusts as the funds received by the judgment are spent . we believe that these expenditures and the accompanying tax deductions may continue for decades . 36 these tax-advantaged factors are not currently recognized as assets on our balance sheet , but create opportunities for our operations to benefit for years to come . going forward , we will continue to review strategic opportunities both in the u.s. and in foreign jurisdictions . we believe we bring a strong set of attributes to the table in either an acquisition or a business combination . as such , we will continue to seek opportunities to realize those value creating attributes , whether it is in a single transaction with a large party , or a series of transactions to expand our portfolio . story_separator_special_tag $ 107 million , higher volumes of $ 95 million , and favorable currency translation of $ 48 million . cost of goods sold includes a net credit of $ 32 million in 2013 related to purchase accounting adjustments for inventory step-up and unfavorable contract amortization compared to a net noncash charge $ 137 million in 2012. pigment segment during 2013 , income from operations decreased over 100 % compared to 2012 , which was primarily driven by lower selling prices and mix of $ 303 million , offset partially by lower ore and production costs . corporate and other during 2013 , corporate and other improved by $ 69 million compared to prior year . the improvement is attributable to one-time costs associated with the acquisition of the mineral sands business of $ 94 million in 2012 , which are offset by increases in professional services and spending related to corporate initiatives and to a slightly higher loss from operations of the electrolytic and other chemical products business during 2013. eliminations the net impact from operations in eliminations reflects the change of the profit in inventory sold from our mineral sands business that is still held in inventory by our pigment business at the end of the period . the benefit in 2013 versus 2012 principally reflects the lower margins of our mineral sands products which reflect lower selling prices . 39 year ended december 31 , 2012 compared to the combined twelve month period ended december 31 , 2011 replace_table_token_10_th all references to 2011 refer to the combined twelve month period ended december 31 , 2011 , which includes the successor period and the predecessor period , unless otherwise indicated . net sales for 2012 increased 11 % from 2011. during 2012 and 2011 , 68 % and 86 % , respectively , of our net sales were generated from our pigment business . the increase in net sales for 2012 reflects the impact of the acquired businesses , higher selling prices in all of our businesses , partially offset by lower sales volumes . the acquired businesses contributed $ 524 million to consolidated net sales during 2012. higher prices resulted from a strong market in early-to-mid 2011 and the carryover of price increases from 2011. as market demand softened in late 2011 and early 2012 , we began to experience price erosion which accelerated in the latter half of 2012. during 2012 , sales volumes declined in both the mineral sands and pigment businesses due to simultaneous market weakness in china , europe , and north america . foreign currency exchange rates negatively impacted net sales by $ 25 million during 2012 as compared to 2011. cost of goods sold increased 32 % compared to prior year which reflects the inclusion of the acquired business , higher pigment costs , primarily for raw materials and chemical products , as well as higher per unit costs due to lower capacity utilization during 2012 , partially offset by a decrease in sales volumes . cost of goods sold for 2012 includes $ 152 million of net non-cash amortization of inventory step-up and unfavorable ore sales contracts liability as a result of our purchase price allocation . during 2012 , we reduced pigment production volumes in response to decreased sales volumes . unfavorable exchange rate changes increased cost of sales by $ 52 million in 2012 as compared to 2011. our gross profit decreased to 14 % of net sales as compared to 28 % of net sales in 2011. noncash amortization of $ 152 million as a result of purchase accounting impacted the 2012 gross profit by 8 % , with the remainder primarily due to higher costs and lower sales volumes , partially offset by higher selling prices . selling , general and administrative expenses increased 52 % in 2012 compared to 2011. during 2012 , the acquired business accounted for approximately $ 20 million of our total selling , general and administrative costs . the remaining increase is primarily attributable to one-time costs incurred in connection with the acquisition of the mineral sands business of $ 94 million , comprised of transfer taxes of $ 37 million and other transaction costs and severance of $ 36 million , as well as share-based compensation awards of $ 21 million . the increase in interest and debt expense is primarily attributable to interest expense on the notes , the asset based lending facilities and the term facility , as well as an increase in the amortization of deferred debt issuance costs . interest expense related to the notes was $ 21 million during 2012. interest expense related to the term facility was $ 29 million during 2012 versus $ 30 million in 2011. amortization of deferred debt issuance costs and discount on debt increased $ 9 million during 2012 due to refinancing of the wells revolver . in connection with obtaining the term facility , we incurred debt issuance costs of $ 17 million , of which $ 5 million was paid in 2011 and $ 12 million was paid in 2012. we also incurred $ 17 million of issuance costs in connection with the notes .
| consolidated results of operations year ended december 31 , 2013 compared to the year ended december 31 , 2012 replace_table_token_6_th net sales for 2013 increased 5 % from 2012 primarily due to the impact of the acquired businesses of $ 273 million and higher volumes of $ 294 million , partially offset by lower selling prices and mix of $ 480 million . substantially higher volumes were achieved in both our mineral sands business and our pigment business , while selling prices were decidedly lower in both businesses . during 2013 , the effect of changes in foreign currency positively impacted net sales by $ 3 million . cost of goods sold increased 10 % compared to prior year which principally reflects the impact of the acquired business of $ 191 million and higher volumes in both the pigment and mineral sands businesses of $ 206 million , partially offset by $ 184 million due to favorable year-over-year impact of noncash amortization of inventory step-up and unfavorable ore sales contracts liability , favorable currency translation of $ 34 million and other lower costs of $ 15 million . during 2013 , our gross profit decreased to 10 % of net sales as compared to 14 % of net sales in 2012. the decrease was principally due to lower selling prices offset partially by lower ore and production costs and by a favorable change in mix . during 2013 and 2012 , net noncash depreciation , depletion and amortization of $ 159 million and $ 75 million , respectively , as a result of purchase accounting impacted the gross profit by 8 % and 4 % , respectively .
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the guidance removes specific exceptions to the general 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. in addition to historical financial information , this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth under “ special note regarding forward-looking statements ” and “ risk factors ” and elsewhere in this annual report on form 10-k. our fiscal year ends on december 31 each year . overview we are a clinical-stage biopharmaceutical company currently focused on developing novel therapeutics to address unmet medical needs in viral and liver diseases . we utilize our proprietary oligonucleotide and small molecule platforms to develop pharmacologically optimized drug candidates for use in combination regimens designed to achieve improved treatment outcomes . our lead effort is to develop a functional cure for chronic hepatitis b ( chb ) , which often results in other life-threatening conditions such as cirrhosis , end-stage liver disease ( esld ) and the most common form of liver cancer , hepatocellular carcinoma ( hcc ) . the most widely used treatment for chb , nucleos ( t ) ide analogs , suppresses viral replication but only achieves low rates of functional cure and often requires long-term administration . to address this issue , we have developed a portfolio of differentiated drug candidates for chb , including an s-antigen transport-inhibiting oligonucleotide polymers ( stops ) molecule , a small molecule capsid assembly modulator ( cam ) , and oligonucleotides ( aso and sirna ) , each of which is designed against clinically validated targets in the hepatitis b virus ( hbv ) life cycle . we believe that combination regimens utilizing our portfolio of chb drug candidates may lead to higher rates of functional cure . phase 1 proof of concept trials evaluating the properties of our stops molecule and cam are ongoing in new zealand and each of such candidates has been approved to commence clinical trials in hong kong and moldova . we may also in the future conduct clinical trials for our stops molecule and cam and other drug candidates in other countries and territories , including south korea , the united kingdom , and china . our second area of focus is in non-alcoholic steatohepatitis ( nash ) , a complex , chronic liver disease where combination regimens may likewise prove beneficial . our most advanced drug candidate for nash is alg‑055009 , a small molecule thr-ß agonist currently in nonclinical studies to enable a first-in-human clinical trial . we believe alg‑055009 has the potential to become an integral component of future combination regimens for nash . our third area of focus is to develop drug candidates with pan-coronavirus activity , including sars-cov-2 , the virus responsible for covid-19 . in october 2020 , we completed our initial public offering ( ipo ) and issued 10,000,000 shares of our common stock at a price to the public of $ 15.00 per share for net proceeds of $ 135.4 million , after deducting underwriting discounts and commissions of $ 10.5 million and estimated expenses of $ 4.1 million . in connection with the ipo , all shares of series a , series b-1 and series b-2 redeemable convertible preferred stock converted into 19,761,870 shares of voting common stock and 3,092,338 shares of non-voting common stock . on november 5 , 2020 , the underwriters of the ipo partially exercised their overallotment option by purchasing an additional 1,150,000 shares from the company , resulting in an additional $ 16.0 million , after deducting underwriting discounts and commissions of $ 1.2 million . prior to our ipo , we had received gross proceeds of approximately $ 186.9 million from sales of our preferred stock and our issuance of convertible debt . we have incurred net losses and negative cash flows from operations in each year since our formation in february 2018. our net losses were $ 108.5 million and $ 52.3 million for the years ended december 31 , 2020 and december 31 , 2019 , respectively . we have had no revenue from product sales . as of december 31 , 2020 , we had an accumulated deficit of $ 174.7 million . substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations . we expect to continue to incur significant expenses and increasing operating losses over at least the next several years . our net operating losses may fluctuate from quarter to quarter and year to year depending primarily on the timing of our clinical trials and nonclinical studies and our other research and development expenses . we have no internal manufacturing capabilities or salesforce and outsource a substantial portion of our clinical trial work to third parties . 107 components of our results of operations operating expenses our operating expenses since inception have consisted solely of research and development costs and general and administrative costs . research and development expenses we rely substantially on third parties to conduct our discovery activities , nonclinical studies , clinical trials and manufacturing . we primarily estimate research and development expenses based on estimates of services performed and rely on third party contractors and vendors to provide us with timely and accurate estimates of expenses of services performed to assist us in these estimates . a portion of our research and development expenses are based on contractual milestones . story_separator_special_tag we performed an irc section 382 analysis in 2020 and determined there was an ownership change that resulted in section 382 limitations . the ownership change limited our ability to utilize net operating losses against future taxable income but will not result in the expiration of any nols . we may in the future experience ownership changes as a result of changes in our stock ownership ( some of which are not in our control ) . in addition , under current tax law , federal nol carryforwards generated in periods after december 31 , 2017 , may be carried forward indefinitely but , in taxable years beginning after december 31 , 2020 , may only be used to offset 80 % of our taxable income . for these reasons , our ability to utilize our nol carryforwards and other tax attributes to reduce future tax liabilities may be limited . 109 story_separator_special_tag style= '' text-align : left ; margin-bottom:0pt ; margin-top:6pt ; font-weight : normal ; font-style : normal ; color : # auto ; text-transform : none ; font-variant : normal ; letter-spacing:0pt ; font-family : times new roman ; font-size:12pt ; '' > conduct our current and future clinical trials , and additional nonclinical studies ; initiate and continue research and nonclinical and clinical development of other drug candidates ; seek to identify additional drug candidates ; pursue marketing approvals for any of our drug candidates that successfully complete clinical trials , if any ; establish a sales , marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval ; require the manufacture of larger quantities of our drug candidates for clinical development and potentially commercialization ; obtain , maintain , expand , protect and enforce our intellectual property portfolio ; acquire or in-license other drug candidates and technologies ; hire and retain additional clinical , quality control and scientific personnel ; achieve milestones triggering payments by us under our current and potential future licensing and or collaboration agreements ; build out or expand existing facilities to support our ongoing development activity ; and add operational , financial and management information systems and personnel , including personnel to support our drug development , any future commercialization efforts and our transition to becoming a public company . we believe that our existing cash , cash equivalents and investments will enable us to fund our planned operating expenses and capital expenditure requirements through at least the twelve months from the date of issuing 111 our financial statements . we have based this estimate on assumptions that may prove to be wrong , and we could exhaust our available capital resources sooner than we expect . furthermore , we may elect to raise additional capital on an opportunistic basis to fund operations . because of the numerous risks and uncertainties associated with our research and development programs and because the extent to which we may enter into collaborations with third parties for development of our drug candidates is unknown , we are unable to estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our drug candidates . our future capital requirements will depend on many factors , including : the scope , progress , results and costs of researching and developing our drug candidates and programs , and of conducting nonclinical studies and clinical trials ; the timing of , and the costs involved in , obtaining marketing approvals for drug candidates we develop if clinical trials are successful ; the cost of commercialization activities for our current drug candidates , and any future drug candidates we develop , whether alone or in collaboration , including marketing , sales and distribution costs if our current drug candidates or any future drug candidate we develop is approved for sale ; the cost of manufacturing our current and future drug candidates for clinical trials in preparation for marketing approval and commercialization ; our ability to establish and maintain strategic licenses or other arrangements and the financial terms of such agreements ; the costs involved in preparing , filing , prosecuting , maintaining , expanding , defending and enforcing patent claims , including litigation costs and the outcome of such litigation ; the timing , receipt and amount of sales of , or profit share or royalties on , our future products , if any ; the emergence of competing therapies for hepatological indications and viral diseases and other adverse market developments ; and any acquisitions or in-licensing of other programs or technologies . developing pharmaceutical products , including conducting nonclinical studies and clinical trials , is a time-consuming , expensive and uncertain process that takes years to complete , and we may never generate the necessary data or results required to obtain marketing approval for any drug candidates or generate revenue from the sale of any drug candidate for which we may obtain marketing approval . in addition , our drug candidates , if approved , may not achieve commercial success . our commercial revenues , if any , will be derived from sales of drugs that we do not expect to be commercially available for many years , if ever . accordingly , we will need to obtain substantial additional funds to achieve our business objectives . adequate additional funds may not be available to us on acceptable terms , or at all . we do not currently have any committed external source of funds . to the extent that we raise additional capital through the sale of equity or convertible debt securities , ownership interest may be diluted , and the terms of these securities may include liquidation or other preferences and anti-dilution protections that could adversely affect the rights of a common stockholder .
| results of o perations comparison of the years ended december 31 , 2020 and 2019 the following table summarizes our operating expenses for the years ended december 31 , 2020 and 2019 : replace_table_token_3_th research and development expenses research and development expenses were $ 79.9 million for the year ended december 31 , 2020 , compared to $ 44.0 million for the year ended december 31 , 2019 , an increase of $ 35.9 million . the increase was primarily due to an increase of $ 25.2 million in third-party expenses for our preclinical programs related to research activities as well as development costs associated with our stops molecule and cam candidate . the increase also includes $ 8.4 million of additional employee-related costs , including a $ 0.6 million increase in stock-based compensation . additionally , there is a $ 0.7 million of increased laboratory supplies and an increase of $ 0.5 million in depreciation and other expenses . general and administrative expenses general and administrative expenses were $ 17.9 million for the year ended december 31 , 2020 , compared to $ 10.0 million for the year ended december 31 , 2019 , an increase of $ 7.9 million . the increase was primarily due to $ 2.5 million increase in third party costs and a $ 2.6 million in increased personnel-related costs primarily due to general and administrative headcount to support the growth of our research and development organization , including an increase of $ 1.6 million of additional stock-based compensation expense . additionally , there was a $ 1.0 million increase in consulting services due to our ipo , a $ 0.9 million increase in depreciation , and a $ 1.0 million increase in general costs due to d & o insurance and other public company expenses .
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our currently-marketed product portfolio is focused on applications for spine fusion surgery , including biologics , a combined market estimated to be approximately $ 9.0 billion globally in 2015. our principal product offering includes a minimally-disruptive surgical platform called maximum access surgery ( mas ) . the mas platform combines three categories of solutions that collectively minimize soft tissue disruption during spine fusion surgery , provide maximum visualization and are designed to enable safe and reproducible outcomes for the surgeon and the patient . the platform includes our proprietary software-driven nerve detection and avoidance systems , nvm5 and nvjjb , and intra-operative monitoring ( iom ) support ; maxcess , an integrated split-blade retractor system ; and a wide variety of specialized implants . the individual components of our mas platform , and many of our products , can also be used in open or traditional spine surgery . our spine surgery product line offerings , which include products for the thoracolumbar and the cervical spine , are primarily used to enable access to the spine and to perform restorative and fusion procedures in a minimally disruptive fashion . our biologic product line offerings used to aid the spinal fusion process or bone healing include allograft ( donated human tissue ) , osteocel plus and osteocel pro , an allograft cellular matrix containing viable mesenchymal stem cells ( mscs ) , formagraft , a collagen synthetic product , and attrax , a synthetic bone graft material , currently available commercially only in select markets outside of the united states . our subsidiary , impulse monitoring , inc. provides iom services for insight into the nervous system during spine and other surgeries . we continue to focus significant research and development efforts to expand our mas product platform and advance the applications of our unique technology into procedurally integrated surgical solutions . we have dedicated and continue to dedicate significant resources toward training spine surgeons who are new to our mas product platform as well as surgeons previously trained on our mas product platform who are attending advanced training courses . our mas platform , with the unique advantages provided by our nerve monitoring systems , enables an innovative lateral procedure known as extreme lateral interbody fusion ( xlif ) , in which surgeons access the spine for a fusion procedure from the side of the patient 's body , rather than from the front or back . our maxcess instruments provide access to the spine in a manner that affords direct visualization and our nerve monitoring systems assist surgeons in avoiding critical nerves . at various times in the past , certain insurance providers have adopted policies of not providing reimbursement for the xlif procedure or some of its components . we have worked with our surgeon customers and the north american spine society who , in turn , have worked with these insurance providers to supply the information , explanation and clinical data they require to categorize the xlif procedure as a procedure entitled to reimbursement under their policies . at present , the majority of insurance companies provide reimbursement for xlif procedures . however , certain carriers - large and small - may have policies significantly limiting coverage of xlif , interlaminar lumbar instrumented fusion , osteocel plus and osteocel pro , and or other procedures or products we sell . we can not offer definitive time frames or final outcomes regarding reversal of the coverage-limiting policies , as the process is dictated by the third-party insurance providers . in recent years , we have significantly expanded our product offerings relating to procedures in the cervical spine . our cervical product offering now provides a full set of solutions for cervical , both motion preservation and fusion surgery , including both allograft and coroent ® implants , as well as cervical plating and posterior fixation products . in mid-2013 , we received a federal administrative subpoena from the office of the inspector general of the u.s. department of health and human services ( oig ) in connection with an investigation into possible false or otherwise improper claims submitted to medicare and medicaid . the subpoena seeks discovery of documents for the period january 2007 through april 2013. we are working with the oig to understand the scope of the subpoena and to provide the requested documents . we intend to fully cooperate with the oig 's request and will provide periodic updates as information becomes available . responding to the subpoena requires management 's attention and results in significant legal expense . any adverse findings related to this investigation could result in significant financial penalties against us . 40 revenues and operations . to date , the majority of our revenues are derived from the sale of implants , biologics and disposables and we expect this trend to continue for the foreseeable future . we loan our proprietary software-driven nerve monitoring systems and surgical instrument sets at no cost to surgeons and hospitals that purchase disposables and implants for use in individual procedures . in addition , we often place our proprietary software-driven nerve monitoring systems , maxcess and other mas or cervical surgical instrument sets with hospitals for an extended period at no up-front cost to them . our implants , biologics and disposables are currently sold and shipped from our primary distribution and warehousing operations facility located in memphis , tennessee . we generally recognize revenue for implants , biologics and disposables upon receiving acknowledgement of a purchase order and upon completion of delivery . we sell mas instrument sets , maxcess devices , and our proprietary software-driven nerve monitoring systems , however this does not make up a material part of our business . iom monitoring service revenue consists of hospital based revenues and net patient service revenues , and is recorded in the period the service is provided . hospital based revenues are recorded based upon contracted billing rates . story_separator_special_tag if the historical data used to calculate the allowance provided for doubtful accounts does not reflect the company 's future ability to collect outstanding receivables or if the financial condition of customers were to deteriorate , resulting in impairment of their ability to make payments , an increase in the provision for doubtful accounts may be required . we maintain a relatively large customer base that mitigates the risk of concentration with any one particular customer . historically , the company 's reserves have been adequate to cover losses . in addition , we establish a reserve for estimated sales returns that is recorded as a reduction to revenue . this reserve is maintained to account for future return of products sold in the current period . this reserve is reviewed quarterly and is estimated based on an analysis of our historical experience related to product returns . the product returns were immaterial for the years presented . excess and obsolete inventory . we provide an inventory reserve for estimated obsolescence and excess inventory based upon historical turnover and assumptions about future demand for our products and market conditions . our allograft products have shelf lives ranging from two to five years and are subject to demand fluctuations based on the availability and demand for alternative products . our inventory , which consists primarily of disposables and specialized implants , is at risk of obsolescence following the introduction and development of new or enhanced products . our estimates and assumptions for excess and obsolete inventory are reviewed and updated on a quarterly basis . the estimates we use for demand are also used for near-term capacity planning and inventory purchasing and are consistent with our revenue forecasts . increases in the reserve for excess and obsolete inventory result in a corresponding charge to cost of goods sold . historically , the company 's reserves have been adequate to cover losses . a stated goal of our business is to focus on continual product innovation and to obsolete our own products . while we believe this provides a competitive edge , it also results in the risk that our products and related capital instruments will become obsolete prior to sale or to the end of their anticipated useful lives . financial instruments and fair value . a sc topic 820 , fair value measurements and disclosures defines fair value and requires the company to establish a framework for measuring fair value and disclosure about fair value measurements . the framework requires the valuation of assets and liabilities subject to fair value measurements using a three tiered approach and fair value measurement be classified and disclosed in one of the following three categories . inputs to valuation techniques are observable or unobservable . observable inputs reflect market data obtained from independent sources , while unobservable inputs reflect our market assumptions . level 1 : quoted prices ( unadjusted ) in active markets that are accessible at the measurement date for assets or liabilities . level 2 : observable prices that are based on inputs not quoted on active markets , but corroborated by market data . level 3 : unobservable inputs are used when little or no market data is available . carrying value of the financial instruments measured and classified within level 1 is based on quoted prices . the types of instruments that trade in markets that are not considered to be active , but are valued based on quoted market prices , broker or dealer quotations , or alternative pricing sources with reasonable levels of price transparency are generally classified within level 2 of the fair value hierarchy . certain contingent consideration liabilities are classified within level 3 of the fair value hierarchy because they use unobservable inputs . for those liabilities , fair value is determined using a probability-weighted discounted cash flow model , the significant inputs which are not observable in the market . 42 property and equipment . property and equipment is carried at cost less accumulated depreciation . depreciation is computed using the straight-line method based on an asset 's estimated useful life . effective january 1 , 2014 , we changed the estimated useful lives from three to four for certain surgical instrument sets that we loan to or place with hospitals outside of the united states , to align with the useful life of similar types of assets utilized in the united states . maintenance and repairs on all property and equipment are expensed as incurred . valuation of goodwill and intangible assets with indefinite lives . our goodwill represents the excess of the cost over the fair value of net assets acquired from our business combinations . the determination of the value of goodwill and intangible assets arising from business combinations and asset acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair value of the net tangible and intangible assets acquired , including capitalized in-process research and development ( ipr & d ) . intangible assets acquired in a business combination that are used for in-process research and development activities are considered indefinite lived until the completion or abandonment of the associated research and development efforts . upon reaching the end of the relevant research and development project , the company will amortize the acquired in-process research and development over its estimated useful life or expense the acquired in-process research and development should the research and development project be unsuccessful with no future alternative use . goodwill and ipr & d are not amortized , however , they are assessed for impairment using fair value measurement techniques on an annual basis or more frequently if facts and circumstance warrant such a review . the goodwill or ipr & d are considered to be impaired if we determine that the carrying value of the reporting unit or ipr & d exceeds its respective fair value .
| results of operations revenue replace_table_token_5_th our spine surgery product line offerings , which include products for the thoracolumbar product offerings , cervical product offerings and disposables , are primarily used to enable access to the spine and to perform restorative and fusion procedures in a minimally disruptive fashion . our biologic product line offerings include allograft ( donated human tissue ) , formagraft ® ( a collagen synthetic product ) , osteocel ® plus and osteocel ® pro ( each an allograft cellular matrix containing viable mesenchymal stem cells , or mscs ) , and attrax ® ( a synthetic bone graft material ) , all of which are used to aid the spinal fusion or bone healing process . our monitoring service line offering includes hospital-based revenues and net patient service revenues related to iom services performed . the continued adoption of minimally invasive procedures for spine has led to the expansion of our procedure volume . in addition , increased market acceptance in our international markets contributed to the increase in revenues noted for the periods presented . we expect continued adoption of our innovative minimally invasive procedures and deeper penetration into existing accounts and international markets as our sales force executes on our strategy of selling the full mix of our products . however , the continued consolidation and increased purchasing power of our hospital customers and group purchasing organizations , the continued existence of physician-owned distributorships , recent changes in the public and private insurance markets regarding reimbursement , and ongoing policy and legislative changes in the united states have created less predictability in the lumbar portion of the spine market and have limited the domestic spine market 's procedural growth rate . accordingly , we believe that our growth in revenue in 2015 will continuously come primarily from share gains in the shift toward less invasive spinal surgery and international growth .
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our customers include u.s. and , to a lesser extent , international energy producers , petrochemical , industrial , power and marine operators . we operate our business through three operating divisions : fabrication , shipyards and services which are further discussed below . we use modern welding and fabrication technology , and all of our projects are manufactured in accordance with industry standards , specifications and regulations , including those published by the american petroleum institute , the american welding society , the american society of mechanical engineers , the american bureau of shipping and the united states coast guard . the quality management systems of our operating divisions are certified as iso 9001-2008 quality assurance programs . fabrication division - our fabrication division primarily fabricates structures such as offshore drilling and production platforms and other steel structures for customers in the oil and gas industry including jackets and deck sections of fixed production platforms along with pressure vessels . our fabrication division also fabricates structures for alternative energy customers ( such as the five jackets and piles we constructed for a shallow water wind turbine project off the coast of rhode island during 2015 ) as well as modules for petrochemical facilities . we perform these activities out of our fabrication yards in houma , louisiana , and aransas pass and ingleside , texas . shipyards division - our shipyards division primarily fabricates and repairs marine vessels including offshore supply vessels , anchor handling vessels , liftboats , tugboats , towboats , barges and other marine vessels . our shipyards division also constructs and owns dry docks to lift marine vessels out of the water in order to make repairs or modifications . our marine repair activities include steel repair , blasting and painting services , electrical systems repair , machinery and piping system repairs and propeller , shaft and rudder reconditioning . our shipyards division also performs conversion projects that consist of lengthening or modifying the use of existing vessels to enhance their capacity or functionality . we perform these activities out of our shipyards in houma , jennings and lake charles , louisiana . services division - our services division primarily provides interconnect piping services on offshore platforms and inshore structures . interconnect piping services involve sending employee crews to offshore platforms in the gulf of mexico to perform welding and other activities required to connect production equipment , service modules and other equipment on a platform . we also contract with oil and gas companies that have platforms and other structures located in the inland lakes and bays throughout the southeastern united states for various on-site construction and maintenance activities . in addition , our services division fabricates packaged skid units and perform various municipal and drainage projects , such as pump stations , levee reinforcement , bulkheads and other public works projects for state and local governments . we perform these services at our customer 's facilities or out of our houma service yard . known trends and uncertainties our results of operations are affected primarily by : the level of exploration and development activity maintained by oil and gas exploration and production companies in the gulf of mexico , and to a lesser extent , overseas locations . the level of exploration and development activity throughout the energy industry is related to several factors , including trends in oil and gas prices , expectations of future oil and gas prices , changes in technology and changes in the regulatory environment . the level of petrochemical facility construction and improvements . our ability to win contracts through competitive bidding or alliance/partnering arrangements . 23 our ability to effectively manage contracts to successful completion . oil and gas price volatility has created significant uncertainty in global equity prices and overall market fundamentals within the energy industry . during 2016 , our customers in the global oil and gas industry continued to reduce capital spending relative to the already reduced spending levels in 2015. this has also negatively impacted the marine industry that supports offshore exploration and production . this had an adverse effect on our overall backlog levels and created challenges with respect to our ability to operate our fabrication facilities at desired utilization levels . beginning in december of 2016 , we have seen improvement with current oil prices in the mid $ 50's/bbls with announced production cuts by opec . we have also been successful in obtaining limited new backlog through recent awards ; however , the revenue from recent awards may not be realized until later in 2017 , and these awards were received during a period of very competitive pricing with low margins . oil and gas producers are expected to cautiously increase drilling activity during 2017 ; however , such increases may not materialize into significant offshore spending as producers may choose to focus on land-based oil and gas production through newly discovered shale finds . accordingly , we believe that the current environment continues to remain limited with relatively few new bids which presents challenges in the near term . even if the oil and gas industry experiences a rapid recovery , we believe that there would be a lag of several months before a recovery would optimize the utilization of our fabrication yards . we continue to respond to decreases in capital spending by our customers by reducing our own discretionary spending . since the beginning of 2016 , wage adjustments along with employee benefit reductions and overall cost reductions in all of our facilities have been implemented along with continued examination of all potential cost reductions associated with our business divisions . we have reduced the level of our workforce based on booked work in all of our facilities and will continue to do so , as necessary . story_separator_special_tag 25 a comparison of our backlog as of december 31 , 2016 , september 30 , 2016 and as of december 31 , 2015 is as follows ( amounts in thousands , except for percentages ) : replace_table_token_5_th 1 ) backlog as of december 31 , 2016 includes commitments received through february 22 , 2017. we exclude suspended projects from contract backlog that are expected to be suspended more than twelve months because resumption of work and timing of revenue recognition for these projects are difficult to predict . our amount of backlog that was acquired in the leevac transaction includes $ 3.8 million of non-cash deferred revenue related to the purchase price fair value of the contracts acquired in the leevac transaction and included in deferred revenue in our consolidated balance sheet at december 31 , 2016 . 2 ) backlog as of december 31 , 2015 includes commitments received through february 19 , 2016 and $ 112.0 million of newbuild construction backlog that was acquired in the leevac transaction as reported in our 2015 form 10-k. 3 ) projects for our two largest customers consist of the following : ( i ) two large multi-purpose supply vessels for one customer in our shipyards division , from contracts we assumed in the leevac transaction and will be completed during the first and second quarter of 2018 ; and ( ii ) the fabrication of four modules associated with a u.s. ethane cracker project in our fabrication division to be completed in late 2017 . 4 ) the timing of our recognition of the revenue backlog as presented above is based on management estimates of the application of the direct labor hours during the current projected timelines to complete the projects in our backlog . certain factors and circumstances , as mentioned above , could cause changes in the period when the backlog is recognized as revenue . depending on the size of the project , the termination , postponement , or reduction in scope of any one project could significantly reduce our backlog and could have a material adverse effect on revenue , net income and cash flow . for additional information , see note 1 in the notes to consolidated financial statements and item 1a . risk factors – “ our backlog is subject to change as a result of changes to management 's estimates , suspension or termination of projects currently in our backlog or our failure to secure additional projects . our revenue , net income and cash flow could be adversely affected as a result of changes to our backlog. ” 26 workforce our workforce varies based on the level of ongoing fabrication activity at any particular time . during 2016 , we made reductions in our workforce ( primarily at our fabrication and shipyard facilities ) in response to decreases in the amount of fabrication work . on january 1 , 2016 , we hired 380 employees with the leevac transaction representing substantially all of the former leevac employees . as of december 31 , 2016 and 2015 , we had approximately 1,178 and 1,255 employees , respectively . we use contract labor when required to meet customer demand . the number of contract laborers we used increased to 92 in 2016 as compared to 71 in 2015 . none of our employees are employed pursuant to a collective bargaining agreement , and we believe our relationship with our employees is good . labor hours worked were 2.8 million , 2.7 million and 3.6 million for the years ending december 31 , 2016 , 2015 and 2014 respectively . the increase in labor hours worked in 2016 relative to 2015 was attributable to the contracts assumed in the leevac transaction , partially offset by decreases in overall levels of activity as a result of a decline in our oil and gas fabrication activity . as disclosed in `` the potential sale of our south texas properties '' above , our board of directors approved a recommendation of management to place our south texas properties up for sale on february 23 , 2017. we are working to wind down all fabrication activities at our south texas properties and re-allocate remaining backlog and workforce to our houma fabrication yard as necessary . critical accounting policies our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states , which require us to make estimates and assumptions . we believe that of our significant accounting policies ( see note 1 in the notes to consolidated financial statements ) , the following involves a higher degree of judgment and complexity : revenue recognition the majority of our revenue is recognized on a percentage-of-completion basis based on the ratio of direct labor hours actually performed to date compared to the total estimated direct labor hours required for completion . accordingly , contract price and cost estimates are reviewed monthly as the work progresses , and adjustments proportionate to the percentage-of-completion are reflected in revenue for the period when such estimates are revised . if these adjustments were to result in a reduction of previously reported profits , we would recognize a charge against current earnings , which may be significant depending on the size of the project or the adjustment . profit incentives are included in revenue when their realization is probable . claims for extra work or changes in scope of work are included in revenue when the amount can be reliably estimated and collection is probable . to the extent work from changes in scope have been approved for scope , but not as to price , revenue is recognized up to cost incurred .
| results of operations 2015 loss provision - during the year ended december 31 , 2015 , we incurred contract losses of $ 24.5 million related to a decrease in the contract price due to final weight re-measurements and our inability to recover certain costs on disputed change orders related to a large deepwater project which was delivered in 2015. in the second quarter of 2016 , we initiated legal action to recover our costs from these disputed change orders . we can give no assurance that our actions will be successful or that we will recover all or any portion of these contract losses from our customer . no recoveries from our legal action have been included in the preparation of our consolidated financial statements for the years ended december 31 , 2016 or 2015. in addition , we accrued contract losses of approximately $ 9.4 million during the year ended december 31 , 2015 resulting from increases in our projected unit labor rates of our fabrication facilities . our increases in unit labor rates were driven by our inability to absorb fixed costs due to decreases in expected oil and gas fabrication activity . 29 comparison of the years ended december 31 , 2016 and 2015 ( in thousands , except for percentages ) : consolidated replace_table_token_6_th revenues - our revenues for years ended december 31 , 2016 and 2015 were $ 286.3 million and $ 306.1 million , respectively , representing a decrease of 6.5 % . the decrease is due to the significant decreases in capital spending by our customers as a result of the prolonged downturn in the oil and gas industry particularly in our fabrication division and a decrease in pass through costs .
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going concern the accompanying consolidated financial statements have been prepared assuming that story_separator_special_tag presentation of information as used in this annual report , the terms “ we , ” “ us ” “ our ” and the “ company ” mean guardion health sciences , inc. and its subsidiaries unless the context requires otherwise . the following discussion and analysis should be read in conjunction with the company 's audited ( and unaudited ) financial statements and the related notes thereto . all dollar amounts in this annual report refer to u.s. dollars unless otherwise indicated . certain prior period amounts have been reclassified to conform to current period presentation . overview guardion health sciences , inc. ( the “ company ” or “ we ” ) was formed in december 2009 in california as a limited liability company under the name p4l health sciences , llc , and it subsequently changed its name to guardion health sciences , llc . on june 30 , 2015 , the company converted from a california limited liability company to a delaware corporation , changing its name to guardion health sciences , inc. the company is a specialty health sciences company ( 1 ) that has developed medical foods and medical devices in the ocular health space and ( 2 ) that is developing nutraceuticals that the company believes will provide supportive health benefits to consumers . recent trends – market conditions the covid-19 pandemic has and will continue affecting economies and businesses around the world . the impacts of the pandemic could be material , but due to the evolving nature of this situation , we are not able at this time to estimate the impact on our financial or operational results . among the factors that could impact our results are : effectiveness of covid-19 mitigation measures , global economic conditions , consumer spending , work from home trends , supply chain sustainability and other factors . these factors could result in increased or decreased demand for our products and services and impact our ability to serve customers . recent developments initial public offering on april 9 , 2019 , the company closed its initial public offering ( the “ ipo ” ) of 1,250,000 shares of common stock , par value $ 0.001 per share , at an ipo price to the public of $ 4.00 per share resulting in net proceeds to the company of $ 3,888,000 after all costs and expenses . the shares began trading on the nasdaq capital market on april 5 , 2019 under the symbol “ ghsi. ” follow-on public offerings on august 15 , 2019 , the company completed a second public offering ( the “ august offering ” ) of ( i ) 12,000,000 shares of common stock , ( ii ) pre-funded warrants exercisable for 1,000,000 shares of common stock ( the “ pre-funded warrants ” ) , and ( iii ) warrants to purchase up to an aggregate of 13,000,000 shares of common stock ( the “ august warrants ” ) . the august offering was conducted pursuant to an underwriting agreement , dated august 13 , 2019 by and between the company and maxim group llc and wallachbeth capital , llc . on august 16 , 2019 , the company sold an additional 1,950,000 august warrants upon exercise of the underwriters ' over-allotment option . the net proceeds to the company from the august offering , after deducting underwriting discounts and commissions and other estimated expenses were $ 4,944,340. the public offering price was $ 0.44 per share of common stock and $ 0.01 per accompanying august warrant . each august warrant represents the right to purchase one share of common stock at an exercise price of $ 0.585 per share . the august warrants are exercisable immediately , expire five years from the date of issuance and provide that , beginning on the earlier of ( i ) september 11 , 2019 and ( ii ) the date on which the common stock traded an aggregate of more than 40,000,000 shares after the announcement of the pricing of the august offering , and ending on the twelve ( 12 ) month anniversary thereof , each august warrant may be exercised at the option of the holder on a cashless basis at a ratio of one august warrant for one share of common stock , in whole or in part , if the weighted average price of the common stock on the trading day immediately prior to the exercise date fails to exceed the initial exercise price of the august warrant . as of november 13 , 2019 , 1,000,000 august pre-funded warrants have been exercised for proceeds of $ 10,000 and 14,723,800 august warrants have been exercised on a cashless basis , and the company has issued an aggregate of 15,723,800 shares of common stock upon such exercises . - 38 - on october 30 , 2019 , the company completed a third public offering of 24,500,000 shares of its common stock ( including 1,700,000 pre-funded warrants to purchase common stock in lieu thereof ) and series b warrants to purchase up to 24,500,000 shares of the company 's common stock . each share of common stock ( or pre-funded warrant ) was sold together with one series b warrant to purchase one share of common stock at a combined price to the public of $ 0.342 per share and series b warrant . the shares of common stock or pre-funded warrants and the accompanying series b warrants were sold together but will be issued separately and will be immediately separable upon issuance . net proceeds , after deducting underwriting discounts , commissions and offering expenses , were approximately $ 7.4 million . the series b warrants are exercisable at a price of $ 0.342 per share of common stock and will expire five years from the date on which the series b warrants become initially exercisable . story_separator_special_tag the company has never experienced any losses related to these balances . critical accounting policies and estimates the company 's financial statements have been prepared in conformity with accounting principles generally accepted in the united states of america ( “ gaap ” ) . the preparation of its financial statements in conformity with gaap requires management to make certain 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 reported amounts of expenses during the reporting period . actual results could differ from those estimates . the company 's financial statements included herein include all adjustments , consisting of only normal recurring adjustments , necessary to present fairly the company 's financial position , results of operations and cash flows . the following critical accounting policies affect the more significant judgments and estimates used in the preparation of the company 's financial statements . identifiable intangible assets and goodwill in connection with the vectorvision transaction in 2017 , the company identified and allocated estimated fair values to intangible assets including customer relationships , technology , tradenames , and competition . our goodwill represents the excess of the purchase consideration over the fair value of the net tangible and identifiable intangible assets acquired during our vectorvision acquisition . the company utilized the services of an independent third-party valuation firm to assist it in identifying intangible assets and in estimating their fair values . the useful lives for its intangible assets other than goodwill were estimated based on management 's consideration of various factors , including assumptions that market participants might use about sales expectations as well as potential effects of obsolescence , competition , technological progress and the regulatory environment . the following table summarizes the acquired identifiable intangible assets : replace_table_token_1_th - 40 - the useful lives for the intangible assets were estimated based on management 's consideration of various factors , including assumptions that market participants might use about sales expectations as well as potential effects of obsolescence , competition , technological progress and the regulatory environment . because the future pattern in which the economic benefits of these intangible assets may not be reliably determined , amortization expense has been calculated on a straight-line basis through september 30 , 2019. in accordance with accounting standard codification ( “ asc ” ) 350 – intangibles – goodwill and other , the company 's goodwill and other intangible assets are subject to periodic impairment testing . the company reviews intangible assets for impairment when circumstances indicate that their carrying values may not be recoverable . if the carrying value of an asset group is not recoverable , the company recognizes an impairment loss for the excess carrying value over the fair value in its consolidated statements of operations . during 2018 and through september 30 , 2019 , the company was not aware of the existence of any indicators of impairment such that the carrying amount of its identifiable intangible assets or goodwill were more likely than not to exceed their fair values . the company evaluates goodwill for impairment on an annual basis or whenever events and changes in circumstances suggest that the carrying amount may not be recoverable . during the fourth quarter of 2019 , the company conducted its annual impairment analysis , considering multiple qualitative observations and indicators , including our customer relationships , the regulatory environment as it impacts medical devices , market penetration expectations and barriers , and our anticipated competitive environment . in addition , we assessed the operating results of our vectorvision reporting unit against the quantitative assumptions we used when determining the initial fair values associated with the 2017 business combination . the company believes strongly in the future growth and success of the vectorvision business . however , development of the csv-2000 has taken longer than expected due to software engineering and other factors . although we believe we will enjoy a dominant market share over time , there is subjectivity of predicting the amount and timing of that value . recent changes in the regulatory environment may cost us more than anticipated to begin marketing the new device in europe . accounting treatment for intangible assets and goodwill requires thoughtful , objective judgment and evidence-based facts in order to support a fair value assertion . after objectively assessing the qualitative and quantitative factors above , management concluded that it is more likely than not that the fair value for accounting purposes of the vectorvision intangible assets and goodwill is less than their carrying amount . due to the highly subjective and forward-looking nature of many of the indicators of impairment that might affect our business as well as the recent results of operations of the reporting unit , management has concluded that as of december 31 , 2019 it is no longer possible to determine a reasonable and objectively supportable fair value for the goodwill and identifiable intangible assets associated with the vectorvision acquisition . accordingly , the company recorded a goodwill impairment charge of $ 1,563,520 as of december 31 , 2019. stock-based compensation the company periodically issues stock-based compensation to officers , directors , contractors and consultants for services rendered . such issuances vest and expire according to terms established at the issuance date . stock-based payments to officers , directors , consultants , contractors , and employees , which include grants of employee stock options , are recognized in the financial statements based on their fair values . stock option grants , which are generally time vested , will be measured at the grant date fair value and charged to operations on a straight-line basis over the vesting period .
| results of operations through december 31 , 2019 , the company has primarily been engaged in product development , commercialization , and raising capital . the company has incurred and will continue to incur significant expenditures for the development of its products and intellectual property , which includes medical foods and medical devices for the treatment of various eye diseases and nutraceuticals . the company had limited revenue during the years ended december 31 , 2019 and 2018 . - 42 - comparison of years ended december 31 , 2019 and 2018 replace_table_token_2_th revenue for the year ended december 31 , 2019 , revenue from product sales was $ 902,937 compared to $ 942,153 for the year ended december 31 , 2018 , resulting in a decrease of $ 39,216 or 4 % . the decrease is primarily due to the transition of sales and manufacturing efforts away from our vectorvision csv-1000 device . although the csv-1000 will continue to be sold , the company plans to put a greater focus on sales and marketing efforts of the new csv-2000 . the company commenced sales of the next generation csv-2000 device in february 2020. for the year ended december 31 , 2019 , revenue from medical foods was $ 444,657 compared to $ 332,795 for the year ended december 31 , 2018 , resulting in an increase of $ 111,862 or 34 % . cost of goods sold for the year ended december 31 , 2019 , cost of goods sold was $ 341,315 compared to $ 398,179 for the year ended december 31 , 2018 , resulting in a decrease of $ 56,864 or 14 % . the decrease reflects the vectorvision product transition noted above . gross profit for the year ended december 31 , 2019 , gross profit was $ 561,622 compared to $ 543,974 for the year ended december 31 , 2018 , resulting in an increase of $ 17,648 or 3 % due to pricing and product mix changes .
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our consolidated financial statements and the accompanying notes included elsewhere in this annual report on form 10-k contain additional information that should be referred to when reviewing this material . certain prior year financial statements are not comparable to our current year financial statements due to the adoption of fresh- start accounting upon our emergence from chapter 11 bankruptcy on october 8 , 2019. references to “ successor ” or “ successor company ” relate to the financial position and results of operations of the reorganized company subsequent to october 1 , 2019 , the convenience date applied for fresh-start accounting . references to “ predecessor ” or “ predecessor company ” relate to the financial position and results of operations of the company prior to , and including , october 1 , 2019. refer to item 8. consolidated financial statements and supplementary data – note 2 , “ reorganization ” and note 3 , “ fresh-start accounting , ” for further details . statements in this discussion may be forward-looking . these forward-looking statements involve risks and uncertainties , including those discussed below , which could cause actual results to differ from those expressed . overview we are an independent energy company focused on the acquisition , production , exploration and development of onshore liquids-rich oil and natural gas assets in the united states . during 2017 ( predecessor ) , we acquired certain properties in the delaware basin and divested our assets located in the williston basin in north dakota and in the el halcón area of east texas . as a result , our properties and drilling activities are currently focused in the delaware basin , where we have an extensive drilling inventory that we believe offers attractive economics . at december 31 , 2020 ( successor ) , our estimated total proved oil and natural gas reserves , as prepared by our independent reserve engineering firm , netherland , sewell & associates , inc. ( netherland , sewell ) , using securities and exchange commission ( sec ) prices for crude oil and natural gas , which are based on preceding 12-month first day of the month average prices of west texas intermediate ( wti ) crude oil spot price of $ 39.54 per bbl and henry hub natural gas spot price of $ 1.99 per mmbtu , were approximately 63.4 mmboe , consisting of 38.2 mmbbls of oil , 12.1 mmbbls of natural gas liquids , and 78.5 bcf of natural gas . approximately 57 % of our proved reserves were classified as proved developed as of december 31 , 2020 ( successor ) . we maintain operational control of 99.9 % of our proved reserves . substantially all of our proved reserves and production at december 31 , 2020 ( successor ) are associated with our delaware basin properties . our total operating revenues for the year ended december 31 , 2020 ( successor ) were approximately $ 148.3 million . our total operating revenues for the period of october 2 , 2019 through december 31 , 2019 ( successor ) and the period of january 1 , 2019 through october 1 , 2019 ( predecessor ) were approximately $ 65.6 million and $ 159.1 million , respectively , or $ 224.7 million combined . full year 2020 ( successor ) production averaged 16,858 boe/d . during the period of october 2 , 2019 through december 31 , 2019 ( successor ) and the period of january 1 , 2019 through october 1 , 2019 ( predecessor ) , production averaged 20,293 boe/d and 17,209 boe/d , respectively , or 17,986 boe/d combined . the decrease in total operating revenues and average daily production year over year was driven by our temporary shut-in of a portion of producing wells across all our operating areas in may and june 2020 ( successor ) as a consequence of low oil prices as well as average realized prices that were lower by approximately $ 10.25 per boe . the estimated production decrease associated with these temporary shut-ins was approximately 1,300 boe/d for 2020 ( successor ) . in december 2020 ( successor ) , we divested properties that produced approximately 600 boe/d during the nine months ended september 30 , 2020 ( successor ) . our financial results depend upon many factors , but are largely driven by the volume of our oil and natural gas production and the price that we receive for that production . our production volumes will decline as reserves are depleted unless we expend capital in successful development and exploration activities or acquire properties with existing production . the amount we realize for our production depends predominantly upon commodity prices , which are affected by changes in market demand and supply , as impacted by overall economic activity , weather , transportation 41 take-away capacity constraints , inventory storage levels , basis differentials and other factors . accordingly , finding and developing oil and natural gas reserves at economical costs is critical to our long-term success . in 2020 ( successor ) , we spent approximately $ 101.8 million on oil and gas capital expenditures . in early 2020 , we ran one operated rig in the delaware basin , and in march 2020 , as a result of changes in market conditions and commodity prices , we began to scale back our capital operations and spending and eventually released the rig . we drilled and cased 4.0 gross ( 4.0 net ) operated wells , completed 5.0 gross ( 4.3 net ) operated wells , and put online 7.0 gross ( 6.3 net ) operated wells during the year . we expect to spend approximately $ 40.0 million to $ 50.0 million on capital expenditures during 2021. overall , we currently plan to drill two gross operated wells during the year , complete six gross operated wells , and bring six gross operated wells on production . our 2021 capital budget currently contemplates running one operated rig in the delaware basin at the beginning of the year . story_separator_special_tag the north west quito assets generated net production of approximately 600 boe/d , or approximately 4 % of our average daily production for the nine months ended september 30 , 2020 ( successor ) . successor senior revolving credit facility on october 29 , 2020 ( successor ) , we entered into the third amendment to senior secured revolving credit agreement and limited waiver ( the third amendment ) . the third amendment , among other things , set the borrowing base to $ 190.0 million as of november 1 , 2020 , which eliminated the final monthly reduction of $ 5.0 million required under the second amendment ( discussed below ) . the third amendment also reduced the amount available for issuance of letters of credit to $ 25.0 million and amended certain covenants including , but not limited to , covenants relating to increasing the minimum mortgaged total value of proved borrowing base properties from 85 % to 90 % . additionally , the third amendment provided for new covenants that , among other things , require us to enter into swap agreements representing not less than 65 % of our reasonably anticipated projected production from proved reserves classified as developed producing reserves for a period from the third amendment effective date through at least december 31 , 2022 and prohibit no more than $ 3.0 million of our uncontested accounts payable or accrued expenses , liabilities or other obligations from remaining outstanding for longer than 90 days . pursuant to the third amendment , the administrative agent and the lenders consented to a waiver of the current ratio ( as defined in the senior credit agreement ) for the fiscal quarter ended september 30 , 2020 and suspended testing of the current ratio until the fiscal quarter ending december 31 , 2021 . on july 31 , 2020 ( successor ) , we entered into the limited waiver to senior secured revolving credit agreement ( the waiver ) in which , the lenders consented to waive maintenance of a current ratio ( as defined in the senior credit agreement ) of not less than 1.00 to 1.00 for the fiscal quarter ended june 30 , 2020. our failure to comply with the current ratio for the three months ended june 30 , 2020 ( successor ) was primarily the result of our decision to shut in certain production due to low oil prices coupled with capital spending required to maintain certain of our oil and gas leasehold interests . on april 30 , 2020 ( successor ) , we entered into the second amendment to the senior credit agreement ( second amendment ) which , among other things , ( i ) reduced the borrowing base to $ 200.0 million effective from april 30 , 2020 , which was then reduced by $ 5.0 million monthly starting september 1 , 2020 until november 1 , 2020 , so that the borrowing base was scheduled to be $ 185.0 million on november 1 , 2020 , provided the borrowing base redetermination scheduled for november 1 , 2020 occurred pursuant to the terms of the senior credit agreement , ( ii ) increased interest margins to 1.50 % to 2.50 % for abr-based loans and 2.50 % to 3.50 % for eurodollar-based loans , ( iii ) provided that should our consolidated cash balance ( as defined pursuant to the second amendment ) exceed $ 10.0 million , such amounts shall be used to prepay any borrowings under the senior credit agreement and thereafter , to the extent of any uncollateralized letters of credit exposure , shall be cash collateralized in accordance with the senior credit agreement 43 and ( iv ) allowed for a replacement benchmark rate to the london interbank offered rate ( which may include sofr , compounded sofr or term sofr ) . the second amendment also added provisions related to a loan incurred by us under the paycheck protection program of the coronavirus aid , relief , and economic security act ( the cares act ) . we used , and the second amendment required us to use , the loan proceeds for cares forgivable uses under the cares act . additionally , the second amendment waived , for the fiscal quarter ended june 30 , 2020 , that we comply with the requirement under the senior credit agreement that we unwind certain swap agreements for which settlement payments were calculated in such fiscal quarter to exceed 100 % of actual production . paycheck protection program loan on april 16 , 2020 ( successor ) , we entered into a promissory note ( the ppp loan ) for a principal amount of approximately $ 2.2 million from bank of montreal under the paycheck protection program of the cares act , which is administered by the u.s. small business administration ( sba ) . pursuant to the terms of the cares act , the proceeds of the ppp loan may be used for payroll costs , mortgage interest , rent or utility costs . the ppp loan bears interest at a rate of 1.0 % per annum and , if not forgiven , has a maturity date of april 16 , 2022. as long as we make a timely application of forgiveness to the sba , we are not required to make any payments under the ppp loan until the forgiveness amount is communicated to us by the sba . under the terms of the cares act , we can apply for and be granted forgiveness for all or a portion of the ppp loan . such forgiveness will be determined , subject to limitations , based on the use of loan proceeds in accordance with the terms of the cares act during the covered period after loan origination and the maintenance or achievement of certain employee levels .
| comparison of results of operations year ended december 31 , 2020 ( successor ) compared to year ended december 31 , 2019 ( successor ) the table included below sets forth financial information for the periods presented . the period of october 2 , 2019 through december 31 , 2019 ( successor ) and the period of january 1 , 2019 through october 1 , 2019 ( predecessor ) are distinct reporting periods as a result of our adoption of fresh-start accounting upon our emergence from chapter 11 bankruptcy and are not comparable to prior periods . refer to the paragraphs following the table below for a discussion around our results of operations . replace_table_token_9_th ( 1 ) natural gas reserves are converted to oil reserves using a ratio of six mcf to one bbl of oil . this ratio is based on energy equivalency , not price equivalency . the price for a barrel of oil equivalent for natural gas is substantially lower than the price for a barrel of oil . ( 2 ) amounts exclude the impact of cash paid/received on settled contracts as we did not elect to apply hedge accounting . 55 oil , natural gas and natural gas liquids revenues were $ 146.8 million , $ 65.1 million and $ 158.4 million for the year ended december 31 , 2020 ( successor ) , the period of october 2 , 2019 through december 31 , 2019 ( successor ) and the period of january 1 , 2019 through october 1 , 2019 ( predecessor ) , respectively . for the year ended december 31 , 2020 ( successor ) , production averaged 16,858 boe/d . during the period of october 2 , 2019 through december 31 , 2019 ( successor ) and the period of january 1 , 2019 through october 1 , 2019 ( predecessor ) , production averaged 20,293 boe/d and 17,209 boe/d , respectively .
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forward-looking statement information this annual report on form 10-k and certain information incorporated herein by reference contain forward-looking statements within the meaning of section 21e of the exchange act , and section 27a of the securities act , and the private securities litigation reform act of 1995 and , as such , may involve risks and uncertainties . all statements included or incorporated by reference in this report , other than statements that are purely historical , are forward-looking statements . forward-looking statements generally can be identified by the use of forward-looking terminology such as “ may , ” “ will , ” “ expect , ” “ intend , ” “ estimate , ” “ anticipate , ” “ believe , ” “ could , ” “ potential , ” “ continue ” or similar terminology . these statements are based on the beliefs and assumptions of our management based on information currently available to management . forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements . the forward-looking statements included or incorporated by reference in this report are subject to additional risks and uncertainties further discussed under item 1a . “ risk factors ” and are based on information available to us on the filing date of this report . readers are cautioned not to place undue reliance on forward-looking statements , which speak only as of the date of this report . new risks and uncertainties arise from time to time , and we can not predict those events or how they may affect us . we undertake no obligation to update any forward-looking statements , whether as a result of new information , future events or otherwise , except as required by law . in addition , forward-looking statements are subject to certain risks and 29 uncertainties that could cause actual results to differ materially from the company 's historical experience and our present expectations or projections . these risks and uncertainties include , but are not limited to : our ability to submit proposals for and or win all potential opportunities in our pipeline ; our ability to retain and renew our existing contracts ; protests of new awards ; our recent acquisition of sentel and its integration into our business ; economic , political and social conditions in the countries in which we conduct our businesses ; changes in u.s. or international government defense budgets ; government regulations and compliance therewith , including changes to the dod procurement process ; changes in technology ; intellectual property matters ; governmental investigations , reviews , audits and cost adjustments ; contingencies related to actual or alleged environmental contamination , claims and concerns ; delays in completion of the u.s. government 's budget ; our success in extending , deepening , and enhancing our technical capabilities ; our success in expanding our geographic footprint or broadening or customer base ; our ability to realize the full amounts reflected in our backlog ; impairment of goodwill ; misconduct of our employees , subcontractors , agents , prime contractors and business partners ; our ability to control costs ; our level of indebtedness ; subcontractor performance ; economic and capital markets conditions ; our ability to retain and recruit qualified personnel ; security breaches and other disruptions to our information technology and operation ; changes in our tax provisions or exposure to additional income tax liabilities and other risks and uncertainties relating to the spin-off ; changes in u.s. generally accepted accounting principles ( gaap ) ; and other factors described in item 1a , “ risk factors , ” and elsewhere in this report and described from time to time in our future reports filed with the sec . overview vectrus is a leading provider of services to the u.s. government worldwide . we operate as one segment and offer facility and logistics services and information technology and network communications services . our primary customer is the u.s. department of defense , with a high concentration in the u.s. army . for the year ended december 31 , 2017 , we had total revenue of $ 1.1 billion , and for each of the years ended december 31 , 2016 and 2015 , we had total revenue of $ 1.2 billion , all of which was derived from u.s. government customers . for the years ended december 31 , 2017 , 2016 and 2015 , we generated approximately 82 % , 84 % and 85 % , respectively , of our total revenue from the u.s. army . executive summary our revenue decreased by $ 75.7 million , or 6.4 % , for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 . the decrease in revenue was attributable mainly to lower activity in our middle east programs of $ 70.0 million , which was driven primarily by a decrease of $ 121.0 million from our aps-5 kuwait contract , and our afghanistan programs of $ 32.6 million , offset by increases of $ 16.7 million from our european programs and $ 10.2 million from our u.s. programs . operating income for the year ended december 31 , 2017 was $ 41.2 million , a decrease of $ 1.6 million or 3.8 % , compared to the year ended december 31 , 2016 . this decrease was due to lower operating income of $ 3.7 million from our middle east programs and $ 1.7 million from our u.s. programs , offset by increases of higher operating income of $ 3.4 million from our european programs and $ 0.4 million from our afghanistan programs . during the performance of our long-term contracts , we periodically review estimated final contract prices and costs and make revisions as required , which are recorded as changes in revenue and cost of revenue in the periods in which they are determined . story_separator_special_tag significant contracts the table below reflects contracts that accounted for more than 10 % of our total revenue for one or more of the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_5_th revenue associated with a contract will fluctuate based on increases or decreases in the work being performed on the contract , award fee payments , and other contract modifications within the term of the contract resulting in changes to the total contract value . u.s. government contracts are multi-year contracts and typically include an initial period of one year or less with annual one year ( or less ) option periods for the remaining contract period . the number of option periods vary by contract , and there is no guarantee that an option period will be exercised by the u.s. government . the right to exercise an option period is 31 at the sole discretion of the u.s. government . the u.s. government may also extend the term of a program by issuing extensions or bridge contracts , typically for periods of one year or less . for discussion of the k-bosss contract , see `` recent developments '' above . performance on the omdac-swaca contract commenced in july 2013 with a base period of 11 months and four option years . the u.s. government has exercised four option years , which run through may 2018. although the current contract is exercised through may 2018 , the u.s. government has stated that its anticipated timeline for the re-competition award is for the solicitation to be released in february 2019 and performance to commence sometime in 2019. the aps-5 kuwait contract commenced in april 2010 and ran through april 7 , 2017. on september 1 , 2016 , we announced that we were not awarded the renewal of the aps-5 kuwait contract . backlog total backlog includes both funded backlog ( firm orders for which funding is contractually obligated by the customer ) and unfunded backlog ( firm orders for which funding is not currently contractually obligated by the customer ) and represents firm orders and potential options on multi-year contracts . total backlog excludes potential orders under indefinite delivery and indefinite quantity ( idiq ) contracts . backlog also excludes contracts awarded to vectrus but that are in protest with the gao or the u.s. court of federal claims . the value of the backlog is based on anticipated revenue levels over the anticipated life of the contract . actual volumes may be greater or less than anticipated . total backlog is converted into revenue as work is performed . the level of order activity related to programs can be affected by the timing of government funding authorizations and their project evaluation cycles . year-over-year comparisons could , at times , be impacted by these factors , among others . our contracts are multi-year contracts and typically include an initial period of one year or less with annual one year ( or less ) option periods for the remaining contract period . the number of option periods vary by contract , and there is no guarantee that an option period will be exercised . the right to exercise an option period is at the sole discretion of the u.s. government when we are the prime contractor or of the prime contractor when we are a subcontractor . we expect to recognize a substantial portion of our funded backlog as revenue within the next 12 months . however , the u.s. government or the prime contractor may also cancel any contract at any time through a termination for convenience . most of our contracts have terms that would permit us to recover all or a portion of our incurred costs and fees for work performed in the event of a termination for convenience . total backlog increased by $ 577.0 million in the year ended december 31 , 2017 . as of december 31 , 2017 , total backlog ( funded and unfunded ) was $ 2.9 billion . replace_table_token_6_th funded orders , which are different from funded backlog , represent orders for which funding was received during the period . we received funded orders of $ 1.2 billion during the year ended december 31 , 2017 , which was a decrease of $ 1.3 million compared to the year ended december 31 , 2016 due to the timing of funded orders for some of our contracts . economic opportunities , challenges and risks the u.s. government 's investment in services and capabilities in response to changing security challenges creates a complex and fluid business environment for vectrus and other firms in this market segment . the pace and depth of u.s. government acquisition reform and cost savings initiatives , combined with increased industry competitiveness to win long-term positions on key programs , could add pressure to revenue levels and profit margins going forward . however , we expect the u.s. government will continue to place a high priority on national security and will continue to invest in affordable solutions for its facilities , logistics , equipment and communication needs , which aligns with our services and strengths . further , the dod budget remains the largest in the world and management believes our addressable portion of the dod budget offers substantial opportunity for growth . the u.s. government 's fiscal year begins on october 1 and ends on september 30. the u.s. government has not yet passed an appropriations bill for fiscal year 2018. however , on february 9 , 2018 , the president signed into law the bipartisan budget act of 2018 , which included a short-term continuing resolution that provided fiscal year 2018 appropriations for continuing projects and activities of the u.s. government through march 23 , 2018 . 32 additionally , the legislation increased the discretionary defense and non-defense spending caps in fiscal year 2018 and fiscal year 2019 , which were originally created under the 2011 budget control act .
| discussion of financial results year ended december 31 , 2017 , compared to year ended december 31 , 2016 selected financial highlights are presented in the table below : replace_table_token_7_th revenue our revenue decreased by $ 75.7 million , or 6.4 % , for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 . the decrease in revenue was attributable mainly to lower activity in our middle east programs of $ 70.0 million , which was driven primarily by a decrease of $ 121.0 million from our aps-5 kuwait contract , and our afghanistan programs of $ 32.6 million , offset by increases of $ 16.7 million from our european programs and $ 10.2 million from our u.s. programs . cost of revenue the decrease in cost of revenue of $ 70.8 million , or 6.5 % , for the year ended december 31 , 2017 , as compared to the year ended december 31 , 2016 , was primarily due to lower revenue as described above . 33 selling , general & administrative ( sg & a ) expenses for the year ended december 31 , 2017 , sg & a expenses of $ 60.7 million decreased by $ 3.4 million , or 5.2 % , as compared to $ 64.1 million for the year ended december 31 , 2016 primarily due to cost savings initiatives of $ 4.0 million offset by higher marketing costs of $ 0.7 million . operating income operating income for the year ended december 31 , 2017 , decreased by $ 1.6 million , or 3.8 % , as compared to the year ended december 31 , 2016 . this decrease was due to lower operating income of $ 3.7 million from our middle east programs and $ 1.7 million from our u.s. programs , offset by higher operating income of $ 3.4 million from our european programs and $ 0.4 million from our afghanistan programs .
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the fair values of in-place leases include estimates of direct costs associated with obtaining a new tenant and opportunity costs associated with lost rental and other property income which are avoided by acquiring a property with an in-place lease . direct costs associated with obtaining a new tenant include leasing commissions , legal and other related expenses and are f-11 cole real estate income strategy ( daily nav ) , inc. notes to consolidated financial statements – ( continued ) estimated in part by utilizing information obtained from independent appraisals and management 's consideration of current market story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with part ii , item 6. selected financial data section in this annual report on form 10-k and our accompanying consolidated financial statements and the notes thereto . see also the “ cautionary note regarding forward-looking statements ” section preceding part i. overview we were formed on july 27 , 2010 , to acquire and operate a diversified portfolio of ( 1 ) necessity retail , office and industrial properties that are leased to creditworthy tenants under long-term net leases , and are strategically located throughout the united states , ( 2 ) notes receivable secured by commercial real estate , including the origination of loans , and ( 3 ) cash , cash equivalents , other short-term investments and traded real estate securities . we commenced our principal operations on december 7 , 2011 , when we issued the initial $ 10.0 million in shares of our common stock in the offering and acquired our first real estate property . we have no paid employees and are externally advised and managed by cole advisors . vereit indirectly owns and or controls cole advisors , our dealer manager , ccc , our property manager , crei advisors , and our sponsor , cole capital . as we acquire additional commercial real estate , we will be subject to changes in real estate prices and changes in interest rates on any current variable rate debt , refinancings or new indebtedness used to acquire the properties . we may manage our risk of changes in real estate prices on future property acquisitions , when applicable , by entering into purchase agreements and loan commitments simultaneously , or through loan assumptions , so that our operating yield is determinable at the time we enter into a purchase agreement , by contracting with developers for future delivery of properties , or by entering into sale-leaseback transactions . we manage our interest rate risk by monitoring the interest rate environment in connection with our future property acquisitions , when applicable , or upcoming debt maturities to determine the appropriate financing or refinancing terms , which may include fixed rate loans , variable rate loans or interest rate hedges . if we are unable to acquire suitable properties or obtain suitable financing terms for future acquisitions or refinancing , our results of operations may be adversely affected . as of december 31 , 2016 , we owned 108 properties located in 34 states , comprising 3.1 million rentable square feet of commercial space , which includes the rentable square feet of buildings on land subject to ground leases . our operating results and cash flows are primarily influenced by rental income from our commercial properties and interest expense on our property indebtedness and acquisition and operating expenses . rental and other property income accounted for 90 % , 91 % , 93 % of our total revenue for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . as 99.3 % of our rentable square feet was under lease as of december 31 , 2016 , with a weighted average remaining lease term of 10.6 years , we believe our exposure to changes in commercial rental rates on our portfolio is substantially mitigated , except for vacancies caused by tenant bankruptcies or other factors . cole advisors regularly monitors the creditworthiness of our tenants by reviewing each tenant 's financial results , credit rating agency reports , when available , on the tenant or guarantor , the operating history of the property with such tenant , the tenant 's market share and track record within its industry segment , the general health and outlook of the tenant 's industry segment , and other information for changes and possible trends . if our advisor identifies significant changes or trends that may adversely affect the creditworthiness of a tenant , it will gather a more in-depth knowledge of the tenant 's financial condition and , if necessary , attempt to mitigate the tenant credit risk by evaluating the possible sale of the property , or identifying a possible replacement tenant should the current tenant fail to perform on the lease . our business environment and current outlook current conditions in the global capital markets remain volatile as the world 's economic growth has been affected by geopolitical and economic events . in addition , there is uncertainty surrounding the policy stance of the new u.s. administration and its global ramifications . in the united states , the overall economic environment continued to improve in 2016. during 2016 , the u.s. real gross domestic product increased 1.6 % to $ 16.66 trillion , the unemployment rate decreased 0.3 percentage points to 4.7 % , and core cpi , a measure of inflation which removes food and energy prices and is seasonally adjusted , increased 2.2 % , as compared to the same period a year earlier . economic trends and government policies affect global and regional commercial real estate markets as well as our operations directly . these include : overall economic activity and employment growth , interest rate levels , the cost and availability of credit and the impact of tax and regulatory policies . 57 critical accounting policies and significant accounting estimates our accounting policies have been established to conform with gaap . story_separator_special_tag as of december 31 , 2016 , these properties were 99.3 % leased ( including any month-to-month agreements ) with a weighted average remaining lease term of 10.6 years . during the year ended december 31 , 2015 , we disposed of five properties , for an aggregate gross sales price of $ 21.9 million . the following table shows the property statistics of our real estate assets as of december 31 , 2016 , 2015 and 2014 : replace_table_token_5_th ( 1 ) includes square feet of the buildings on land that are subject to ground leases . ( 2 ) investment-grade tenants are those with a credit rating of bbb- or higher by standard & poor 's or a credit rating of baa3 or higher by moody 's . the ratings may reflect those assigned by standard & poor 's or moody 's to the lease guarantor or the parent company , as applicable . 59 the following table summarizes our real estate investment activity during the years ended december 31 , 2016 , 2015 and 2014 : replace_table_token_6_th ( 1 ) includes square feet of the buildings on land that are subject to ground leases . the following table shows the tenant diversification of our real estate portfolio , based on annualized rental income , as of december 31 , 2016 : replace_table_token_7_th ( 1 ) including square feet of the buildings on land that is subject to ground leases . the following table shows the tenant industry diversification of our real estate portfolio , based on annualized rental income as of december 31 , 2016 : replace_table_token_8_th ( 1 ) including square feet of the buildings on land that is subject to ground leases . 60 the following table shows the geographic diversification of our real estate portfolio , based on annualized rental income , as of december 31 , 2016 : replace_table_token_9_th ( 1 ) including square feet of the buildings on land that is subject to ground leases . the following table shows the property type diversification of our real estate portfolio , based on annualized rental income , as of december 31 , 2016 : replace_table_token_10_th ( 1 ) includes square feet of the buildings on land parcels subject to ground leases . leases although there are variations in the specific terms of the leases of our properties , the following is a summary of the general structure of our current leases . generally , the leases of the properties acquired provide for initial terms of ten or more years , and provide the tenant with one or more multi-year renewal options , subject to generally the same terms and conditions as the initial lease term . certain leases also provide that in the event we wish to sell the property subject to that lease , we first must offer the lessee the right to purchase the property on the same terms and conditions as any offer which we intend to accept for the sale of the property . the properties are generally leased under net leases pursuant to which the tenant bears responsibility for substantially all property costs and expenses associated with ongoing maintenance and operation , including utilities , property taxes and insurance , while certain of the leases require us to maintain the roof , structure and parking areas of the building . additionally , certain leases provide for increases in rent as a result of fixed increases , increases in the consumer price index , and or increases in the tenant 's sales volume . our leases , as of december 31 , 2016 , provided for annual base rental payments ( payable in monthly installments ) ranging from $ 10,000 to $ 1.2 million , and had an average annual base rental payment of $ 232,000 , with a weighted average remaining lease term of 10.6 years . 61 the following table shows lease expirations of our real estate portfolio as of december 31 , 2016 , during each of the next ten years and thereafter , assuming no exercise of renewal options : replace_table_token_11_th * represents less than 1 % of the total annual base rent . the following table shows the economic metrics of our real estate assets as of and for the years ended december 31 , 2016 , 2015 and 2014 : replace_table_token_12_th ( 1 ) based on annualized rental income of our real estate portfolio as of the respective reporting date . ( 2 ) through the end of the next five years as of the respective reporting date . story_separator_special_tag year ended december 31 , 2015 , as compared to the same period in 2014 , was primarily due to higher property tax assessments at several of our properties subsequent to december 31 , 2014 . advisory fees and expenses the advisory fees and expenses that we pay to our advisor are based upon our nav . 2016 vs 2015 – advisory fees and expenses increased $ 224,000 during the year ended december 31 , 2016 , as compared to the same period in 2015 , due to an increase in the nav for each class of common stock . the total nav for all share classes increased $ 141.1 million during the year ended december 31 , 2016 , which represented a $ 918,000 increase in advisory fees over the prior year and a $ 554,000 increase in advisor reimbursements , which were waived prior to 2016 , offset by a $ 1.2 million decrease due to the fact that we did not hit the performance fee metrics during 2016 . 2015 vs 2014 – advisory fees and expenses increased $ 534,000 during the year ended december 31 , 2015 , as compared to the same period in 2014 , due to an increase in the nav for each class of common stock .
| results of operations our results of operations are influenced by the timing of acquisitions and the operating performance of our real estate investments . the following table provides summary information about our results of operations for the years ended december 31 , 2016 , 2015 and 2014 ( dollars in thousands ) : replace_table_token_13_th 62 revenue our revenue consists primarily of rental and other property income from net leased commercial properties . we also pay certain operating expenses that are subject to reimbursement by our tenants , which results in tenant reimbursement income . additionally , our portfolio includes liquid assets in the form of marketable securities . these investments can result in revenue in the form of interest income . 2016 vs 2015 – revenue increased $ 8.2 million during the year ended december 31 , 2016 , compared to the same period in 2015 , primarily due to the acquisition of 31 rental income-producing properties subsequent to december 31 , 2015 as well as recognizing a full year of revenue on the seven properties acquired in 2015 . rental and other property income from net leased commercial properties accounted for 90 % and 91 % of our total revenues during the years ended december 31 , 2016 and 2015 , respectively . we also paid certain operating expenses subject to reimbursement by our tenants , which resulted in $ 2.6 million of tenant reimbursement income during the year ended december 31 , 2016 , compared to $ 1.7 million of tenant reimbursement income during the year ended december 31 , 2015 . interest income on marketable securities increased $ 41,000 to $ 117,000 for the year ended december 31 , 2016 , due to an increase in the average outstanding investment in marketable securities of $ 2.5 million .
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this discussion and analysis should be read in conjunction with our consolidated financial statements and notes included in this annual report on form 10-k. the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , our operating expenses , and future payments under our collaboration agreements , includes forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended . such statements are based upon current expectations that involve risks and uncertainties . you should review the section entitled `` risk factors '' in item 1a of part i above for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . see the section entitled `` special note regarding forward looking statements '' above for more information . management overview theravance , inc. is a royalty management company focused on maximizing the potential value of the respiratory assets partnered with glaxo group limited ( `` gsk '' ) , including relvar ® /breo ® ellipta ® ( fluticasone furoate/ vilanterol , `` ff/vi '' ) and anoro® ellipta ® ( umeclidinium bromide/ vilanterol , `` umec/vi '' ) , with the intention of providing capital returns to stockholders . under the long-acting beta 2 agonist ( `` laba '' ) collaboration agreement and the strategic alliance agreement with gsk ( referred to herein collectively as the `` gsk agreements '' ) , theravance is eligible to receive the associated royalty revenues from relvar ® /breo ® ellipta ® , anoro® ellipta ® and if approved and commercialized , vi monotherapy . theravance is also entitled to 15 % of any future payments made by gsk under its agreements originally entered into with us , and since assigned to theravance respiratory company , llc ( `` trc '' ) , relating to the combination ff/umec/vi and the bifunctional muscarinic antagonist-beta 2 agonist ( `` maba '' ) program , as monotherapy and in combination with other therapeutically active components , such as an inhaled corticosteroid , and any other product or combination of products that may be discovered and developed in the future under the laba collaboration agreement , which has been assigned to trc other than relvar ® /breo ® ellipta ® , anoro® ellipta ® and vi monotherapy . on june 1 , 2014 , we separated our biopharmaceutical research and drug development operations from our late-stage partnered respiratory assets by transferring our research and drug development operations into our then wholly-owned subsidiary , theravance biopharma , inc. ( `` theravance biopharma '' ) . we contributed $ 393.0 million of cash , cash equivalents and marketable securities to theravance biopharma and all outstanding shares of theravance biopharma were then distributed to theravance stockholders as a pro-rata dividend distribution on june 2 , 2014 by issuing one ordinary share of theravance biopharma for every 3.5 shares held of our common stock to stockholders of record on may 15 , 2014 ( the `` spin-off '' ) . the spin-off resulted in theravance biopharma operating as an independent publicly-traded company . the results of operations for the former research and drug development operations conducted by us and by theravance biopharma until june 1 , 2014 are included as part of this report as discontinued operations . pursuant to a three-way master agreement entered into by and among us , theravance biopharma and gsk in connection with the spin-off , we agreed to sell a certain number of theravance biopharma shares withheld from a taxable dividend of theravance biopharma shares to gsk . after such theravance biopharma shares were sent to the transfer agent , we agreed to purchase the theravance biopharma shares from the transfer agent , rather than have them sold on the open market , in order to satisfy tax withholdings . gsk had a right to purchase these shares of theravance 36 biopharma from us , but this right expired unexercised . accordingly , at december 31 , 2014 , we owned 436,802 ordinary shares of theravance biopharma . as a royalty management company , we have designed our company structure and organization to be focused on managing our respiratory assets with gsk , the commercial and developmental obligations associated with the gsk agreements , intellectual property , licensing operations , and providing for certain essential reporting and management functions of a public company . as of december 31 , 2014 , we had ten employees . our revenues consist of royalties and potential milestone payments , if any , from our respiratory partnership agreements with gsk . story_separator_special_tag href= '' https : //www.sec.gov/archives/edgar/data/0001080014/000104746915001415/ # bg72401a_main_toc '' > in 2005 , gsk licensed our maba program for the treatment of copd , and in october 2011 , we and gsk expanded the maba program by adding six additional theravance-discovered preclinical maba compounds ( the `` additional mabas '' ) . gsk 's development , commercialization , milestone and royalty obligations under the strategic alliance remain the same with respect to gsk961081 ( '081 ) , the lead compound in the maba program . gsk is obligated to use diligent efforts to develop and commercialize at least one maba within the maba program , but may terminate progression of any or all additional mabas at any time and return them to us , at which point we may develop and commercialize such additional mabas alone or with a third party . both gsk and we have agreed not to conduct any maba clinical studies outside of the strategic alliance so long as gsk is in possession of the additional mabas . if a single-agent maba medicine containing '081 is successfully developed and commercialized , gsk is required to pay royalties of between 10 % and 20 % of annual global net sales up to $ 3.5 story_separator_special_tag we believe that the accounting policies discussed below are critical to understanding our historical and future performance , as these policies relate to the more significant areas involving management 's judgments and estimates . revenue recognition revenue is recognized when the four basic criteria of revenue recognition are met : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred or services have been rendered ; ( 3 ) the fee is fixed or determinable ; and ( 4 ) collectability is reasonably assured . where the revenue recognition criteria are not met , we defer the recognition of revenue by recording deferred revenue until such time that all criteria are met . collaborative arrangements and multiple element arrangements we generate revenue from collaboration and license agreements for the development and commercialization of product candidates . collaboration and license agreements may include non-refundable upfront payments , partial or complete reimbursement of research and development costs , supply arrangement , contingent payments based on the occurrence of specified events under our collaborative arrangements , license fees and royalties on sales of product candidates if they are successfully approved and commercialized . our performance obligations under the collaborations may include the transfer of intellectual property rights in the form of licenses , obligations to provide research and development services and related materials , supply of active pharmaceutical ingredient ( `` api '' ) and or drug product , and obligations to participate on certain development and or commercialization committees with the collaborative partners . we make judgments that affect the periods over which we recognize revenue . we periodically review our estimated periods of performance 40 based on the progress under each arrangement and account for the impact of any changes in estimated periods of performance on a prospective basis . on january 1 , 2011 , we adopted an accounting standards update that amends the guidance on accounting for new or materially modified multiple-element arrangements that we enter into subsequent to january 1 , 2011. this guidance removed the requirement for objective and reliable evidence of fair value of the undelivered items in order to consider a deliverable a separate unit of accounting . it also changed the allocation method such that the relative-selling-price method must be used to allocate arrangement consideration to all the units of accounting in an arrangement . this guidance established the following hierarchy that must be used in estimating selling price under the relative-selling-price method : ( 1 ) vendor-specific objective evidence of fair value of the deliverable , if it exists , ( 2 ) third-party evidence of selling price , if vendor-specific objective evidence is not available or ( 3 ) vendor 's best estimate of selling price ( `` besp '' ) if neither vendor-specific nor third-party evidence is available . we may determine that the selling price for the deliverables within collaboration and license arrangements should be determined using besp . the process for determining besp involves significant judgment on our part and includes consideration of multiple factors such as estimated direct expenses and other costs , and available data . we have determined besp for license units of accounting based on market conditions , similar arrangements entered into by third parties and entity-specific factors such as the terms of previous collaborative agreements , our pricing practices and pricing objectives , the likelihood that clinical trials will be successful , the likelihood that regulatory approval will be received and that the products will become commercialized . we have also determined besp for services-related deliverables based on the nature of the services to be performed and estimates of the associated effort as well as estimated market rates for similar services . for each unit of accounting identified within an arrangement , we determine the period over which the performance obligation occurs . revenue is then recognized using either a proportional performance or straight-line method . we recognize revenue using the proportional performance method when the level of effort to complete our performance obligations under an arrangement can be reasonably estimated . direct labor hours or full time equivalents are typically used as the measurement of performance . any changes in the remaining estimated performance obligation periods under these collaborative arrangements will not have a significant impact on the results of operations , except for a change in estimated performance period resulting from the termination of a collaborative arrangement , which would result in immediate recognition of the related deferred revenue . the gsk agreements were entered into prior to january 1 , 2011. the delivered items under these collaborative agreements did not meet the criteria required to be accounted for as separate accounting units for the purposes of revenue recognition . as a result , revenue from non-refundable , upfront fees and development contingent payments were recognized ratably over the expected term of our performance of research and development services under the agreements . these upfront or contingent payments received , pending recognition as revenue , were recorded as deferred revenue and recognized over the estimated performance periods . under the gsk agreements , we recognized revenue of $ 8.4 million , $ 4.5 million and $ 5.6 million for the years ended december 31 , 2014 , 2013 and 2012. the remaining deferred revenue under the gsk strategic alliance agreement is $ 4.9 million at december 31 , 2014. any change in the estimated performance period , which is predominantly based on gsk 's development timeline , will not have a significant impact on the results of operations , except for a change in estimated performance period resulting from the termination of the maba program that would result in immediate recognition of the deferred revenue . on january 1 , 2011 , we also adopted an accounting standards update that provides guidance on revenue recognition using the milestone method . payments that are contingent upon achievement of a 41 substantive milestone are recognized in their entirety in the period in which the milestone is achieved .
| financial highlights in 2014 , our net loss from our continuing operations was $ 73.5 million , an increase of $ 42.9 million from $ 30.6 million in 2013 , primarily due to higher employee-related expenses , including stock-based compensation expense , and an increase in interest expense from our non-recourse notes payable due 2029 ( the `` 2029 notes '' ) . cash , cash equivalents , and marketable securities , totaled $ 283.4 million on december 31 , 2014 , a decrease of $ 237.1 million from december 31 , 2013. the decrease was due primarily to the contribution of $ 393.0 million to theravance biopharma in connection with the spin-off , cash used in operations of $ 130.7 million , registrational and launch-related milestone payments to gsk of $ 135.0 million and payments of cash dividends of $ 57.0 million . these outflows were partially offset by net proceeds of $ 434.7 million from the issuance of our non-recourse notes due 2029 , net proceeds of $ 48.9 million received from issuances of our common stock and $ 18.4 million from royalties earned from gsk . declaration and payment of cash dividends during each of the third and fourth quarters of 2014 , our board of directors declared a quarterly dividend of $ 0.25 per share of common stock to stockholders resulting in aggregate cash dividends of $ 57.0 million paid to our stockholders in 2014. in connection with the payments of these cash dividends , the conversion rate with respect to our 2.125 % convertible subordinated notes due 2023 ( the `` 2023 notes '' ) was adjusted . product highlights 1. in the fourth quarter 2014 , sales for relvar®/breo® ellipta® by gsk were $ 62.2 million compared to $ 25.6 million in the previous quarter , an increase of approximately 142 % , resulting in total sales of $ 110.9 million in 2014 .
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the words “ anticipates , ” “ believes , ” “ estimates , ” “ expects , ” “ intends , ” “ may , ” “ plans , ” “ projects , ” “ will , ” “ would , ” and similar expression are intended to identify forward-looking statements , although not all forward-looking statements contain these identifying words . these statements are based on our current expectations , estimates and projections about our business based , in part , on assumptions made by our management . these assumptions are not guarantees of future performance and involve risks , uncertainties and assumptions that are difficult to predict . therefore , actual outcomes and results may differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors , including those risks factors included in part i , item 1a and elsewhere in this annual report . overview we manage our land based upon its primary usage and review its performance based upon three primary classifications – citrus groves , improved farmland and ranch and conservation . in addition , we operate an agricultural supply chain management business that is not tied directly to our land holdings and other operations that include a citrus nursery , leasing mines and oil extraction rights to third parties . we present our financial results and the related discussions based upon these five segments ( citrus groves , improved farmland , ranch and conservation , agricultural supply chain management and other operations ) . in the fourth quarter of fiscal year 2013 , we changed our internal operations to align with the way we manage our business operations . as a result , we have realigned our financial reporting segments to match our internal operations . we have reclassified prior years to conform to the fiscal year 2013 presentation . none of these changes affect our previously reported consolidated results . the primary change in previously reported segment results is to reclassify the former land leasing and rentals segment 's revenues and expenses to the related land classifications . we own approximately 129,200 acres of land in seven florida counties ( alachua , collier , desoto , glades , hendry , lee and polk ) , and operate five segments . segments we operate five segments related to our various land holdings . · citrus groves include activities related to planting , owning , cultivating and or managing citrus groves in order to produce fruit for sale to fresh and processed citrus markets . · agricultural supply chain management and support includes activities related to the purchase and resale of fruit , as well as , to value-added services which include contracting for the harvesting , marketing and hauling of citrus . · improved farmland includes activities related to owning and or leasing improved farmland . improved farmland is acreage that has been converted , or is permitted to be converted , from native pasture and which may have various improvements including irrigation , drainage and roads . · ranch and conservation includes activities related to cattle grazing , sod , native plant and animal sales , leasing , management and or conservation of unimproved native pasture land . 22 · other operations include activities related to a citrus nursery , rock mining royalties , oil exploration and other insignificant lines of business . critical accounting policies and estimates the preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the united states of america ( “ gaap ” ) requires management to make estimates and judgments that affect the reported amounts of assets and liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . management evaluates the estimates and assumptions on an on-going basis , based upon historical experience and various other factors and circumstances . management believes that the estimates and assumptions are reasonable in the circumstances ; however , actual results may vary from these estimates and assumptions under different future circumstances . the following critical accounting policies have been identified that affect the more significant judgments and estimates used in the preparation of the consolidated financial statements . revenue recognition - revenue from agricultural crops is recognized at the time the crop is harvested and delivered to the customer . alico recognizes revenue from cattle sales at the time the cattle are delivered . management reviews the reasonableness of the revenue accruals quarterly based on buyers ' and processors ' advances to growers , cash and futures markets and experience in the industry . adjustments are made throughout the year to these estimates as more current relevant information regarding the specific markets become available . differences between the estimates and the final realization of revenue can be significant and can be either positive or negative . during the periods presented in this report on form 10-k , no material adjustments were made to the reported revenues from alico 's crops . alico fruit 's operations primarily consist of providing supply chain management services to alico , as well as to other citrus growers in the state of florida . alico fruit also purchases and resells citrus fruit ; in these transactions , alico fruit ( i ) acts as a principal ; ( ii ) takes title to the products ; and ( iii ) has the risks and rewards of ownership , including the risk of loss for collection , delivery or returns . therefore , alico fruit recognizes revenue based on the gross amounts due from customers for its marketing activities . supply chain management service revenues are recognized when the services are performed . variable interest and equity method investments - we evaluate investments for which we do not hold an equity interest of at least 50 % based on the amount of control we exercise over the operations of the investee , our exposure to losses in excess of our investment , our ability to significantly influence the investee and whether we are the primary beneficiary of the investee . story_separator_special_tag · level 2- valuations are based on quoted prices for similar assets or liabilities in active markets , or quoted prices in markets that are not active for which significant inputs are observable , either directly or indirectly . · level 3- valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement . inputs reflect management 's best estimate of what market participants would use in valuing the asset or liability at the measurement date . 24 recent accounting pronouncements title prescribed effective date commentary update no . 2014-08—presentation of financial statements ( topic 205 ) and property , plant , and equipment ( topic 360 ) : reporting discontinued operations and disclosures of disposals of components of an entity 12/15/2015 ( q1 2015 ) the company is still evaluating the impact of the adoption of the standard will have on its results of operations and financial position . update no . 2014-09—revenue from contracts with customers ( topic 606 ) 12/15/2016 ( q1 2017 ) the company is still evaluating the impact of the adoption of the standard will have on its results of operations and financial position . recent events sugarcane disposition on may 19 , 2014 , we entered into a triple net agricultural lease ( the “ ussc lease ” ) with our sole sugarcane customer , united states sugar corporation ( “ ussc ” ) of approximately 30,600 gross acres of land in hendry county , florida historically used for sugarcane farming . as a result of this lease we were no longer directly engaged in sugarcane farming as of may 19 , 2014. on november 21 , 2014 , we sold approximately 36,000 acres of sugarcane land to global ag properties usa llc ( “ global ” ) , including the land leased to ussc above , for approximately $ 97,900,000 in cash and assigned the ussc lease to the purchaser . as result of this disposition , we are no longer involved in sugarcane , and the improved farmland segment is no longer material to our business . the proceeds from the sale were reinvested on december 2 , 2014 ( see orange-co acquisition ) via a tax deferred like-kind exchange pursuant to internal revenue code section §1031 . orange-co acquisition on december 2 , 2014 , we completed the acquisition of certain citrus and related assets of orange-co , lp ( “ orange-co ” ) pursuant to an asset purchase agreement ( the “ orange-co purchase agreement ” ) , dated as of december 1 , 2014. the assets we purchased include approximately 20,263 acres of citrus groves in desoto and charlotte counties , florida , which comprises one of the largest contiguous citrus grove properties in the state of florida . the purchase price was approximately $ 274,000,000 including : ( 1 ) $ 147,500,000 in initial cash consideration , subject to adjustment as set forth in the orange-co purchase agreement ; ( 2 ) up to $ 7,500,000 in additional cash consideration to be released from escrow in equal parts , subject to certain limitations , on the 12- and 18-month anniversaries of the closing date ; ( 3 ) the assumption and refinancing of orange-co 's outstanding debt including approximately $ 91,200,000 in term debt and a working capital facility of approximately $ 27,800,000 ; and ( 4 ) the assumption of certain other liabilities . on the closing date , the company deposited an irrevocable standby letter of credit issued by rabo agrifinance , inc. ( “ rabo ” ) in the aggregate amount of $ 7,500,000 into an escrow account to fund the additional cash consideration . we concurrently entered into arrangements to finance the orange-co acquisition as follows : metlife credit agreement we entered into a first amended and restated credit agreement with metropolitan life insurance company and new england life insurance company under which they provided term loans in the aggregate principal amount of $ 182,500,000 and $ 25,000,000 in revolving credit commitments . 25 the metlife agreement amends and restates existing credit facilities , dated as of september 8 , 2010 ( as amended from time to time , the “ prior credit agreement ” ) between the company and rabo . under the prior credit agreement , we had a term loan in the initial principal amount of $ 40,000,000 , of which $ 33,500,000 was outstanding at the date of refinancing and $ 60,000,000 in undrawn revolving credit commitments . rabo credit agreement we entered into a credit agreement with rabo under which they have provided a $ 70,000,000 revolving working capital line of credit for the company . silver nip merger agreement on december 2 , 2014 , we entered into an agreement and plan of merger ( the “ merger agreement ” ) with 734 sub , llc , a wholly owned subsidiary of the company ( “ merger sub ” ) , 734 citrus holdings , llc ( “ silver nip citrus ” ) and , solely with respect to certain sections thereof , the equity holders of silver nip citrus ( see “ note 14. related party transactions ” in the notes to consolidated financial statements ) . the merger agreement provides that , upon the terms and subject to the conditions set forth therein , merger sub will merge with and into silver nip citrus ( the “ merger ” ) , with silver nip citrus surviving the merger as a wholly owned subsidiary of the company .
| results of operations the following table sets forth a comparison of results of operations for the fiscal years ended september 30 , 2014 , 2013 , and 2012 : replace_table_token_10_th a discussion of our segment results of operations follows . 27 citrus groves the table below presents key operating measures for the fiscal years ended september 30 , 2014 , 2013 and 2012 : replace_table_token_11_th - - nm - not meaningful we sell our early and mid-season and valencia oranges to processors that convert the majority of the citrus crop into orange juice . they generally buy their citrus on a pound solids basis , which is the measure of the soluble solids ( sugars and acids ) contained in one box of fruit . fresh fruit is generally sold to packing houses that purchase their citrus on a per box basis . our operating expenses consist primarily of cost of sales and harvesting and hauling . cost of sales represents the cost of maintaining our citrus groves for the preceding calendar year and does not vary in relation to production . 28 harvesting and hauling represents the cost of bringing citrus product to processors and varies based upon the number of boxes produced . the declines for fiscal year 2014 versus fiscal year 2013 in boxes harvested and pound solids produced are being driven by growing season fluctuations in production which may be attributable to various factors , including changes in weather , horticultural practices and the effects of diseases and pests , including citrus greening . the industry and the company both experienced higher than normal premature fruit drop in certain areas of our groves and smaller sized fruit that contributed to the 16.4 % smaller box harvest than prior year .
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these options will vest quarterly , with an initial one year cliff , over a four year period , and will become exercisable in full in the fourth anniversary of the date of the grant , provided that he remains in continuous service as a director through that date . adjustments . in the event that there is a specified type of change in our capital structure not involving the receipt of consideration by us , such as a stock split or stock dividend , the number of shares reserved under the 2007 plan and the maximum number and class of shares issuable to an individual in the aggregate , and the exercise price or strike price , if applicable , of all outstanding stock awards will be appropriately adjusted . 62 dissolution or liquidation . in the event of a proposed dissolution or liquidation of lendingclub , the administrator shall provide written notice to each participant at least story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. in addition to historical information , this annual report on form 10-k contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected . factors that might cause or contribute to such differences include , but are not limited to , those discussed in the following management 's discussion and analysis of financial condition and results of consolidated operations as well as in part i item 1a , risk factors. actual results could differ materially . important factors that could cause actual results to differ materially include , but are not limited to ; the level of demand for our products and services ; the intensity of competition ; our ability to effectively expand and improve internal infrastructure ; and adverse financial , customer and employee consequences that might result to us if litigation were to be initiated and resolved in an adverse manner to us . for a more detailed discussion of the risks relating to our business , readers should refer to part i item 1a , risk factors. readers are cautioned not to place undue reliance on the forward-looking statements , including statements regarding our expectations , beliefs , intentions or strategies regarding the future , which speak only as of the date of this annual report on form 10-k. we assume no obligation to update these forward-looking statements . 42 overview we are an online financial platform . we allow qualified borrower members to obtain unsecured consumer loans ( which we refer to as member loans ) with interest rates that they find attractive . we were incorporated in delaware in october 2006 , and in may 2007 , began operations . in august 2007 , we conducted a venture capital financing round and expanded our operations with the launch of our public website , www.lendingclub.com . from the launch of our platform in may 2007 until april 7 , 2008 , our platform allowed investor members to purchase assignments of member loans directly . since october 13 , 2008 , investors have had the opportunity to purchase member payment dependent notes ( which we refer to as the notes ) issued by us , with each series of notes corresponding to an individual member loan facilitated through our platform . the notes are unsecured , are dependent for payment , in both timing and amount , on the related member loan and offer interest rates and credit characteristics that the investors find attractive . we charge servicing fees to investors in notes equal to a set percentage of the cash flows received on the related member loans . the majority of member loans originated since october 13 , 2008 , have been financed by notes . as discussed more fully below , beginning in march 2011 , member loans have also been financed by trust certificates ( certificates ) , which also are dependent for payment on related member loans . since november 2007 , we have also financed portions of certain member loans ourselves using sources of funds other than notes or certificates . we receive the same terms on member loans that we finance as the terms received by other note investors . all member loans are unsecured obligations of individual borrower members with fixed interest rates , three-year or five-year maturities , minimum amounts of $ 1,000 and maximum amounts up to $ 35,000. the member loans are posted on our website and since december 2007 , pursuant to an agreement with webbank , an fdic-insured , state-chartered industrial bank organized under the laws of the state of utah , approved loans are funded and issued by webbank and sold to us immediately after closing . as a part of operating our lending platform , we verify the identity of members , obtain borrower members ' credit characteristics from consumer reporting agencies such as transunion , experian or equifax and screen borrower members for eligibility to participate in the platform and facilitate the posting of member loans . also , after acquiring the member loans from webbank , we service the member loans on an ongoing basis . as of march 31 , 2012 , the lending platform has facilitated 50,611 member loans totaling approximately $ 570 million since our launch in may 2007. our agreement with webbank has enabled us to make our platform available to borrower members on a uniform basis nationwide , except that as of march 31 , 2012 , we do not currently offer member loans in idaho , indiana , iowa , maine , mississippi , nebraska , north dakota and tennessee . we pay webbank a monthly service fee based on the amount of loan proceeds disbursed by webbank in each month , subject to a minimum monthly fee . story_separator_special_tag all of our member loans are unsecured but the gross potential credit risk to the company from member loans is significantly mitigated to the extent that loans are financed by notes or certificates that absorb the loans ' credit losses pursuant to the member payment dependency provision . absent the fair value elections for both member loans at fair value and the related notes and certificates , member loans held for investment would be accounted for at amortized cost and would record loan loss provisions for estimated expected losses , but the related notes and certificates also accounted for at amortized cost would recognize the losses passed-through by the related loans only when and in amounts of the loans actually charged-off , thereby resulting in a mismatch in the timing and amounts of loss recognition between a member loan and related notes and certificates , which is not an appropriate representation for instruments that are designed to have linked cash flows and loss realization . the loan origination fees for member loans at fair value are recognized as a component of non-interest revenue at the time of the loan origination . the costs to originate member loans at fair value are recognized in operating expenses as incurred . interest income on member loans at fair value is recorded as earned . the remaining member loan originations have been accounted for at amortized cost as explained more fully below . when we receive payments of principal and interest on member loans at fair value , we remit principal and interest payments on related notes and or certificates , net of any applicable servicing fee on the payments received on the member loans at fair value . the principal payments reduce the carrying values of both the member loans at fair value and the related notes and certificates . servicing fees withheld from payments made to note investors are recorded as a component of non-interest revenue when received . management fees from certificate investors are recognized as a component of non-interest revenue when earned . we include in earnings the estimated unrealized fair value gains or losses during the period of member loans at fair value , and the offsetting estimated fair value losses or gains attributable to the expected changes in future payments on notes and certificates . at march 31 , 2012 , we estimated the fair values of member loans at fair value and their related notes and certificates using a discounted cash flow valuation methodology . the estimated fair values of member loans are computed by projecting the future contractual cash flows to be received on the loans , adjusting those cash flows for our expectations of prepayments ( if significant ) and defaults and losses over the life of the loans , and discounting those projected net cash flows to a present value , which is the estimated fair value . our expectation of future defaults and losses on loans is based on analyses of actual defaults and losses that occurred on the various credit grades of member loans over the past several years . the discount rates for the projected net cash flows of the member loans are our estimates of the rates of return that investors in unsecured consumer credit obligations would require when investing in the various credit grades of member loans . our obligation to pay principal and interest on any note and certificate is equal to the pro-rata portion of the payments , if any , received on the related member loan at fair value , net of any applicable servicing fee . the gross effective interest rate associated with a note or a certificate is the same as the interest rate earned on the related member loan at fair value . at march 31 , 2012 , the discounted cash flow methodology used to estimate the notes ' and certificates ' fair values uses the same projected net cash flows as their related member loans . the discount rates for the projected net cash flows of the notes and certificates are our estimates of the rates of return , including any applicable risk premiums , if significant , that investors in unsecured consumer credit obligations would require when investing in notes issued by lendingclub or certificates issued by the trust , with cash flows dependent on specific credit grades of member loans . 44 for additional discussion on this topic , including the adjustments to the estimated fair values of loans at fair value and notes at fair value as of march 31 , 2012 , as discussed below , see results of operations and note 5 member loans at fair value and notes and certificates at fair value . member loans at amortized cost the loan origination fees for member loans at amortized cost are deferred at origination and , with the related deferred loan origination costs , are amortized to interest income over the contractual lives of the loans using a method that approximates the effective interest method , which loans currently have original terms of 36 or 60 months . we record interest income on member loans at amortized cost as earned . loans reaching 120 days delinquent are classified as nonaccrual loans , and we stop accruing interest and reverse all accrued but unpaid interest after such date . we may incur losses if the borrower members fail to pay their monthly scheduled loan payments . an allowance for loan losses applies only to member loans at amortized cost and is a valuation allowance that is established as losses are estimated to have occurred at the balance sheet date through a provision for loan losses charged to earnings . realized loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed .
| results of operations revenues our business model consists primarily of charging fees to both borrower members and investor members for transactions through or related to our platform . during the fiscal years ended march 31 , 2012 and 2011 , we facilitated the origination of $ 321.1 million and $ 148.8 million of loans , respectively , on our lending platform , an increase of 115.8 % in the fiscal year ended march 31 , 2012 , compared to the fiscal year ended march 31 , 2011. upon issuance of a loan , the borrower member pays a fee to us for providing the services of arranging the member loan . the loan origination fee charged to each borrower member is determined by the term and credit grade of that borrower member 's loan and as of march 31 , 2012 , ranged from 1.11 % to 5.00 % of the aggregate member loan amount . the loan origination fees are included in the annual percentage rate ( apr ) calculation provided to the borrower member and is subtracted from the gross loan proceeds prior to disbursement of the loan funds to the borrower member . investor members that purchase notes pay servicing fees to us on the payments for the related member loans and maintaining account portfolios . beginning in march 2011 , we began charging limited partners in two private investment funds monthly management fees that are based on the month-end balances of their partners ' capital accounts . these management fees , which are charged in lieu of servicing fees on the certificates purchased by the funds and other certificate investors , are recorded in other revenue . 45 to a lesser extent , we also generate revenue from net interest income that is primarily earned on member loans that we finance with sources of funds other than notes and certificates . loan origination fees our borrower members pay a one-time origination fee to us for arranging a member loan .
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see note 14 “ commitments and contingencies – wireless – dish network non-controlling investments in the northstar entities and the snr entities related to aws-3 wireless spectrum licenses ” in the notes to our consolidated financial statements in this annual report on form 10-k for further information . we may need to raise significant additional capital in the future to fund the efforts described above , which may not be available on acceptable terms or at all . there can be no assurance that we , the northstar entities and or the snr entities will be able to develop and implement business models that will realize a return on these wireless spectrum licenses or that we , the northstar entities and or the snr entities will be able to profitably deploy the assets represented by these wireless spectrum licenses , which may affect the carrying amount of these assets and our future financial condition or results of operations . see note 14 “ commitments and contingencies – wireless ” in the notes to our consolidated financial statements in this annual report on form 10-k for further information . trends in our pay-tv segment competition competition has intensified in recent years as the pay-tv industry has matured . with respect to our dish tv services , we and our competitors increasingly must seek to attract a greater proportion of new subscribers from each other 's existing subscriber bases rather than from first-time purchasers of pay-tv services . we incur significant costs to retain our existing dish tv subscribers , mostly as a result of upgrading their equipment to hd and dvr receivers and by providing retention credits . our dish tv subscriber retention costs may vary significantly from period to period . many of our competitors have been especially aggressive by offering discounted programming and services for both new and existing subscribers , including bundled offers combining broadband , video and or wireless services and other promotional offers . certain competitors have been able to subsidize the price of video services with the price of broadband and or wireless services . in addition , our gross new dish tv subscriber activations and net dish tv subscriber additions continue to be negatively impacted by stricter customer acquisition and retention policies for our dish tv subscribers , including an increased emphasis on acquiring and retaining higher quality subscribers . our pay-tv services also face increased competition from programmers and other companies who distribute video directly to consumers over the internet . our sling tv services face increased competition from content providers and other companies , as well as traditional satellite television providers , cable companies and large telecommunication companies , that are increasing their internet-based video offerings . competition from video content distributed over the internet includes services with live linear television programming , single programmer offerings and offerings of large libraries of on-demand content , including in many cases original content . furthermore , our dish tv services face increased competition as programming offered over the internet has become more prevalent and consumers are spending an increasing amount of time accessing video content via the internet on their mobile devices . significant changes in 66 consumer behavior with regard to the means by which consumers obtain video entertainment and information in response to digital media competition could have a material adverse effect on our business , results of operations and financial condition or otherwise disrupt our business . in particular , consumers have shown increased interest in viewing certain video programming in any place , at any time and or on any broadband-connected device they choose . online content providers may cause our subscribers to disconnect our dish tv services ( “ cord cutting ” ) , downgrade to smaller , less expensive programming packages ( “ cord shaving ” ) or elect to purchase through these online content providers a certain portion of the services that they would have historically purchased from us , such as pay per view movies , resulting in less revenue to us . we implement new marketing promotions from time to time that are intended to increase our pay-tv subscriber activations . for our dish tv services , we have launched various marketing promotions offering certain dish tv programming packages without a price increase for a commitment period . we also launched our flex pack skinny bundle with a core package of programming consisting of more than 50 channels and the choice of one of nine themed add-on channel packs , which include , among others , local broadcast networks and kids and general entertainment programming . subscribers can also add or remove additional channel packs to best suit their entertainment needs . during 2017 , we launched “ tuned in to you ” and the accompanying “ spokeslistener ” campaign . while we plan to implement these and other new marketing efforts for our dish tv services , there can be no assurance that we will ultimately be successful in increasing our gross new dish tv subscriber activations . additionally , in response to our efforts , we may face increased competitive pressures , including aggressive marketing and retention efforts , bundled discount offers combining broadband , video and or wireless services and other discounted promotional offers . for our sling tv services , we offer a personalized tv experience with a customized channel line-up and two of the lowest priced live-linear online streaming services in the industry , our sling orange service and our sling blue service . during 2017 , we launched our “ a la carte tv ” campaign . while we plan to implement these and other new marketing efforts for our sling tv services , there can be no assurance that we will ultimately be successful in increasing our net sling tv subscriber activations . story_separator_special_tag our dish tv subscriber base has been declining due to , among other things , the factors described above . there can be no assurance that our dish tv subscriber base will not continue to decline and that the pace of such decline will not accelerate . as our dish tv subscriber base continues to decline , it could have a material adverse long-term effect on our business , results of operations , financial condition and cash flow . programming our ability to compete successfully will depend , among other things , on our ability to continue to obtain desirable programming and deliver it to our subscribers at competitive prices . programming costs represent a large percentage of our “ subscriber-related expenses ” and the largest component of our total expense . we expect these costs to continue to increase , and certain programming costs are rising at a much faster rate than wages or inflation , especially for local broadcast channels . the rates we are charged for retransmitting local broadcast channels have been increasing substantially and may exceed our ability to increase our prices to our customers . in addition , programming costs continue to increase due to contractual price increases and the renewal of long-term programming contracts on less favorable pricing terms . going forward , our margins may face pressure if we are unable to renew our long-term programming contracts on acceptable pricing and other economic terms or if we are unable to pass these increased programming costs on to our customers . increases in programming costs have caused us to increase the rates that we charge to our subscribers , which could in turn cause our existing pay-tv subscribers to disconnect our service or cause potential new pay-tv subscribers to choose not to subscribe to our service . additionally , even if our subscribers do not disconnect our services , they may purchase through new and existing online content providers a certain portion of the services that they would have historically purchased from us , such as pay-per-view movies , resulting in less revenue to us . furthermore , our net pay-tv subscriber additions , gross new dish tv subscriber activations , and dish tv churn rate may be negatively impacted if we are unable to renew our long-term programming carriage contracts before they expire . in the past , our net pay-tv subscriber additions , gross new dish tv subscriber activations , and dish tv churn rate have been negatively impacted as a result of programming interruptions and threatened programming interruptions in connection with the scheduled expiration of programming carriage contracts with content providers . we can not predict 67 with any certainty the impact to our net pay-tv subscriber additions , gross new dish tv subscriber activations , and dish tv churn rate resulting from programming interruptions or threatened programming interruptions that may occur in the future . as a result , we may at times suffer from periods of lower net pay-tv subscriber additions or higher net pay-tv subscriber losses . operations and customer service while competitive factors have impacted the entire pay-tv industry , our relative performance has also been driven by issues specific to us . in the past , our subscriber growth has been adversely affected by signal theft and other forms of fraud and by our operational inefficiencies . for our dish tv services , in order to combat signal theft and improve the security of our broadcast system , we use microchips embedded in credit card sized access cards , called “ smart cards , ” or security chips in our dbs receiver systems to control access to authorized programming content ( “ security access devices ” ) . we expect that future replacements of these devices may be necessary to keep our system secure . to combat other forms of fraud , among other things , we monitor our independent third-party distributors ' and independent third-party retailers ' adherence to our business rules . furthermore , for our sling tv services , we encrypt programming content and use digital rights management software to , among other things , prevent unauthorized access to our programming content . while we have made improvements in responding to and dealing with customer service issues , we continue to focus on the prevention of these issues , which is critical to our business , financial condition and results of operations . to improve our operational performance , we continue to make investments in staffing , training , information systems , and other initiatives , primarily in our call center and in-home service operations . these investments are intended to help combat inefficiencies introduced by the increasing complexity of our business , improve customer satisfaction , reduce churn , increase productivity , and allow us to scale better over the long run . we can not be certain , however , that our spending will ultimately be successful in improving our operational performance . changes in our technology we have been deploying dbs receivers for our dish tv services that utilize 8psk modulation technology with mpeg-4 compression technology for several years . these technologies , when fully deployed , will allow improved broadcast efficiency , and therefore allow increased programming capacity . many of our customers today , however , do not have dbs receivers that use mpeg-4 compression technology . in addition , given that all of our hd content is broadcast in mpeg-4 , any growth in hd penetration will naturally accelerate our transition to these newer technologies and may increase our retention costs . all new dbs receivers have mpeg-4 compression with 8psk modulation technology . in addition , from time to time , we change equipment for certain subscribers to make more efficient use of transponder capacity in support of hd and other initiatives . we believe that the benefit from the increase in available transponder capacity outweighs the short-term cost of these equipment changes . explanation of
| results of operations year ended december 31 , 2017 compared to the year ended december 31 , 2016. replace_table_token_9_th * percentage is not meaningful . * * during the third quarter 2017 , as a result of hurricane maria , we removed approximately 145,000 subscribers representing all of our subscribers in puerto rico and the u.s. virgin islands , from our ending pay-tv subscriber count . the effect of the removal of these 145,000 subscribers as of september 30 , 2017 was excluded from the calculation of our net dish tv subscriber additions/losses and dish tv churn rate for the year ended december 31 , 2017. see “ results of operations – pay-tv subscribers ” for further information . 72 pay-tv subscribers . we lost approximately 284,000 net pay-tv subscribers during the year ended december 31 , 2017 compared to the loss of approximately 392,000 net pay-tv subscribers during the same period in 2016. the decrease in net pay-tv subscriber losses during the year ended december 31 , 2017 resulted from fewer net dish tv subscriber losses , partially offset by fewer net sling tv subscriber additions . we lost approximately 995,000 net dish tv subscribers during the year ended december 31 , 2017 compared to the loss of approximately 1.270 million net dish tv subscribers during the same period in 2016. this decrease in net dish tv subscriber losses primarily resulted from a lower dish tv churn rate , partially offset by lower gross new dish tv subscriber activations . we added approximately 711,000 net sling tv subscribers during the year ended december 31 , 2017 compared to the addition of approximately 878,000 net sling tv subscribers during the same period in 2016. this decrease in net sling tv subscriber additions is primarily related to a higher number of customer disconnects on a larger sling tv subscriber base and from increased competition , including competition from other ott service providers .
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these statements are often , but not always , made through the use of words or phrases such as “ may , ” “ might , ” “ should , ” “ could , ” “ predict , ” “ potential , ” “ believe , ” “ expect , ” “ continue , ” “ will , ” “ anticipate , ” “ seek , ” “ estimate , ” “ intend , ” “ plan , ” “ projection , ” “ would , ” “ annualized ” and “ outlook , ” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature . these forward-looking statements are not historical facts , and are based on current expectations , estimates and projections about our industry , management 's beliefs and certain assumptions made by management , many of which , by their nature , are inherently uncertain and beyond our control . accordingly , we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks , assumptions , estimates and uncertainties that are difficult to predict . although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made , actual results may prove to be materially different from the results expressed or implied by the forward-looking statements . a number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements , including the following : the geographic concentration of our business ; current and future economic and market conditions in the united states generally or in hawaii , guam and saipan in particular ; our dependence on the real estate markets in which we operate ; concentrated exposures to certain asset classes and individual obligors ; the effect of the current low interest rate environment or changes in interest rates on our business including our net interest income , net interest margin , the fair value of our investment securities , and our mortgage loan originations , mortgage servicing rights and mortgage loans held for sale ; changes in the method pursuant to which libor and other benchmark rates are determined or the discontinuance of libor ; the possibility of a deterioration in credit quality in our portfolio ; the possibility we might underestimate the credit losses inherent in our loan and lease portfolio ; our ability to maintain our bank 's reputation ; the future value of the investment securities that we own ; our ability to attract and retain customer deposits ; our inability to receive dividends from our bank , pay dividends to our common stockholders and satisfy obligations as they become due ; the effects of severe weather , geopolitical instability , including war , terrorist attacks , pandemics or other severe health emergencies and man-made and natural disasters ; our ability to maintain consistent growth , earnings and profitability ; our ability to attract and retain skilled employees or changes in our management personnel ; our ability to effectively compete with other financial services companies and the effects of competition in the financial services industry on our business ; the effectiveness of our risk management and internal disclosure controls and procedures ; our ability to keep pace with technological changes ; any failure or interruption of our information and communications systems ; our ability to identify and address cybersecurity risks ; the occurrence of fraudulent activity or effect of a material breach of , or disruption to , the security of any of our or our vendors ' systems ; the failure to properly use and protect our customer and employee information and data ; the possibility of employee misconduct or mistakes ; our ability to successfully develop and commercialize new or enhanced products and services ; changes in the demand for our products and services ; the effects of problems encountered by other financial institutions ; our access to sources of liquidity and capital to address our liquidity needs ; our use of the secondary mortgage market as a source of liquidity ; risks associated with the sale of loans and with our use of appraisals in valuing and monitoring loans ; the possibility that actual results may differ from estimates and forecasts ; fluctuations in the fair value of our assets and liabilities and off-balance sheet exposures ; the effects of the failure of any component of our business infrastructure provided by a third party ; the potential for environmental liability ; the risk of being subject to litigation and the outcome thereof ; the impact of , and changes in , applicable laws , regulations and accounting standards and policies , including the enactment of the tax act ( public law 115-97 ) on december 22 , 2017 ; possible changes in trade , monetary and fiscal policies of , and other activities undertaken by , governments , agencies , central banks and similar organizations ; our likelihood of success in , and the impact of , litigation or regulatory actions ; our ability to continue to pay dividends on our common stock ; contingent liabilities and unexpected tax liabilities that may be applicable to us as a result of the reorganization transactions ; and damage to our reputation from any of the factors described above . 43 the foregoing factors should not be considered an exhaustive list and should be read together with the other cautionary statements set forth under “ item 1a . risk factors ” in this annual report on form 10-k. if one or more events related to these or other risks or uncertainties materialize , or if our underlying assumptions prove to be incorrect , actual results may differ materially from what we anticipate . accordingly , you should not place undue reliance on any such forward-looking statements . story_separator_special_tag ● noninterest income was $ 192.5 million for the year ended december 31 , 2019 , an increase of $ 13.5 million or 8 % as compared to the same period in 2018. the increase was primarily due to the absence of $ 24.1 million otti losses on available-for-sale debt securities , a $ 6.3 million increase in bank-owned life insurance ( “ boli ” ) income , a $ 3.8 million increase in trust and investment services income , a $ 1.7 million increase in service charges on deposit accounts and a $ 1.0 million increase in credit and debit card fees . this was partially offset by an $ 18.6 million decrease in other noninterest income , a $ 2.7 million net loss on investment securities and a $ 2.1 million decrease on other service charges and fees . ● noninterest expense was $ 370.4 million for the year ended december 31 , 2019 , an increase of $ 5.5 million or 2 % as compared to the same period in 2018. the increase in noninterest expense was primarily due to a $ 6.5 million increase in contracted services and professional fees , a $ 5.9 million increase in salaries and employee benefits , a $ 5.1 million increase in card rewards program expenses , a $ 2.1 million increase in advertising and marketing expenses and a $ 1.4 million increase in occupancy expenses , partially offset by an $ 8.4 million decrease in other noninterest expense and a $ 6.8 million decrease in regulatory assessment and fees . our results for the year ended december 31 , 2018 were highlighted by the following : ● net interest income was $ 566.3 million for the year ended december 31 , 2018 , an increase of $ 37.5 million or 7 % as compared to the same period in 2017. our net interest margin was 3.16 % for the year ended december 31 , 2018 , an increase of 17 basis points as compared to the same period in 2017. the increase in net interest income was primarily due to higher average balances and yields in most loan categories and higher yields in our investment securities portfolio , partially offset by lower average balances in our investment securities portfolio and higher deposit funding costs . ● the provision was $ 22.2 million for the year ended december 31 , 2018 , an increase of $ 3.7 million or 20 % as compared to the same period in 2017. the provision is recorded to maintain the allowance at levels deemed adequate to absorb probable credit losses that have been incurred in our loan and lease portfolio as of the balance sheet date . ● noninterest income was $ 179.0 million for the year ended december 31 , 2018 , a decrease of $ 26.6 million or 13 % as compared to the same period in 2017. the decrease was primarily due to $ 24.1 million in otti losses on available-for-sale debt securities , a $ 4.1 million decrease in boli income , a $ 3.8 million decrease in service charges on deposit accounts and a $ 1.4 million decrease in other noninterest income , partially offset by a $ 4.3 million increase in other service charges and fees and a $ 1.7 million increase in credit and debit card fees . 46 ● noninterest expense was $ 365.0 million for the year ended december 31 , 2018 , an increase of $ 17.4 million or 5 % as compared to the same period in 2017. the increase in noninterest expense was primarily due to a $ 4.8 million increase in other noninterest expense , a $ 4.8 million increase in contracted services and professional fees , a $ 4.1 million increase in salaries and employee benefits , a $ 3.8 million increase in occupancy and $ 1.5 million increase in card rewards program expenses , partially offset by a $ 1.4 million decrease in advertising and marketing expenses . during 2019 , we continued to benefit from a stable hawaii economy as reflected in the continued growth in our commercial real estate and residential real estate loan portfolios . our investment securities portfolio remained strong as we continued to invest in high-grade investment securities . we also continued to maintain adequate reserves for loan and lease losses and high levels of capital . ● total loans and leases were $ 13.2 billion as of december 31 , 2019 , an increase of $ 135.5 million or 1 % as compared to december 31 , 2018. growth was particularly strong in our commercial real estate and residential real estate mortgage portfolios . growth in our commercial real estate portfolio was a reflection of the demand by both investors and owner occupants to acquire new real estate assets in a low interest rate environment . growth in our residential real estate mortgage portfolio was a reflection of the demand by owner occupants to refinance in a low interest rate environment . this growth was partially offset by the sale of $ 408.9 million commercial and industrial loans during the year ended december 31 , 2019 . ● the allowance was $ 130.5 million as of december 31 , 2019 , a decrease of $ 11.2 million or 8 % from december 31 , 2018. the ratio of our allowance to total loans and leases outstanding decreased to 0.99 % as of december 31 , 2019 , compared to 1.08 % as of december 31 , 2018. the overall level of the allowance was commensurate with our stable credit risk profile and the hawaii economy . ● we continued to invest in high-grade investment securities , primarily collateralized mortgage obligations issued by the government national mortgage association ( “ ginnie mae ” ) , fannie mae and freddie mac .
| financial highlights net income was $ 284.4 million for the year ended december 31 , 2019 , an increase of $ 20.0 million or 8 % as compared to the same period in 2018. basic earnings per share was $ 2.14 per share for the year ended december 31 , 2019 , an increase of $ 0.21 per share or 11 % as compared to the same period in 2018. diluted earnings per share was $ 2.13 for the year ended december 31 , 2019 , an increase of $ 0.20 or 10 % as compared to the same period in 2018. the increase was primarily due to a $ 13.5 million increase in noninterest income , an $ 8.4 million decrease in the provision for loan and lease losses ( the “ provision ” ) and a $ 7.1 million increase in net interest income , partially offset by a $ 5.5 million increase in noninterest expense and a $ 3.5 million increase in the provision for income taxes . net income for the year ended december 31 , 2019 was negatively impacted by a $ 4.5 million charge on the funding swap for the visa class b restricted shares sold in 2016 as well as $ 2.7 million losses on available-for-sale debt securities . core net income was $ 291.8 million for the year ended december 31 , 2019 , an increase of $ 5.1 million or 2 % as compared to the same period in 2018. core basic and diluted earnings per share were both $ 2.19 for the year ended december 31 , 2019 , an increase of $ 0.10 or 5 % as compared to the same period in 2018. core net income and core basic and diluted earnings per share are non-gaap financial measures .
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based on our evaluation of the credit worthiness of the issuers and because we do not intend to sell the investments , nor is it likely that we would be required to sell these investments , before recovery of their amortized cost bases , which may be maturity , none of the unrealized losses are considered to be other-than-temporary . we monitor all debt and equity securities on an on-going basis relative to changes in credit ratings , market prices , earnings trends and financial performance , in addition to specific region or industry reviews . our impairment review , in accordance with current guidance , is performed by the company at each reporting date and management uses its best judgment to decide story_separator_special_tag the following is management 's discussion and analysis of the consolidated financial condition and consolidated results of operations of the company . it is intended to be a discussion of certain key financial information regarding the company and should be read in conjunction with the consolidated financial statements and related notes to this report on form 10-k. overview we conduct operations as an insurance holding company emphasizing ordinary life insurance products in niche markets where we believe we can achieve competitive advantages . as an insurance provider , we collect premiums on an ongoing basis to pay future benefits to our policy and contract holders . our core operations include issuing : whole life insurance ; endowments ; credit insurance ; final expense ; and limited liability property policies . the company derives its revenues principally from 1 ) premiums earned for insurance coverages provided to insureds ; 2 ) net investment income ; and 3 ) net realized capital gains and losses . profitability of our insurance operations depends heavily upon the company 's underwriting discipline , as we seek to manage exposure to loss through favorable risk selection and diversification , management of claims , use of reinsurance , the size of our in force block , actual mortality and morbidity experience , and our ability to manage our expense ratio , which we accomplish through economies of scale and management of acquisition costs and other underwriting expenses . pricing adequacy depends on a number of factors , including the ability to obtain regulatory approval for rate changes , proper evaluation of underwriting risks , the ability to project future losses based on historical loss experience adjusted for known trends , the company 's response to competitors , and expectations about regulatory and legal developments and expense levels . the company seeks to price our insurance policies such that insurance premiums and future net investment income earned on premiums received will cover underwriting expenses and the ultimate cost of paying claims reported on the policies and provide for a profit margin . for many of our insurance products , the company is required to obtain approval for the premium rates from state insurance departments . the profitability of fixed annuities , riders and other “ spread-based ” product features depends largely on the company 's ability to earn target spreads between earned investment rates on assets and interest credited to policyholders . the investment return , or yield , on invested assets is an important element of the company 's earnings since insurance products are priced with the assumption that premiums received can be invested for a period of time before benefits are paid . the majority of the company 's invested assets have been held in available-for-sale and held-to-maturity securities , primarily in asset classes of corporate bonds , municipal bonds , and government obligation bonds . the current and projected low interest rate environment is having a significant impact on the determination of insurance contract liabilities and assets regarding reserves and deferred acquisition costs . the primary investment objective for the company is to maximize economic value , consistent with acceptable risk parameters , including the management of credit risk and interest rate sensitivity of invested assets , while generating sufficient after-tax income to meet policyholder and corporate obligations . the company maintains a conservative investment strategy that may vary based on a variety of factors including business needs , regulatory requirements and tax considerations . 22 citizens , inc. and consolidated subsidiaries current financial highlights the 2013 financial results are driven by our conservative business management and traditional life product sales . the low interest rate environment continues to impact our results and our industry as investment yields are an integral component of our business operations . our assets grew $ 41 million in 2013 and totaled $ 1.2 billion as of december 31 , 2013 . total stockholders ' equity decreased from $ 263.1 million at december 31 , 2012 , to $ 245.8 million at december 31 , 2013 due primarily to changes in unrealized losses on securities marked to market . insurance premiums rose 3.7 % and 5.3 % in 2013 and 2012 , respectively , primarily from sales in our life insurance segment , which increased $ 6.4 million from amounts reported in 2012 . net investment income increased 15.4 % and 5.4 % for 2013 and 2012 , respectively , as rates have risen in 2013 compared to the prior two years . the average yield on the consolidated investment portfolio has changed from a yield of 3.92 % in 2011 down to 3.81 % in 2012 and increasing to a yield of 4.11 % in 2013 as rates have risen . the increase in the investment asset balances due to premium revenue growth has also contributed to the increase in net investment income . realized net investment losses during 2013 of $ 0.3 million were recognized as $ 0.4 million of losses was recorded on sales of two equity mutual fund issuers , offset by gains of $ 0.1 million on calls of bond securities . in 2012 and 2011 gains resulted primarily from sales of securities that had been previously impaired due to declines in market values . story_separator_special_tag icc is the parent of integrity capital insurance company ( `` icic '' ) , an indiana life insurance company . both icc and icic were merged into cica effective april 1 , 2011. on august 1 , 2011 , splic entered into assumption reinsurance agreements with escude life insurance company in rehabilitation , and benton life insurance company in rehabilitation . at the time the agreements were executed , both companies were under receivership with the louisiana department of insurance . in total , splic assumed approximately $ 4.5 million in reserve liabilities and received approximately $ 4.6 million in cash , with a minimal reinsurance ceding commission being paid . these transactions are accounted for under business combination accounting and are not deemed material . on october 7 , 2013 , the company entered into a purchase agreement with magnolia guaranty life insurance company ( `` mglic '' ) in the amount of $ 5.2 million . mglic is a mississippi company that began writing business in 1992 and issues primarily industrial life policies through independent funeral homes in the state of mississippi . mglic had approximately $ 8.6 million of admitted assets as of december 31 , 2013. this transaction was finalized on march 7 , 2014 and will add a mississippi domiciled company to our home service segment . 24 citizens , inc. and consolidated subsidiaries story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > , decreasing by 4.4 % from 2012 recorded amounts . these values may routinely fluctuate from year to year . additionally , 2011 results include a $ 0.8 million incurred but not reported release of liability related to our claim expense calculation . policy surrenders increased in 2013 , 2012 and 2011 , but remained at a level that represents approximately 0.5 % of direct ordinary whole life insurance inforce . the increase in surrender expense is primarily related to our international business and is expected to increase over time due to the aging of this block of business . a significant portion of surrenders relates to policies that have been in force over fifteen years and no longer have a surrender charge associated with them . total direct insurance inforce reported in 2013 was $ 4.7 billion compared to $ 4.6 billion in and 2012 and 2011 . endowment benefits increased in 2012 and decreased slightly in 2013. we have a series of international policies that carry an immediate endowment benefit of an amount selected by the policy owner . these benefits have been popular in the pacific rim and latin america , where the company has experienced increased interest in our guaranteed products in recent years . like policy dividends , annual guaranteed endowments are factored into the premium and , as such , the increase has no impact on profitability . the company expects these benefits to continue to increase as this block of business increases and persists . 28 citizens , inc. and consolidated subsidiaries property claims decreased 13 % to approximately $ 2.0 million in 2013 compared with the amount reported for 2012 due to hurricane issac claims experience in the prior year with $ 0.5 million uninsured losses . the 2011 reported property claim amounts were lower than historical experience . reserves . the change in future policy benefit reserves has increased 11.3 % and 14.4 % in 2013 and 2012 due primarily to the current low interest rate environment necessitating higher reserves for policies issued in the last few years due to lower long term yield projections compared to prior assumptions . in addition , we continue to experience growth in new sales of endowment products , which require higher initial reserve levels , than whole life products . endowment sales totaled approximately $ 14.3 million , $ 14.3 million and $ 12.3 million in 2013 , 2012 and 2011 , respectively . policyholder dividends . policyholder dividends have risen at a rate corresponding with the growth rate in new international life insurance premiums . the company issues long duration participating policies to foreign residents that are expected to pay dividends to policyholders based upon actual experience . policyholder dividends are factored into the premiums and have no impact on profitability . commissions . commission expense fluctuates in a direct relationship to new and renewal insurance premiums and has increased 2.7 % in 2013 compared to 2012 as premium revenues have increased . other general expenses . total general expenses have decreased over the past several years on a consolidated basis as management has created efficiencies and improved processes . the reduction year to year was primarily related to lower audit , legal and consulting fees , as well as employee benefit cost reductions . in 2013 , claims cost increased related to our self insurance health plan for our employees resulting in approximately $ 0.5 million increase to our overall benefit expenses . we also had an increase in temporary labor staffing costs of $ 0.2 million related to assistance with operations projects . in 2013 , we also settled litigation in the amount of $ 0.2 million which was filed in the aftermath of hurricane katrina by the louisiana attorney general against all insurers writing homeowner policies in louisiana . we perform an expense study on an annual basis , utilizing an enterprise-wide time study , and we adjust cost allocations among entities as needed based upon this review . any allocation changes are reflected in the segment operations , but do not impact total expenses . deferred policy acquisition costs . capitalized deferred policy acquisition costs ( `` dac '' ) were $ 29.4 million , $ 29.1 million and $ 27.8 million in 2013 , 2012 and 2011 . these costs will vary based upon successful efforts related to newly issued policies and renewal business . significantly lower amounts are capitalized related to renewal business in correlation with the lower commissions paid on that business compared to first year business which have higher commission rates .
| consolidated results of operations a discussion of consolidated results is presented below , followed by a discussion of segment operations and financial results by segment . revenues insurance revenues are primarily generated from premium revenues and investment income . in addition , realized gains and losses on investment holdings can significantly impact revenues from year to year . replace_table_token_4_th premium income . premium income derived from life , accident and health , and property insurance sales , increased 3.7 % during 2013 . the increase resulted primarily from renewal premiums , which totaled $ 148.3 million , $ 142.2 million and $ 135.1 million in 2013 , 2012 and 2011 , respectively . new sales , termed as first year premiums , increased 4.0 % , 6.1 % , and 6.6 % in the life segment in 2013 , 2012 and 2011. endowment sales represent a significant portion of new business sales internationally with the 20 year endowment and endowment to age 65 as our top products . in addition , most of our life insurance policies contain a policy loan provision , which allows the policyholder to use cash value of a policy to pay premiums . the policy loan asset balance increased 13.7 % and 10.0 % in 2013 and 2012 , year over year . net investment income . net investment income increased to $ 36.6 million in 2013 compared to $ 31.7 million in 2012 , due to an increase in yields from new investments primarily in municipal and corporate issues and as we experienced higher average invested assets as a result of investment of new premium revenue . net investment income performance is summarized as follows . replace_table_token_5_th we have traditionally invested in fixed maturity securities with a large percent held in callable issues . over the past three years , we have experienced significant call activity related to fixed maturity security holdings due to the historically low interest rate environment .
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you should carefully read “ special note regarding forward-looking statements ” and “ risk factors. ” overview we are a leading theme park and entertainment company providing experiences that matter and inspiring guests to protect animals and the wild wonders of our world . we own or license a portfolio of recognized brands , including seaworld , busch gardens , aquatica , sesame place and sea rescue . over our more than 50 year history , we have built a diversified portfolio of 12 destination and regional theme parks that are grouped in key markets across the united states , many of which showcase our one-of-a-kind zoological collection . our theme parks feature a diverse array of rides , shows , educational demonstrations and other attractions with broad demographic appeal which deliver memorable experiences and a strong value proposition for our guests . during the year ended december 31 , 2017 , we hosted approximately 20.8 million guests , including approximately 2.4 million international guests , generated total revenues of $ 1.26 billion and incurred a net loss of $ 202.4 million , which includes a pre-tax , non-cash goodwill impairment charge of $ 269.3 million . see note 9–goodwill , net in our notes to the consolidated financial statements included elsewhere in this annual report on form 10-k. see further discussion in the “ ― trends affecting our results of operations ” section which follows . in recent years , our management team has been focused on stabilizing our business to drive sustainable growth by providing experiences that matter , delivering distinct guest experiences that are fun and meaningful , pursuing organic and strategic revenue growth and addressing the challenges we face , while maintaining financial discipline . we continue to build on our strong business fundamentals by evolving the guest experience to align with consumer preferences for experiences that matter . through family entertainment and distinct experiences and attractions , we provide our guests an opportunity to explore and learn more about the natural world and the plight of animals in the wild , to be inspired and to act to make a better world . we have increased our focus on “ turning parks inside out ” by taking our guests behind the scenes to provide a better understanding of our veterinary care and animal rescue operations such as the recent introduction of our inside look event at seaworld san diego , implementing a simplified pricing model , targeting capital investments in new attractions across our parks , introducing national advertising and marketing campaigns , and an ongoing focus on cost control as part of a larger commitment to overall financial discipline . separately , we continue to progress on our partnership with miral asset management llc ( “ miral ” ) to develop seaworld abu dhabi and with zhonghong holding co. , ltd. ( “ zhonghong holding ” ) to provide design , support and advisory services for various potential projects in china , taiwan , hong kong and macau . see the “ ― recent developments― international development strategy ” sections which follow . we have also entered into a new license agreement with sesame workshop to extend our status as sesame workshop 's exclusive theme park partner in the united states , puerto rico , and the u.s. virgin islands ( the “ sesame territory ” ) , with the second sesame place theme park scheduled to open no later than mid-2021 . after the opening of the second sesame place , we will have the option to build additional sesame place theme parks in the sesame territory ( see the “ ―recent developments― license agreement ” section which follows ) . on january 22 , 2018 , the company and evans hotel , a premier provider of resort accommodations , entered into a limited liability company agreement to develop , own and operate a hotel project ( the “ san diego hotel project ) to be located on the land that the company leases from the city of san diego , see item 2. properties – “ lease agreement with city of san diego ” included elsewhere in this annual report on form 10-k. the san diego resort project is subject to the city of san diego 's approval of a lease amendment and requisite approval from the california coastal commission sufficient to permit development of the san diego resort project as contemplated by the agreement . recent developments on february 26 , 2018 , joel k. manby stepped down from his position as president and chief executive officer of the company and resigned as a member of our board of directors and the board of directors appointed john t. reilly , our chief parks operations officer to serve as interim chief executive officer and approved a decrease in its size from nine to eight . in connection with the departure of mr. manby and the appointment of mr. reilly as interim chief executive officer , the board of directors appointed the chairman of the board , yoshikazu maruyama to serve as executive chairman of the board , effective february 26 , 2018 , until a successor for mr. manby is appointed on a permanent basis , at which time mr. maruyama is expected to resume his position as chairman of the board . 45 key business metrics evaluated by management attendance we define attendance as the number of guest visits to our theme parks . attendance drives admissions revenue as well as total in-park spending . the level of attendance at our theme parks is a function of many factors , including the opening of new attractions and shows , competitive offerings , weather , fluctuations in foreign exchange rates and global and regional economic conditions , travel patterns of both our u.s. domestic and international guests , consumer confidence and other factors beyond our control , including the potential spread of contagious diseases . attendance patterns have significant seasonality , driven by holidays , school vacations and weather conditions . story_separator_special_tag these factors were partially offset by improved attendance from guests within a 300 mile radius for our florida and texas markets which we believe is partly due to the success of our new attractions and events when compared to the prior year period . we believe the decline in u.s. domestic attendance , particularly in orlando , results primarily from the combined impact of reduced national advertising and competitive pressures . to address the decline in u.s. domestic attendance , we launched a new comprehensive marketing and communications campaign which includes specific strategies to directly address the u.s. domestic market . throughout 2017 , we have experienced a decline in international attendance from multiple markets , with a significant portion of that decline coming from the united kingdom . among other factors , we believe these declines are due partly to the strengthening of the u.s. dollar against a variety of foreign currencies in recent years when compared to historical levels in 2014 and 2015 ; in addition , we believe competitive pressures may also be impacting international attendance in our orlando market . the june 2016 announcement of the referendum of the united kingdom 's membership of the european union ( referred to as brexit ) introduced additional volatility and uncertainty in global stock markets and currency exchange rates which has also had an impact on our international attendance from the united kingdom . attendance from the united kingdom declined by 21 % for 2017 compared to 2016. historically , attendance from the united kingdom represents approximately 5 % of our total annual attendance . latin america attendance for 2017 has continued to decline from previous years , with a 4 % decline when compared to 2016 , and a 35 % decline compared to 2015. fluctuations in foreign currency exchange rates impact our business due to the effect a strong dollar has on international tourist spending . our success depends on our ability to grow our business , in part through targeted capital investments to improve our existing theme parks , rides , attractions and shows . our growth and innovation strategies require significant commitments of management resources and capital investments designed to improve guest satisfaction and generate returns . as a result , we make annual investments to support and improve our existing theme park facilities and attractions . maintaining and improving our theme parks , as well as opening new attractions , is critical to remain competitive , grow revenue , and increase our guests ' length of stay . we are investing in capital spending on new attractions for 2018 , which will include a new thrill roller coaster at seaworld san diego , a river raft ride at seaworld orlando , a wooden-steel hybrid coaster at sesame place , new water slides at aquatica orlando , aquatica san antonio , and adventure island and a new virtual reality attraction at busch gardens williamsburg . for further discussion of our new attractions for 2018 , see business “ — capital improvements ” section included elsewhere in this annual report on form 10-k our success also depends to some extent on discretionary consumer spending , which is heavily influenced by general economic conditions and the availability of discretionary income . difficult economic conditions and recessionary periods may adversely impact attendance figures , the frequency with which guests choose to visit our theme parks and guest spending patterns at our theme parks . generally , our revenue and attendance growth have historically been correlated with domestic economic growth , as reflected in the gross domestic product ( “ gdp ” ) and the overall level of growth in domestic consumer spending . we also continue to work to enhance our pricing capabilities and capitalize on what we believe are meaningful total revenue per capita opportunities . for instance , we recently introduced dynamic pricing for select products during peak time periods at several of our parks , advance purchase discounts to encourage early commitment , and seasonal pricing models to drive demand in non-peak times . both attendance and total revenue per capita at our theme parks are key drivers of our revenue and profitability , and reductions in either can materially adversely affect our business , financial condition , results of operations and cash flows . regulatory developments see discussion of relevant regulatory developments in the “ —business—recent developments— regulatory developments ” section included elsewhere in this annual report on form 10-k. for a discussion of certain risks associated with federal and state regulations governing the treatment of animals , see “ risk factors ” included elsewhere in this annual report on form 10-k , including “ risks related to our business and our industry—we are subject to complex federal and state regulations governing the treatment of animals , which can change , and to claims and lawsuits by activist groups before government regulators and in the courts. ” 47 u.s. tax cuts and jobs act see discussion of relevant regulatory developments in the “ —business—recent developments— u.s. tax cuts and jobs act ” section included elsewhere in this annual report on form 10-k. also , see note 14–income taxes in our notes to the consolidated financial statements included elsewhere in this annual report on form 10-k for revaluation of deferred tax assets and liabilities . international development strategy we believe that in addition to the growth potential that exists domestically , our brands can also have significant appeal in certain international markets . we are currently assessing these opportunities while maintaining a conservative and disciplined approach towards the execution of our international development strategy . thus far , we have identified our international market priorities as well as our international partners within select markets . the market priorities were developed based on a specific set of criteria to ensure we expand our brands into the most attractive markets . in december 2016 , we announced our partnership with miral asset management llc to develop seaworld abu dhabi , a first-of-its-kind marine life themed park on yas island ( the “ middle east project ” ) .
| results of operations the following discussion provides an analysis of our consolidated financial data for the years ended december 31 , 2017 and 2016. this data should be read in conjunction with our consolidated financial statements and the notes thereto included in “ financial statements and supplementary data ” included elsewhere in this annual report on form 10-k. 49 comparison of the years ended december 31 , 2017 and 2016 the following table presents key operating and financial information for the years ended december 31 , 2017 and 2016 : replace_table_token_6_th nd-not determinable nm-not meaningful admissions revenue . admissions revenue for the year ended december 31 , 2017 decreased $ 52.7 million , or 6.4 % , to $ 765.1 million as compared to $ 817.8 million for the year ended december 31 , 2016. the decrease in admissions revenue primarily relates to a decline in attendance of 1.2 million guests , or 5.5 % . attendance in 2017 was primarily impacted by a decline in u.s. domestic and international attendance , largely concentrated at our parks in orlando and san diego . in addition , seaworld san diego was further impacted by a decline in attendance from the southern california market . we believe the decline in u.s. domestic attendance , particularly in orlando , results primarily from the combined impact of reduced national advertising and competitive pressures . among other factors , we believe the decline in attendance at our seaworld san diego park partly results from public perception issues , which resurfaced since we reduced marketing spend on our national reputation campaign . admission per capita decreased by 1.0 % to $ 36.79 in 2017 from $ 37.17 in 2016. the decrease results primarily from the mix of guests , including a higher mix of season pass attendance and free promotional ticket offerings . these factors were partially offset by price increases in our admission products . food , merchandise and other revenue .
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the cautionary statements made in this report should be read as being applicable to all forward-looking statements whenever they appear in this report . for these statements , we claim the protection of the safe harbor for forward-looking statements contained in the private securities litigation reform act . actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the sec . all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph . the forward-looking statements contained in this report and the exhibits attached hereto are based on our current expectations and beliefs concerning future developments and their potential effects on us taking into account information currently available to us . there can be no assurance that future developments affecting us will be those that we have anticipated . these forward-looking statements involve a number of risks , uncertainties ( some of which are beyond our control ) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements . should one or more of these risks or uncertainties materialize , they could cause our actual results to differ materially from the forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those identified in the section titled , “ risk factors ” included elsewhere in this report . except as required by law , we are not undertaking any obligation to update or revise any forward-looking statements whether as a result of new information , future events or otherwise . you should not take any statement regarding past trends or activities as a representation that the trends or activities will continue in the future . accordingly , you should not put undue reliance on these statements . overview ranpak is a leading provider of environmentally sustainable , systems-based , product protection solutions and end-of-line automation solutions for e-commerce and industrial supply chains . since our inception in 1972 , we have delivered high quality protective packaging solutions , while maintaining our commitment to environmental sustainability . we assemble our protective packaging systems and provide the systems and paper consumables to customers , which include direct end-users and our network of exclusive paper packaging solution distributors , who in turn place the systems with and sell paper to commercial and industrial users for the conversion of paper into packaging materials . we operate manufacturing facilities in concord township , ohio ; kansas city , missouri ; raleigh , north carolina ; and reno , nevada in the united states , in heerlen and kerkrade , the netherlands as well as 33 nyrany , czech republic . in the second quarter of 2020 , we opened a new production facility for our automation business in kerkrade , the netherlands , located approximately three miles from our heerlen location , to enhance our production capacity in our automation business . we also maintain sales and administrative offices in paris , france ; laoshan , china ; shanghai , china ; tokyo , japan ; and singapore . we are a global business that generated approximately 61.0 % of our 2020 net revenue outside of the united states . as of december 31 , 2020 , we had an installed base of approximately 117.4 thousand protective packaging systems serving a diverse set of distributors and end-users . we generated net revenue of $ 298.2 million in 2020. additionally , we generated net revenue of $ 163.1 million in the successor period and $ 106.4 million in the 1h 2019 predecessor period . the ranpak business combination on june 3 , 2019 , we consummated the acquisition of all outstanding and issued equity interests of rack holdings , inc. ( “ rack holdings ” ) pursuant to a stock purchase agreement for consideration of $ 794.9 million , which reflects a post-closing adjustment of $ 0.7 million for net working capital and additional consideration , and 140.0 million ( $ 160.8 million ) in cash , ( i ) $ 341.5 million and 140.0 million of which , respectively , was used by the seller to repay outstanding indebtedness and unpaid transaction expenses as contemplated by the stock purchase agreement and ( ii ) the remainder of which was paid to rack holdings l.p. ( “ seller ” ) . the company ( then one madison corporation ) was deemed to be the accounting acquirer in the ranpak business combination , as a result of which the company allocated its purchase price to rack holdings ' assets and liabilities at fair value , which created a new basis of accounting . until the consummation of the ranpak business combination , rack holdings operated as a separate business holding all of the historical assets and liabilities related to our business . the ranpak business combination was financed , in part , with debt of approximately $ 534.6 million , which became ranpak 's direct obligation upon the consummation of the ranpak business combination . upon the consummation of the ranpak business combination on june 3 , 2019 , rack holdings ' then-existing debt , which amounted to approximately $ 487.6 million as of such date , was repaid in full . in december 2019 , the company closed a public offering of its class a common stock generating net proceeds of approximately $ 107.7 million that was used to pay down the first lien dollar term facility . following the ranpak business combination , we have hired , and expect to hire additional staff and implement procedures and processes to address regulatory and other customary requirements applicable to operating public companies . we have incurred additional annual expenses for , among other things , directors ' and officers ' liability insurance , director fees , and additional internal and external accounting , legal and administrative resources , including increased audit and legal fees . story_separator_special_tag while we do not currently expect covid-19 to have a material impact on our business , results of operations , financial condition or liquidity , at the time of this filing , we can not predict the extent to which we will ultimately be impacted due to the evolving and highly uncertain nature and duration of the covid-19 pandemic . see “ risk factors ” located previously in this report . we will continue to evaluate the nature and extent of the impact to our business , results of operations , financial condition , and cash flows . key performance indicators and other factors affecting performance ranpak uses the following key performance indicators and monitors the following other factors to analyze its business performance , determine financial forecasts , and help develop long-term strategic plans : protective packaging systems base — ranpak closely tracks the number of protective packaging systems installed with end-users as it is a leading indicator of underlying business trends and near-term and ongoing net revenue expectations . ranpak 's installed base of protective packaging systems also drives its capital expenditure budgets . the following table presents ranpak 's installed base of protective packaging systems by product line as of december 31 , 2020 and 2019 : replace_table_token_0_th paper costs . paper is a key component of ranpak 's cost of sales and paper costs can fluctuate significantly between periods . ranpak purchases both 100 % virgin and 100 % recycled paper , as well as blends , from various suppliers for conversion into the paper consumables it sells . the cost of paper supplies is ranpak 's largest input cost , and it negotiates supply and pricing arrangements with 35 most of its paper suppliers annually , with a view towards mitigating fluctuations in paper cost . nevertheless , as paper is a commodity , its price on the open market , and in turn the prices ranpak negotiates with suppliers at a given point in time , can fluctuate significantly , and is affected by several factors outside of ranpak ' s control , including supply and demand and the cost of other commodities that are used in the manufacture of paper , including wood , energy and chemicals . the market for ranpak ' s solutions is competitive and it may be difficult for ranpak to pass on increases in paper prices to its customers immediately , or at all , which has in the past and could in the future adversely affect its operating results . basis of presentation net revenue . revenue from contracts with customers is recognized using a five-step model consisting of the following : ( 1 ) identify the contract with a customer ; ( 2 ) identify the performance obligations in the contract ; ( 3 ) determine the transaction price ; ( 4 ) allocate the transaction price to the performance obligations in the contract ; and ( 5 ) recognize revenue when ( or as ) we satisfy a performance obligation . performance obligations are satisfied when we transfer control of a good or service to a customer , which can occur over time or at a point in time . the amount of revenue recognized is based on the consideration to which we expect to be entitled in exchange for those goods or services , including the expected value of variable consideration . the customer 's ability and intent to pay the transaction price is assessed in determining whether a contract exists with the customer . if collectability of substantially all of the consideration in a contract is not probable , consideration received is not recognized as revenue unless the consideration is nonrefundable and we no longer have an obligation to transfer additional goods or services to the customer or collectability becomes probable . we sell our paper products to end-users primarily through an established distributor network and direct sales to select end-users . our protective packaging solutions fall into four broad categories : void-fill , cushioning , wrapping , and end-of-line automation . the void-fill protective systems convert paper to fill empty spaces in secondary packages and protect objects . the cushioning protective systems convert paper into cushioning pads . the wrapping protective systems create pads or paper mesh to securely wrap and protect fragile items as well as to line boxes and provide separation when shipping multiple objects . the end-of-line automation solutions include capital equipment which can size , pad , fill , flap , lid , tape and or label the product in an integrated fashion with the speed and flow of the customer 's packaging line . charges for rebates and other allowances are recognized as a deduction from revenue on an accrual basis in the period in which the associated revenue is recorded . when we estimate our rebate accruals , we consider customer-specific contractual commitments including stated rebate rates and history of actual rebates paid . we also charge many customers a quarterly/annual fee for the use of our protective packaging systems on a per-unit basis , which is generally billed in advance , recorded as deferred revenue upon billing and subsequently recorded as net revenue on a straight-line basis when earned over the period . net revenue also includes sales of ranpak automation 's highly automated box sizing system to certain higher volume customers . see note 8 , “ revenue recognition , contracts with customers ” to our consolidated financial statements included elsewhere in this report . cost of goods sold . cost of goods sold consists primarily of raw materials , mainly paper , depreciation of protective packaging systems and salaries , wages , benefits and bonuses for employees and contractors engaged in the conversion and production of paper . for ranpak automation cost of sales consists of equipment components and related labor to assemble the end-of-line solutions . costs related to systems maintenance billed to customers are recorded as cost of goods sold as incurred . selling , general and administrative expenses .
| results of operations the following tables set forth ranpak 's results of operations for 2020 , the successor period , and the 1h 2019 predecessor period , with line items presented in millions of dollars . the ranpak business combination is accounted for under the scope of business combination guidance in asc 805. accordingly , the ranpak business combination is accounted for using the acquisition method which requires the company to record the fair value of assets acquired and liabilities assumed from rack holdings ( see note 10 , “ acquisition ” ) . in addition , in our discussion below , we include certain unaudited , non-gaap pro forma data for 2020 , the successor period , and the 1h 2019 predecessor period . this data is based on our historical financial statements included elsewhere in this report , adjusted ( where applicable ) to remove the effect of costs incurred to consummate the ranpak business combination , other one-time costs incurred due to the company entering into the ranpak business combination and for purchase accounting adjustments related to the ranpak business combination as well as to reflect a constant currency presentation between periods for the convenience of readers . we refer to these data as pro forma data in our discussion . however , such pro forma data have not been prepared in accordance with article 11 of regulation s-x . we reconcile this data to our gaap data for the same period under “ presentation and reconciliation of gaap to non-gaap measures ” for 2020 and 2019 . 37 comparison of 2020 to the successor period and 1h 2019 predecessor period replace_table_token_1_th replace_table_token_2_th net revenue the following table and the discussion that follows compares ranpak 's net revenue by geographic region and by product line for 2020 and 2019 on a gaap basis and on a non-gaap , pro forma basis as described above and in the discussion below .
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outside of collaboration and license fee payments , which vary over time , we have not generated significant revenues , including revenues or royalties from product sales by us or our collaborators . certain of our consolidated subsidiaries require regulatory approval and or commercial scale-up before they may commence significant product sales and operating profits . we expect our future capital requirements will be substantial , particularly as we continue to develop our business and expand our synthetic biology technology platform . in january 2018 , we closed a public offering of 6,900,000 shares of our common stock , including 1,000,000 shares of common stock purchased by affiliates of third security , the net proceeds of which were $ 82.2 million , after deducting underwriting discounts and commissions and estimated offering expenses payable by us . in october 2017 , we entered into a preferred stock facility with an affiliate of third security , under which we may , at our sole and exclusive option , issue and sell up to $ 100 million of newly issued series a preferred stock and which expires april 30 , 2019. we believe that our existing cash and cash equivalents , short-term investments , cash expected to be received through our current collaborators and for sales of products and services provided by our consolidated subsidiaries , cash received in our january 2018 offering , and any issuances of series a preferred stock under the preferred stock facility will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months . sources of revenue historically , we have derived our collaboration and licensing revenues through agreements with counterparties for the development and commercialization of products enabled by our technologies . generally , the terms of these collaborations provide that we receive some or all of the following : ( i ) technology access fees upon signing ; ( ii ) reimbursements of costs incurred by us for our research and development and or manufacturing efforts related to specific applications provided for in the collaboration ; ( iii ) milestone payments upon the achievement of specified development , regulatory and commercial activities ; and ( iv ) royalties on sales of products arising from the collaboration . our technology access fees and milestone payments may be in the form of cash or securities of the collaborator . our collaborations contain multiple arrangements , and we typically defer revenues from the technology access fees and milestone payments received and recognize such revenues in the future over the anticipated performance period . we are also entitled to sublicensing revenues in those situations where our collaborators choose to license our technologies to other parties . see note 2 to our consolidated financial statements appearing elsewhere in this annual report for additional discussion of our revenue recognition for these collaborations . from time to time , we and certain collaborators may cancel the agreements , relieving us of any further performance obligations under the agreement . when no further performance obligations are required of us under an agreement , we may recognize any remaining deferred revenue . we generate product and service revenues primarily through sales of products or services that are created from technologies developed or owned by us . our primary current offerings include sales of advanced reproductive technologies , including our bovine embryo transfer and in vitro fertilization processes and from genetic preservation and sexed semen processes and applications of such processes to other livestock , as well as sales of livestock and embryos produced using these processes and used in production . revenue is recognized when ( i ) persuasive evidence of an arrangement exists , ( ii ) services have been 56 rendered or delivery has occurred such that risk of loss has passed to the customer , ( iii ) the price is fixed or determinable , and ( iv ) collection from the customer is reasonably assured . in future periods , our revenues will depend in part on our ability to partner our more mature programs and capabilities , the number of collaborations to which we are party , the advancement and creation of programs within our collaborations and the extent to which our collaborators bring products enabled by our technologies to market . our revenues will also depend upon our ability to maintain or improve the volume and pricing of our current product and service offerings and to develop and scale up production of new offerings from the various technologies of our subsidiaries . our future revenues may also include additional revenue streams we may acquire through mergers and acquisitions . in light of our limited operating history and experience , there can be no assurance as to the timing , magnitude and predictability of revenues to which we might be entitled . cost of products and services cost of products and services includes primarily labor and related costs , drugs and supplies used primarily in the embryo transfer and in vitro fertilization processes , livestock and feed used in production , and facility charges , including rent and depreciation . fluctuations in the price of livestock and feed have not had a significant impact on our operating margins and no derivative financial instruments are used to mitigate the price risk . research and development expenses we recognize research and development expenses as they are incurred . our research and development expenses consist primarily of : salaries and benefits , including stock-based compensation expense , for personnel in research and development functions ; fees paid to consultants and contract research organizations who perform research on our behalf and under our direction ; costs related to laboratory supplies used in our research and development efforts ; costs related to certain in-licensed technology rights ; depreciation of leasehold improvements and laboratory equipment ; amortization of patents and related technologies acquired in mergers and acquisitions ; and rent and utility costs for our research and development facilities . story_separator_special_tag we account for investments in our jvs and start-up entities backed by harvest using the equity 58 method of accounting since we have the ability to exercise significant influence , but not control , over the operating activities of these entities . story_separator_special_tag primarily due to increased headcount to support our expanding operations . legal and professional fees increased $ 4.2 million primarily due to ( i ) increased legal fees to defend ongoing litigation and to support our evolving corporate strategy and ( ii ) consulting fees related to potential business opportunities and public relations . these increases were partially offset by $ 4.3 million in litigation expenses recorded in 2016 arising from the entrance of a court order in our trial with xy , llc , or xy . impairment loss impairment loss for the year ended december 31 , 2017 of $ 16.8 million resulted from our annual test for goodwill and indefinite-lived intangible asset impairment in the fourth quarter . based on the price per share received by aquabounty in its recent underwritten public offering , we determined that it was more likely than not that the fair value of our aquabounty reporting unit was less than the carrying value and recorded a $ 13.0 million impairment charge representing the estimated excess of carrying value over fair value of this reporting unit . additionally , in the fourth quarter , we decided to forgo further development of certain of our in-process research and development assets and as a result recorded a $ 3.0 million impairment charge . total other income ( expense ) , net total other income ( expense ) , net , increased $ 70.3 million , or 147 percent , over the year ended december 31 , 2016. this increase was primarily attributable to ( i ) the change in fair market value of our equity securities portfolio , investments in preferred stock , and other convertible instruments and ( ii ) a full year of dividend income from our investment in preferred stock of ziopharm . equity in net loss of affiliates equity in net loss of affiliates for the year ended december 31 , 2017 and 2016 includes our pro-rata share of the net losses of our investments we account for using the equity method of accounting . the $ 6.8 million , or 32 percent , decrease was primarily due to the temporary redeployment of certain resources away from jv programs towards supporting prospective new platforms and additional collaborations . 61 comparison of the year ended december 31 , 2016 to the year ended december 31 , 2015 the following table summarizes our results of operations for the years ended december 31 , 2016 and 2015 , together with the changes in those items in dollars and as a percentage : replace_table_token_11_th ( 1 ) including $ 93,792 and $ 77,354 from related parties for the years ended december 31 , 2016 and 2015 , respectively . 62 collaboration and licensing revenues the following table shows the collaboration and licensing revenue recognized for the years ended december 31 , 2016 and 2015 , together with the changes in those items . see note 5 to our consolidated financial statements appearing elsewhere in this annual report for further discussion of our collaboration and licensing revenues . replace_table_token_12_th ( 1 ) for the year ended december 31 , 2016 , revenue recognized from collaborations with harvest start-up entities include thrive agrobiotics , inc. ; exotech bio , inc. ; relieve genetics , inc. ; ad skincare , inc. ; genten therapeutics , inc. ; and crs bio , inc. for the year ended december 31 , 2015 , revenue recognized from collaborations with harvest start-up entities include thrive agrobiotics , inc. collaboration and licensing revenues increased $ 22.1 million over the year ended december 31 , 2015 due to ( i ) the recognition of deferred revenue for upfront payments received from collaborations signed by us in 2016 , including the consideration received in june 2016 from ziopharm to amend the collaborations between us ; and ( ii ) increased research and development services for these collaborations and for the expansion of programs or the addition of new programs with previously existing collaborators , including ziopharm , genopaver , llc , ares trading , and our jvs with s & i ophthalmic and intrexon energy partners . this increase is partially offset by the recognition in 2015 of previously deferred revenue related to collaboration agreements for which we satisfied all of our obligations or which were terminated during 2015. product revenues and gross margin product revenues decreased $ 4.9 million , or 12 percent , from the year ended december 31 , 2015. the decrease in product revenues and gross margin primarily relates to a decrease in the quantities of cows and live calves sold due to lower customer demand for these products and also due to a decline in average sales price of cows previously used in production . service revenues and gross margin revenues and gross margin on services were consistent year over year . research and development expenses research and development expenses decreased $ 35.3 million , or 24 percent , from the year ended december 31 , 2015. the decrease is due primarily to the inclusion in 2015 of a $ 59.6 million payment in common stock for an exclusive license to certain technologies owned by md anderson . this decrease was partially offset by increases in ( i ) salaries , benefits and other personnel costs for research and development employees , ( ii ) lab supplies and consulting expenses , and ( iii ) depreciation and 63 amortization . salaries , benefits and other personnel costs increased $ 7.3 million due to ( i ) an increase in research and development headcount to support new and expanded collaborations and ( ii ) a full year of costs for research and development employees assumed in our 2015 acquisitions .
| results of operations comparison of the year ended december 31 , 2017 to the year ended december 31 , 2016 the following table summarizes our results of operations for the years ended december 31 , 2017 and 2016 , together with the changes in those items in dollars and as a percentage : replace_table_token_9_th ( 1 ) including $ 130,670 and $ 93,792 from related parties for the years ended december 31 , 2017 and 2016 , respectively . 59 collaboration and licensing revenues the following table shows the collaboration and licensing revenue recognized for the years ended december 31 , 2017 and 2016 , together with the changes in those items . see note 5 to our consolidated financial statements appearing elsewhere in this annual report for further discussion of our collaboration and licensing revenues . replace_table_token_10_th ( 1 ) for the years ended december 31 , 2017 and 2016 , revenue recognized from collaborations with harvest start-up entities include thrive agrobiotics , inc. ; exotech bio , inc. ; relieve genetics , inc. ; ad skincare , inc. ; genten therapeutics , inc. ; and crs bio , inc. collaboration and licensing revenues increased $ 35.7 million , or 33 percent , over the year ended december 31 , 2016 due primarily to ( i ) the recognition of previously deferred revenue totaling $ 28.9 million related to our second ecc with ziopharm for the treatment of graft-versus-host disease , which was mutually terminated in december 2017 and ( ii ) a full year of recognition of deferred revenue associated with the payment received in june 2016 from ziopharm to amend our collaborations . product revenues and gross margin product revenue decreased $ 3.4 million , or 9 percent , from the year ended december 31 , 2016. the decrease in product revenues was primarily due to lower customer demand for cows and live calves .
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at december 31 , 2018 , the company owned and managed a portfolio of 58 operating properties ( excluding properties “ held for sale ” ) totaling 8.7 million square feet of gross leasable area ( “ gla ” ) . the portfolio was 91.0 % leased and 90.7 % occupied at december 31 , 2018. the company , organized as a maryland corporation , has established an umbrella partnership structure through the contribution of substantially all of its assets to cedar realty trust partnership l.p. ( the “ operating partnership ” ) , organized as a limited partnership under the laws of delaware . the company conducts substantially all of its business through the operating partnership . at december 31 , 2018 , the company owned 99.4 % of the operating partnership and is its sole general partner . the 553,000 limited partnership units in the operating partnership ( “ op units ” ) are economically equivalent to the company 's common stock and are redeemable at the option of the holder . such redemptions are payable in cash or in shares of the company 's common stock , one a one-to-one basis , at the option of the company . the company derives substantially all of its revenues from rents and operating expense reimbursements received pursuant to long-term leases . the company 's operating results therefore depend on the ability of its tenants to make the payments required by the terms of their leases . the company focuses its investment activities on grocery-anchored shopping centers . the company believes that , because of the need of consumers to purchase food and other staple goods and services generally available at such centers , its type of “ necessities-based ” properties should provide relatively stable revenue flows even during difficult economic times . 2018 significant transactions land parcel acquisition on august 8 , 2018 , the company purchased a land parcel adjacent to its riverview plaza property , located in philadelphia , pennsylvania . the purchase price for the land parcel was $ 1.0 million , which was comprised of $ 25,000 in cash and approximately 208,000 op units ( based on the market price of the company 's common stock ) . shopping center acquisition on august 21 , 2018 , the company entered into a deed of lease for senator square , a shopping center located in washington , d.c. the deed of lease conveys fee title in the buildings to the company and contains future options to acquire fee title in the land at its then fair-value . this lease is presented in the company 's financial statements as two separate components as follows : ( 1 ) a $ 5.7 million capital lease obligation for the fee interest in the buildings , and ( 2 ) an operating lease for the land . the capital lease obligation was computed through the date of the company 's first purchase option , as discussed below , and reflects an interest rate of 5.3 % . the lease initially requires monthly payments of $ 75,000 through maturity in august 2117 unless the company exercises one of its options to acquire the land . the first such option will be available between the 25th and 33rd anniversaries of the lease , depending on certain property benchmarks , with additional purchase options every 10 years thereafter during the lease term . the lease also provides for 1.5 % annual increases which begin on approximately the 8th anniversary of the lease , depending on the aforementioned property benchmarks . in addition , at the time the company 's first purchase option becomes available , the lease payments will be adjusted to the greater of then fair-value or the current payment amount . the lease payments are subject to similar adjustments at the 25th and 50th anniversaries of such first purchase option . the company has also issued a $ 3.5 million interest only mortgage note receivable to the lessor of senator square , which bears interest at 4.5 % per annum . the maturity date of this mortgage note can range from 26.5 years to 34.5 years from the date of issuance , based on the aforementioned property benchmarks . 28 dispositions on august 28 , 2018 , the company sold mechanicsburg center , located in mechanicsburg , pennsylvania . the sales price for the property was $ 16.1 million , which resulted in a gain on sale of $ 4.9 million , which has been included in continuing operations in the accompanying consolidated statements of operations . on september 28 , 2018 , the company sold west bridgewater plaza , located in west bridgewater , massachusetts . the sales price for the property was $ 3.5 million . an impairment charge of $ 9.4 million has been recorded in connection with the property during 2018 , which has been included in continuing operations in the accompanying consolidated statements of operations . real estate held for sale as of december 31 , 2018 , carll 's corner , located in bridgeton , new jersey , and maxatawny marketplace , located in maxatawny , pennsylvania have been classified as “ real estate held for sale ” on the accompanying consolidated balance sheet . the company recorded impairment charges of $ 11.3 million in connection with these properties during 2018. mortgage loans payable during 2018 , the company repaid the following mortgage loans payable : replace_table_token_10_th term loan on july 24 , 2018 , the company closed a new $ 75.0 million unsecured term loan maturing on july 24 , 2025 ( all of which was borrowed on september 28 , 2018 ) . interest on borrowings under the term loan can range from libor plus 170 to 225 bps ( 170 bps at december 31 , 2018 ) based on the company 's leverage ratio . additionally , the company entered into forward interest rate swap agreements which convert the libor rate to a fixed rate through its maturity . story_separator_special_tag the company considers a construction project as substantially completed and held available for occupancy upon the completion of tenant improvements , but not later than one year from cessation of major development activity . determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment . the effect of a longer capitalization period would be to increase capitalized costs and would result in higher net income , whereas the effect of a shorter capitalization period would be to reduce capitalized costs and would result in lower net income . the company allocates the fair value of real estate acquired to land , buildings and improvements . in addition , the fair value of in-place leases is allocated to intangible lease assets and liabilities . the fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant , which value is then allocated to land , buildings and improvements based on management 's determination of the fair values of such assets . in valuing an acquired property 's intangibles , factors considered by management include an estimate of carrying costs during the expected lease-up periods , such as real estate taxes , insurance , other operating expenses , and estimates of lost rental revenue during the expected lease-up periods based on its evaluation of current market demand . management also estimates costs to execute similar leases , including leasing commissions , tenant improvements , legal and other related costs . the values of acquired above-market and below-market leases are recorded based on the present values ( using discount rates which reflect the risks associated with the leases acquired ) of the differences between the contractual amounts to be received and 30 management 's estimate of market lease rates , measured over the terms of the respective leases that management deemed appropriate at the time of the acquisitions . such valuations include a consideration of the non-cancellable terms of the respective leases as well as any applic able renewal period ( s ) . the fair values associated with below-market rental renewal options are determined based on the company 's experience and the relevant facts and circumstances that existed at the time of the acquisitions . the values of above-market l eases are amortized to rental income over the terms of the respective non-cancelable lease periods . the portion of the values of below-market leases associated with the original non-cancelable lease terms are amortized to rental income over the terms of th e respective non-cancelable lease periods . the portion of the values of the leases associated with below-market renewal options that are likely of exercise are amortized to rental income over the respective renewal periods . the value of other intangible a ssets ( including leasing commissions , tenant improvements , etc . ) is amortized to expense over the applicable terms of the respective leases . if a lease were to be terminated prior to its stated expiration or not renewed , all unamortized amounts relating to that lease would be recognized in operations at that time . management is required to make subjective assessments in connection with its valuation of real estate acquisitions . these assessments have a direct impact on net income , because ( 1 ) above-market and below-market lease intangibles are amortized to rental income , and ( 2 ) the value of other intangibles is amortized to expense . accordingly , higher allocations to below-market lease liability and other intangibles would result in higher rental income and amortization expense , whereas lower allocations to below-market lease liability and other intangibles would result in lower rental income and amortization expense . management reviews each real estate investment for impairment whenever events or circumstances indicate that the carrying value of a real estate investment may not be recoverable . the review of recoverability is based on an estimate of the future cash flows that are expected to result from the real estate investment 's use and eventual disposition . these estimates of cash flows consider factors such as expected future operating income , trends and prospects , as well as the effects of leasing demand , competition and other factors . if an impairment event exists due to the projected inability to recover the carrying value of a real estate investment , an impairment loss is recorded to the extent that the carrying value exceeds estimated fair value . a real estate investment held for sale is carried at the lower of its carrying amount or estimated fair value , less the cost of a potential sale . depreciation and amortization are suspended during the period the property is held for sale . management is required to make subjective assessments as to whether there are impairments in the value of its real estate properties . these assessments have a direct impact on net income , because an impairment loss is recognized in the period that the assessment is made . new accounting pronouncements see note 2 of notes to consolidated financial statements included in item 8 below for information relating to new accounting pronouncements . 31 story_separator_special_tag as a result of the $ 1.4 million of costs and estimated expenses associated with the chief operating officer transition in 2016. acquisition pursuit costs were lower in 2017 as compared to 2016 as the company adopted the accounting guidance in 2017 which requires the capitalization of costs in typical acquisitions of real estate . acquisition pursuit costs in 2017 relate to costs associated with acquisitions the company chose not to continue to pursue .
| results of operations comparison of 2018 to 2017 replace_table_token_11_th revenues were higher primarily as a result of ( 1 ) $ 5.4 million relating to a dark anchor tenant terminating its lease prior to the contractual expiration at a property held for sale , ( 2 ) an increase of $ 1.4 million in rental revenues and expense recoveries attributable to redevelopment properties , ( 3 ) an increase of $ 1.2 million in rental revenues and expense recoveries attributable to properties acquired in 2018 and 2017 , and ( 4 ) an increase of $ 0.9 million in rental revenues and expense recoveries attributable to same-center properties , partially offset by ( 1 ) a decrease of $ 2.3 million in rental revenues and expense recoveries attributable to properties that were sold or held for sale in 2018 and 2017 , and ( 2 ) a decrease in other income of $ 0.6 million . property operating expenses were higher primarily as a result of ( 1 ) an increase of $ 1.4 million in property operating expenses attributable to same-center properties ( consisting primarily of increases in ( a ) real estate taxes of $ 0.6 million , ( b ) snow removal costs of $ 0.3 million , and ( c ) insurance expense of $ 0.2 million ) , ( 2 ) an increase of $ 1.2 million in property operating expenses attributable to redevelopment properties , and ( 3 ) an increase of $ 0.8 million in property operating expenses attributable to properties acquired in 2018 and 2017. general and administrative costs remained consistent as a result of an increase in legal fees of $ 0.8 million , offset by nominal decrease in various other general and administrative expenses . acquisition pursuit costs in 2017 relate to acquisitions the company chose not to continue to pursue .
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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 annual report on form 10-k. 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 on-going 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 are believed to be reasonable under the circumstances , the results of which form the basis for making 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 . the prior period amounts have been revised for the impact of discontinued operations due to the sale of our iii-v product line , including our ktc subsidiary . our financial results for prior periods have also been revised , in accordance with u.s. gaap , to reflect certain changes to the business and other matters . 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 we recognize revenue if four basic criteria have been met : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred and services rendered ; ( 3 ) the price to the buyer is fixed or determinable ; and ( 4 ) collectability is reasonably assured . we do not recognize revenue for products prior to customer acceptance unless we believe the product meets all customer specifications and has a history of consistently achieving customer acceptance of the product . provisions for product returns and allowances are recorded in the same period as the related revenues . we analyze historical returns , current economic trends and changes in customer demand and acceptance of product when evaluating the adequacy of sales returns and other allowances . certain product sales are made to distributors under agreements allowing for a limited right of return on unsold products . sales to distributors are primarily made for sales to the distributors ' customers and not for stocking of inventory . we delay revenue recognition for our estimate of distributor claims of right of return on unsold products based upon our historical experience with our products and specific analysis of amounts subject to return based upon discussions with our distributors or their customers . we recognize revenues from long-term research and development government contracts on the percentage-of-completion method of accounting as work is performed , based upon the ratio of costs or hours already incurred to the estimated total cost of completion or hours of work to be performed . revenue recognized at any point in time is limited to the amount funded by the u.s. government or contracting entity . we recognize revenue for product development and research contracts that have established prices for distinct phases when delivery and acceptance of the deliverable for each phase has occurred . in some instances , we are contracted to create a deliverable which is anticipated to go into full production . in those cases , we discontinue the percentage-of-completion method after formal qualification of the deliverable has been completed and revenue is then recognized based on the criteria established for sale of products . in certain instances qualification may be achieved and delivery of production units may commence however our customer may have either identified new issues to be resolved or wish to incorporate a newer display technology . in these circumstances new units delivered will continue to be accounted for under the criteria established for sale of products . under certain of our research and development contracts , we recognize revenue using a milestone methodology . this revenue is recognized when we achieve specified milestones based on our past performance . we classify amounts earned on contracts in progress that are in excess of amounts billed as unbilled receivables and we classify amounts received in excess of amounts earned as billings in excess of revenues earned . we invoice based on dates specified in the related agreement or in periodic installments based upon our invoicing cycle . we recognize the entire amount of an estimated ultimate loss in our financial statements at the time the loss on a contract becomes known . accounting for design , development and production contracts requires judgment relative to assessing risks , estimating contract revenues and costs , and making assumptions for schedule and technical issues . due to the size and nature of the work 25 required to be performed on many of our contracts , the estimation of total revenue and cost at completion is complicated and subject to many variables . contract costs include material , labor and subcontracting costs , as well as an allocation of indirect costs . we have to make assumptions regarding the number of labor hours required to complete a task , the complexity of the work to be performed , the availability and cost of materials , and performance by our subcontractors . for contract change orders , claims or similar items , we apply judgment in estimating the amounts and assessing the potential for realization . these amounts are only included in contract value when they can be reliably estimated and realization is considered probable . story_separator_special_tag in forming our conclusions as to whether the deferred tax assets are 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 . over the last three fiscal years a significant component of our income has been derived from sales of higher margin military products to the u.s. government . if , as expected , the u.s. government significantly reduces funding for these programs our results of operations will be adversely affected . in assessing our ability to realize our domestic deferred tax assets in the future , we consider the potential impact of the u.s. government 's federal budget deficit on the u.s. military programs in which we currently participate and those programs in which we anticipate participating in the future . a similar analysis is performed with respect to our foreign subsidiaries . stock compensation there were no stock options granted in fiscal years 2014 , 2013 or 2012 . the fair value of nonvested restricted common stock awards is generally the market value of the company 's equity shares on the date of grant . the nonvested common stock awards require the employee to fulfill certain obligations , including remaining employed by the company for certain periods of time ( the vesting period ) and in certain cases meeting performance or market criteria . the performance or market criteria may consist of the achievement of the company 's annual incentive plan goals , technology development or the company 's stock attaining a certain price for a period of time . for nonvested restricted common stock awards which solely require the recipient to remain employed with the company , the stock compensation expense is amortized over the anticipated service period . for nonvested restricted common stock awards which require the achievement of performance criteria , the company reviews the probability of achieving the performance goals on a periodic basis . if the company determines that it is probable that the performance criteria will be achieved , the amount of compensation cost derived for the performance goal is amortized over the service period . if the performance criteria are not met , no compensation cost is recognized and any previously recognized compensation cost is reversed . the company recognizes compensation costs on a straight-line basis over the requisite service period for time vested awards . for awards that vest upon our stock price achieving a certain price for a period of time the compensation expense associated with this award is recognized over the derived service period . story_separator_special_tag expect to incur significant development and marketing costs in 2015 to commercialize the kopin wearable technologies . international sales represented 38 % and 48 % of product revenues for fiscal years 2014 and 2013 , respectively . our international sales are primarily denominated in u.s. currency . consequently , a strengthening of the u.s. dollar could increase the price in local currencies of our products in foreign markets and make our products relatively more expensive than competitors ' products that are denominated in local currencies , leading to a reduction in sales or profitability in those foreign markets . in addition , our korean subsidiary , kowon , holds u.s. dollars in order to pay various expenses . as a result , our financial position and results of operations are subject to exchange rate fluctuation in transactional and functional currency . we have not taken any protective measures against exchange rate fluctuations , such as purchasing hedging instruments with respect to such fluctuations , because of the historically stable exchange rate between the japanese yen , korean won and the u.s. dollar . cost of component revenues . replace_table_token_8_th cost of component revenues , which is comprised of materials , labor and manufacturing overhead related to the production of our products decreased as a percentage of revenues in 2014 as compared to 2013 due to an increase in the sale of our display products for military applications and the usage of certain raw materials used in military programs that were previously written-off as excess but were used in the 2014 production . in 2013 , we compared forecasted demand for our military programs against inventory on-hand and provided reserves for estimated excess inventory . in the second quarter of 2014 , we received additional orders for military products and we have been using the inventory reserved as excess in the fulfillment of the orders . in addition , military products historically have higher gross margins than commercial products . research and development . replace_table_token_9_th research and development ( r & d ) expenses are incurred in support of internal display development programs or programs funded by agencies or prime contractors of the u.s. government and commercial partners . in fiscal year 2015 our r & d expenditures will be related to our display products , over lay weapon sights and kopin wearable technologies . r & d revenues associated with funded programs are presented separately in revenue in the statement of operations . r & d costs include staffing , purchases of materials and laboratory supplies , circuit design costs , fabrication and packaging of display products , and overhead . r & d expense increased in 2014 as compared to the prior year primarily because of investments made to develop our wearable technologies and develop manufacturing and quality control processes , including display development and software costs , partially offset by a decrease in government funded product development . selling , general and administrative . selling , general and administrative ( s , g & a ) expenses consist of the expenses incurred by our sales and marketing personnel and related expenses , and administrative and general corporate expenses . replace_table_token_10_th the increase in s , g & a expenses in 2014 as compared to 2013 is primarily attributable to increase in compensation expense partially offset by a decline in public relations expense . impairment .
| results of operations on january 16 , 2013 , we completed the sale of our iii-v product line , including all of the outstanding equity interest in ktc wireless , llc ( ktc ) a wholly-owned subsidiary of the company , to iqe kc , llc ( iqe ) and iqe plc ( parent , and collectively with iqe , the buyer ) . our iii-v products primarily consisted of our gallium arsenide-based hbt transistor wafers . the aggregate purchase price was approximately $ 75 million , subject to certain adjustments , including working capital adjustments and escrow . upon agreement of the final working capital and other adjustments the net purchase price was $ 70.2 million , and the gain on the sale , net of tax , was $ 20.1 million . under the terms of the purchase agreement , $ 55 million was paid to us in january 2013 , $ 0.2 million was paid in april 2013 and the remaining $ 15 million is scheduled to be paid to us on the third anniversary of the closing date , or january 16 , 2016. we are a leading developer , manufacturer and seller of miniature displays , optical lenses , asics ( our “ components ” ) and software for integration into wearable products and for sale as individual components . we use our proprietary semiconductor material technology to design , manufacture and market our component products for use 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 . we have two principal sources of revenues : component 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 27 and commercial enterprises .
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billion in assets for retail , institutional and high-net-worth investors around the world . by delivering the combined power of our distinctive worldwide investment management capabilities , invesco provides a comprehensive array of enduring solutions for our clients . we have a significant presence in the institutional and retail segments of the investment management industry in north america , uk , europe and asia-pacific , serving clients in more than 150 countries . despite a number of challenges during the year , including the u.s. equity market flash crash in may , the heightened risk of european sovereign default , and continued uncertainty about the strength of the economic recovery , most global equity markets achieved positive returns in 2010 marking the second year of recovery from the financial crisis as illustrated in the chart below : the response to these challenges by governments and central banks around the world of providing additional fiscal and monetary stimulus led to an investor environment that favored riskier assets as yields on less risky government bonds reached record lows . as a result , most global equity markets achieved positive returns in 2010 with the s & p 500 climbing almost 13 % , the ftse 100 rising 9 % , and the msci eafe index gaining nearly 5 % . the exception was the equity market in japan which declined 3 % as the strength in the japanese yen , up almost 15 % against the u.s. dollar in 2010 , negatively impacted the profits of japanese exporters and multinational corporations . the table below summarizes the year ended december 31 returns of several major market indices for 2010 , 2009 , and 2008 : replace_table_token_6_th 23 both treasury markets and corporate credit markets achieved positive returns in 2010 as well . treasury securities benefited from the combination of the flight to quality trade in the first half of the year , coinciding with the u.s. equity market flash crash and increased risk of default by some european governments , as well as the federal reserve beginning the second round of quantitative easing , a process whereby the federal reserve creates new money to purchase treasury securities . for the year , 10-year treasury notes gained 8 % while shorter dated 3- and 5-year notes gained 5 % and 7 % respectively . corporate credit markets benefited from improved fundamentals as earnings improved and corporations stockpiled cash . further , the stimulus efforts from central bankers around the globe provided support as yields on government securities reached record lows , and fixed income investors moved out the credit risk curve in search of higher yields . for the year , investment grade credit gained 9.0 % while high-yield bonds returned 14.6 % . invesco continued to make progress in a number of areas that better positioned our company as the markets continue their measured return to pre-financial crisis levels . throughout the course of 2010 , the company 's financial performance strengthened . in addition , during this period , invesco continued to strengthen its competitive position with respect to investment performance , maintained its focus on its clients , and enhanced its profile in the industry . a critical factor in invesco 's ability to weather the economic storms of the past three years was our integrated approach to risk management . our risk management framework provides the basis for consistent and meaningful risk dialogue up , down and across the company . our global performance measurement and risk group provides senior management and the board with insight into core investment risks , while our corporate risk management committee facilitates a focus on strategic , operational and all other business risks . further , business component , functional , and geographic risk management committees maintain an ongoing risk assessment process that provides a bottom-up perspective on the specific risk areas existing in various domains of our business . through this regular and consistent risk communication , the board has reasonable assurance that all material risks of the company are being addressed and that the company is propagating a risk-aware culture in which effective risk management is built into the fabric of the business . in addition , we benefited from having a diversified asset base . one of invesco 's core strengths , and a key differentiator for the company within the industry , is our broad diversification across client domiciles , asset classes and distribution channels . our geographical diversification recognizes growth opportunities in different parts of the world . invesco is also diversified by asset class , with approximately 48 % of our assets under management in equities and the remaining 52 % invested in fixed income and other investments . this broad diversification enables invesco to withstand different market cycles and take advantage of growth opportunities in various markets and channels . on june 1 , 2010 , the company acquired morgan stanley 's retail asset management business , including van kampen investments ( the acquired business or the acquisition ) in exchange for a combination of $ 770.0 million in cash paid and 30.9 million common shares and common share equivalents , which were subsequently sold , as converted , to unrelated third parties . the acquisition added assets under management across equity , fixed income and alternative asset classes ( including mutual funds , variable insurance funds , separate accounts and uits ) . more specifically , this acquisition : expanded the depth and breadth of the company 's investment strategies , enabling the company to offer an even more comprehensive range of investment capabilities and vehicles to its clients around the world ; enhanced the company 's ability to serve u.s. clients by positioning invesco among the leading u.s. investment managers by assets under management ( aum ) , diversity of investment teams and client profiles ; deepened invesco 's relationships with clients and strengthen its overall distribution capabilities ; and further strengthened its position in the japanese investment management market . story_separator_special_tag we experienced net outflows in institutional money market funds of $ 0.1 billion and increases in aum of $ 11.2 billion due to changes in foreign exchange rates during the year ended december 31 , 2009. during the year ended december 31 , 2008 , net outflows decreased aum by $ 20.3 billion and negative market movements decreased aum by $ 113.0 billion . we experienced net inflows in institutional money market funds of $ 8.4 billion and decreases in aum of $ 27.3 billion due to changes in foreign exchange rates during the year ended december 31 , 2008. average aum during the year ended december 31 , 2010 included the impact of the acquired business and were $ 532.3 billion , compared to $ 415.8 billion for the year ended december 31 , 2009 and $ 468.9 billion for the year ended december 31 , 2008. net inflows during the year ended december 31 , 2010 included net long-term inflows of etf , uit and passive aum of $ 4.3 billion and other net long-term inflows of $ 1.2 billion . net flows were driven by net inflows into our institutional and high net worth distribution channels of $ 5.6 billion and $ 1.1 billion , respectively , primarily in the fixed income asset class , while our retail distribution channel experienced net outflows of $ 1.2 billion . market gains and losses/reinvestment of aum includes the net change in aum resulting from changes in market values of the underlying investments from period to period and reinvestment of client dividends . of the total increase in aum resulting from market gains during the year ended december 31 , 2010 , $ 33.4 billion of this increase was due to the change in value of our equity asset class across all of our business components . our balanced and alternatives asset classes were also positively impacted by the change in market valuations during the period . during the year ended december 31 , 2010 , our equity aum increased in line with equity markets globally . as discussed in the executive overview section of this management 's discussion and analysis , the s & p 500 and the ftse 100 indices increased 12.8 % and 9.0 % , respectively , during the year ended december 31 , 2010. of the $ 54.7 billion increase in aum resulting from market increases during the year ended december 31 , 2009 , $ 42.1 billion of this increase was due to the change in value of our equity asset class , in line with increases in the s & p 500 and the ftse 100 indices of 23.5 % and 22.1 % , respectively , during that period . of the $ 113.0 billion decrease in aum resulting from market declines during the year ended december 31 , 2008 , $ 94.7 billion of this decrease was due to the change in value of our equity asset class , in line with decreases in the s & p 500 and the ftse 100 indices of 37.0 % and 28.0 % , respectively , during that period . foreign exchange rate movements in our aum result from the effect of changes in foreign exchange rates from period to period as non-u.s. dollar denominated aum is translated into u.s. dollars , the reporting currency of the company . the impact of the change in foreign exchange rates at december 31 , 2010 was driven primarily by the weakening of the pound sterling relative to the u.s. dollar , which was reflected in the translation of our pound sterling-based aum into u.s. dollars , the strengthening of the canadian dollar relative to the u.s. dollar , which was reflected in the translation of our canadian dollar-based aum into u.s. dollars , and to the weakening of the euro relative to the u.s. dollar , which was reflected in the translation of our euro-based aum into u.s. dollars . the impact of the change in foreign exchange rates at december 31 , 2009 was driven by the strengthening of the pound sterling , canadian dollar and euro relative to the u.s. dollar . the impact of the change in foreign exchange rates at december 31 , 2008 was driven by the weakening of the pound sterling , canadian dollar and euro relative to the u.s. dollar . the table below illustrates the spot foreign exchange rates for translation into the u.s. dollar , the reporting currency of the company , at december 31 , 2010 , 2009 , and 2008 : replace_table_token_11_th 29 net revenue yield increased slightly to 48.9 basis points in the year ended december 31 , 2010 from the year ended december 31 , 2009 level of 47.7 basis points . the acquired business added $ 114.6 billion in aum at june 1 , 2010 with an approximate effective fee rate of 47 basis points . market driven changes in our asset mix significantly impact our net revenue yield calculation . our equity aum generally earn a higher net revenue rate than money market aum . at december 31 , 2010 , equity aum were $ 294.1 billion , representing 48 % of our total aum at that date ; whereas at december 31 , 2009 , equity aum were $ 192.7 billion , representing 42 % of our total aum at that date . in addition , etf , uit and passive aum generally earn a lower effective fee rate than aum excluding etf , uit and passive asset classes . at december 31 , 2010 , etf , uit and passive aum were $ 80.8 billion , representing 13.1 % of total aum at that date ; whereas at december 31 , 2009 , etf , uit and passive aum were $ 53.0 billion , representing 11.5 % of our total aum at that date . gross revenue yield on aum increased 2.2 basis points to 66.0 basis points in the year ended december 31 , 2010 from the year ended december 31 , 2009 level of 63.8 basis points .
| summary operating information summary operating information for 2010 , 2009 and 2008 is presented in the table below . replace_table_token_7_th replace_table_token_8_th ( 1 ) net revenues are operating revenues less third-party distribution , service and advisory expenses , plus our proportional share of the net revenues of our joint venture investments , plus management fees earned from , less other revenue recorded by , consolidated investment products . see schedule of non-gaap information for the reconciliation of operating revenues to net revenues . ( 2 ) adjusted operating margin is adjusted operating income divided by net revenues . adjusted operating income includes operating income plus our proportional share of the operating income of our joint venture investments , transaction and integration charges , amortization of acquisition-related prepaid compensation and other intangibles , compensation expense related to market valuation changes in deferred compensation plans , the operating income impact of the consolidation of investment products , and other reconciling items . see schedule of non-gaap information for the reconciliation of operating income to adjusted operating income . ( 3 ) adjusted net income is net income attributable to common shareholders adjusted to add back transaction and integration charges , amortization of acquisition-related prepaid compensation and other intangibles , and the tax cash flow benefits resulting from tax amortization of goodwill and indefinite-lived intangible assets . adjusted net income excludes the net income of consolidated investment products , and the net income impact of deferred compensation plans and other reconciling items . by calculation , adjusted eps is adjusted net income divided by the weighted average number of shares outstanding ( for diluted eps ) . see schedule of non-gaap information for the reconciliation of net income to adjusted net income . a significant portion of our business and aum is based outside of the u.s. the strengthening or weakening of the u.s. dollar against other currencies , primarily the pound sterling and the canadian dollar , will impact our reported revenues and expenses from period to period .
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2. strong : desirable relationship of somewhat less stature than prime story_separator_special_tag introduction throughout management 's discussion and analysis ( `` md & a '' ) the term , `` the company '' , refers to the consolidated entity of pathfinder bancorp , inc. pathfinder bank and pathfinder statutory trust ii are wholly owned subsidiaries of pathfinder bancorp , inc. , however , pathfinder statutory trust ii is not consolidated for reporting purposes ( see note 11 of the consolidated financial statements ) . pathfinder commercial bank , pathfinder reit , inc. , pathfinder risk management company , inc. , and whispering oaks development corp. are wholly owned subsidiaries of pathfinder bank . at december 31 , 2013 , pathfinder bancorp , m.h.c , the company 's mutual holding company parent , whose activities are not included in the consolidated financial statements or the md & a , held 60.4 % of the company 's outstanding common stock and the public held 39.6 % of the outstanding common stock . on october 16 , 2014 , pathfinder bancorp , mhc converted from the mutual to stock form of organization . in connection with the conversion , the 60.4 % of outstanding shares of pathfinder-federal , company 's predecessor , owned by pathfinder bancorp , mhc were sold to depositors of the bank ( the `` offering '' ) . upon completion of the conversion and offering , the company sold 2,636,053 of common stock to depositors at $ 10.00 per share . shareholders of the company received 1.6472 shares of the company 's common stock for each share of pathfinder-federal common stock they owned immediately prior to completion of the transaction . cash in lieu of fractional shares was paid based on the offering price of $ 10.00 per share . common shares held by the pathfinder-federal esop prior to the conversion were also exchanged using the conversion ratio of 1.6472. following the completion of the conversion and offering , the pathfinder-federal was succeeded by the company , a new , fully public maryland corporation with the same name . accordingly , pathfinder bancorp , mhc ceased to exist . as a result of the offering and the exchange of shares , the company has 4,352,203 shares outstanding . our business strategy has been to transition from a traditional savings bank primarily focused on originating one- to four-family residential real estate loans to a more diversified loan composition similar to a commercial bank , while at the same time , maintaining our high standards of customer service and convenience . we have emphasized developing our business banking by offering products that are attractive to small businesses in our market area . notwithstanding , a significant portion of our lending activity has been , and will continue to be , the origination of one- to four-family residential real estate loans . highlights of our business strategy are as follows : 34 · expanding our business banking . we have increased our emphasis on servicing the needs of small businesses in our market area . we intend to use our branch office network and experienced commercial deposit specialists to provide convenient commercial loan and deposit products and services to business customers , including merchant and remote deposit capture services . we believe that by developing our commercial relationships with small businesses we will be able to offer a variety of services and deposit products that will provide a growing source of fee income to pathfinder bank . we have introduced new products and services in order to attract new business customers , and we will continue to expand our products to help meet the needs of our business customers . · continuing our emphasis on commercial business and commercial real estate lending . in recent years , we have sought to significantly increase our commercial business and commercial real estate lending , consistent with safe and sound underwriting practices . in this regard , we have added personnel who are experienced in originating and servicing commercial real estate and commercial business loans . we view the growth of our commercial business and commercial real estate loans as a means of diversifying and increasing our interest income and establishing relationships with local businesses , which offer a recurring and potentially broader source of fee income and deposits than traditional one- to four-family residential real estate lending . we anticipate that our emphasis on commercial business and commercial real estate lending will complement our traditional one- to four-family residential real estate lending . · diversifying our products and services with a goal of increasing non-interest income over time . we have sought to reduce our dependence on net interest income by increasing the fee income for services we provide . we offer property and casualty , life and health insurance through our subsidiary , pathfinder risk management company , inc. , and its insurance agency subsidiary , the fitzgibbons agency , llc . additionally , pathfinder bank 's investment services provides brokerage services for purchasing stocks , bonds , mutual funds , annuities , and long-term care products . we intend to gradually grow these businesses in the years ahead . we have already added personnel for pathfinder bank 's investment services . we believe that there will be opportunities to cross-sell these products to our deposit and borrower customers which may increase our non-interest income . · continuing to grow our customer relationships and deposit base by expanding our branch network . as conditions permit , we will expand our branch network through a combination of de novo branching and acquisitions of branches or other financial services companies . we believe that as we expand our branch network , our customer relationships and deposit base will continue to grow . as we continue to grow our lending operations in onondaga county , we anticipate opening additional branches in onondaga county based on customer demand . as we expand our branch network , we expect our deposit base in onondaga county to increase . story_separator_special_tag the loan portfolio also represents the largest asset type on the consolidated statement of condition . note 1 to the consolidated financial statements describes the methodology used to determine the allowance for loan losses and a discussion of the factors driving changes in the amount of the allowance for loan losses is included in this report . deferred income tax assets and liabilities . deferred income tax assets and liabilities are determined using the liability method . under this method , the net deferred tax asset or liability is recognized for the future tax consequences . this is attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as net operating and capital loss carry forwards . deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled . the affect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date . if current available evidence about the future raises doubt about the likelihood of a deferred tax asset being realized , a valuation allowance is established . the judgment about the level of future taxable income , including that which is considered capital , is inherently subjective and is reviewed on a continual basis as regulatory and business factors change . a valuation allowance of $ 458,000 was maintained at december 31 , 2014 , as management believes it may not generate sufficient capital gains to offset its capital loss carry forward . the company 's effective tax rate differs from the statutory rate due primarily to non-taxable interest income and bank owned life insurance . pension obligations . pension and postretirement benefit plan liabilities benefits and expenses are based upon actuarial assumptions of future events , including fair value of plan assets , interest rates , and the length of time the company will have to provide those benefits . the assumptions used by management are discussed in note 12 to the notes to consolidated financial statements contained herein . 36 evaluation of investment securities for other-than-temporary-impairment ( `` otti '' ) . the company carries all of its available-for-sale investments at fair value with any unrealized gains or losses reported net of tax as an adjustment to shareholders ' equity and included in accumulated other comprehensive income ( loss ) , except for the credit-related portion of debt security impairment losses and otti of equity securities which are charged to earnings . the company 's ability to fully realize the value of its investments in various securities , including corporate debt securities , is dependent on the underlying creditworthiness of the issuing organization . in evaluating the debt security ( both available-for-sale and held-to-maturity ) portfolio for other-than-temporary impairment losses , management considers ( 1 ) if we intend to sell the security before recovery of its amortized cost ; ( 2 ) if it is `` more likely than not '' we will be required to sell the security before recovery of its amortized cost basis ; or ( 3 ) if the present value of expected cash flows is not sufficient to recover the entire amortized cost basis . when the fair value of a held-to-maturity or available-for-sale security is less than its amortized cost basis , an assessment is made as to whether otti is present . the company considers numerous factors when determining whether a potential otti exists and the period over which the debt security is expected to recover . the principal factors considered are ( 1 ) the length of time and the extent to which the fair value has been less than the amortized cost basis , ( 2 ) the financial condition of the issuer and ( guarantor , if any ) and adverse conditions specifically related to the security , industry or geographic area , ( 3 ) failure of the issuer of the security to make scheduled interest or principal payments , ( 4 ) any changes to the rating of the security by a rating agency , and ( 5 ) the presence of credit enhancements , if any , including the guarantee of the federal government or any of its agencies . evaluation of goodwill . management performs an annual evaluation of the company 's goodwill for possible impairment . based on the results of the 2014 evaluation , management has determined that the carrying value of goodwill is not impaired as of december 31 , 2014. the evaluation approach is described in note 9 of the consolidated financial statements . estimation of fair value . the estimation of fair value is significant to several of our assets ; including investment securities available-for-sale , interest rate derivative ( discussed in detail in note 19 to the notes to consolidated financial statements contained herein ) , intangible assets , foreclosed real estate , and the value of loan collateral when valuing loans . these are all recorded at either fair value , or the lower of cost or fair value . fair values are determined based on third party sources , when available . furthermore , accounting principles generally accepted in the united states require disclosure of the fair value of financial instruments as a part of the notes to the consolidated financial statements . fair values on our available-for-sale securities may be influenced by a number of factors ; including market interest rates , prepayment speeds , discount rates , and the shape of yield curves . fair values for securities available-for-sale are obtained from an independent third party pricing service . where available , fair values are based on quoted prices on a nationally recognized securities exchange . if quoted prices are not available , fair values are measured using quoted market prices for similar benchmark securities . management made no adjustments to the fair value quotes that were provided by the pricing source .
| executive summary and results of operations 1 earnings performance metrics generally improved for 2014 as compared to 2013 as the company reported record net income of $ 2.7 million for 2014 as compared to $ 2.4 million for 2013. basic and diluted earnings per share , return on average assets , and net interest margin all improved for 2014 as compared to 2013. the most significant metric that decreased between these two years was return on average equity as the $ 24.9 million in net proceeds as a result of the conversion significantly increased average equity , the denominator in the return on equity metric , in the fourth quarter of 2014 . 1 all historical measures relating to shares and earnings per share have been adjusted by the exchange ratio of 1.6472 used in the conversion and offering that occurred on october 16 , 2014. the following comments refer to the table of average balances and rates and the rate/volume analysis , both of which follow below . 37 for 2014 , return on average assets was 0.51 % as compared to 0.48 % for the prior year and driven by the increase in net interest income between the full year 2014 and the full year 2013. the increase in average balances of loans and taxable investment securities as well as the decrease in average rates paid on time deposits and fhlbny borrowings primarily drive the increase in net interest income . additionally , noninterest income increased to $ 3.8 million in 2014 from $ 3.4 million in 2013 due principally to the increase in other charges , commissions , and fees stemming from the commissions recorded by the fitzgibbons agency , llc and the increase in loan servicing fees .
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allergan failed to elect to advance the development of sarecycline for the treatment of rosacea in accordance with the terms of the agreement so the license granted to allergan was converted to a non-exclusive license for the treatment of rosacea the company has agreed during the term of the allergan collaboration agreement not to directly or indirectly develop or commercialize any tetracycline compounds in the united states for the treatment of acne and rosacea , and allergan has agreed during the term of the story_separator_special_tag financial condition and results of operations the following management 's discussion and analysis of financial condition and results of operations contains certain statements that are not strictly historical and are “ forward-looking ” statements within the meaning of the private securities litigation reform act of 1995 and involve a high degree of risk and uncertainty . actual results may differ materially from those projected in the forward-looking statements due to other risks and uncertainties . all forward-looking statements included in this section are based on information available to us as of the date hereof , and we assume no obligation to update any such forward-looking statement , except as required by law . prior to october 30 , 2014 , we were known as transcept pharmaceuticals , inc. on october 30 , 2014 , we completed a business combination , referred to as the merger , with paratek pharmaceuticals , inc. , a private company . for accounting purposes , transcept pharmaceuticals was deemed to be the acquired entity in the merger . company overview we are a biopharmaceutical company focused on the development and commercialization of innovative therapeutics based upon tetracycline chemistry . we have used our expertise in biology and tetracycline chemistry to create chemically diverse and biologically distinct small molecules derived from the minocycline core structure . our two phase 3 product candidates are the antibacterials omadacycline and sarecycline . our first late-stage , lead antibacterial product candidate , omadacycline , is a novel , broad-spectrum antibiotic being developed for potential use as an empiric monotherapy for serious , community-acquired bacterial infections where antibiotic resistance is of concern for treating physicians . empiric monotherapy refers to the use of a single , antibacterial agent to begin treatment of an infection before the specific pathogen causing the infection has been identified . we believe omadacycline , if approved , will be used in the emergency room , hospital and community care settings . we have designed omadacycline to provide potential advantages over existing antibiotics , including activity against resistant bacteria , broad spectrum antibacterial activity , iv and oral formulations with once-daily dosing , no known drug interactions , and a favorable safety and tolerability profile . we believe that omadacycline has the potential to become the primary antibiotic choice of physicians for use as a monotherapy antibiotic for absssi , cabp , or uti , and other serious community-acquired bacterial infections , where resistance is of concern . omadacycline entered phase 3 clinical development for the treatment of absssi in june 2015. in january , we announced that the top-line data read-out for this trial will occur in the middle of 2016. further , an independent data-safety monitoring board has recommended that this trial continue forward as designed . on november 9 , 2015 , we announced that the first patient was dosed in a phase 3 clinical study for the treatment of cabp . we anticipate results for cabp in the second half of 2017. we also plan to initiate a phase 1 clinical study in uti in the second quarter of 2016 and a phase 1 clinical study in acute sinusitis in the second half of 2016. our second phase 3 antibacterial product candidate , sarecycline , previously known as wc3035 , is a new , once-daily , tetracycline-derived compound designed for use in the treatment of acne and rosacea . we believe that , based upon the data generated to-date , sarecycline possesses favorable anti-inflammatory activity , plus narrow-spectrum antibacterial activity relative to other tetracycline-derived molecules , oral bioavailability , does not cross the blood-brain barrier , and possesses favorable pharmacokinetic , or pk , properties that we believe make it particularly well-suited for the treatment of inflammatory acne in the community setting . we have exclusively licensed u.s. development and commercialization rights to sarecycline for the treatment of acne to allergan plc , or allergan , while retaining development and commercialization rights in the rest of the world . allergan has informed us that sarecycline entered phase 3 clinical trials in december 2014 for acne vulgaris . we have also granted allergan an exclusive license to develop and commercialize sarecycline for the treatment of rosacea in the united states which converted to a non-exclusive license in december 2014 after allergan did not exercise its development option with respect to rosacea . there are currently no clinical trials with sarecycline in rosacea underway . to date , we have devoted a substantial amount of our resources to research and development efforts , including conducting clinical trials for omadacycline , protecting our intellectual property and providing general and administrative support for these operations . we have not yet submitted any product candidates for approval by regulatory authorities , and we do not currently have rights to any products that have been approved for marketing in any territory . we have not generated any revenue from product sales and to date have financed our operations primarily through private placements of our common and convertible preferred stock , note financings , research and development collaborations , our public offering of our common stock and , to a lesser extent , through government grants , foundation support , line of credit financings , and equipment lease financings . we have incurred significant losses since our inception in 1996. our accumulated deficit at december 31 , 2015 was $ 268.7 million and our net loss for the year ended december 31 , 2015 was $ 70.9 million . story_separator_special_tag a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that therapeutic candidate . for example , if the fda , or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of the clinical development of product candidates , or if we experience significant delays in the enrollment in any clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . our research and development activities in 2014 and 2013 were significantly curtailed as we worked within liquidity constraints . in particular , over these years we decreased : · external spending related to the development of omadacycline due to the delay in our clinical development program ; · payroll and benefits costs through a reduction in force and other attrition ; · facilities-related spending ( as a result of the early termination of our lease on laboratory space ) ; and · external spending on preclinical product candidates . however , with available cash resources subsequent to closing of the merger , in october 2014 , follow-on offering of shares of common stock in may 2015 , and borrowings under our loan agreement with hercules , we have commenced activities to support our two phase 3 clinical trials of omadacycline , one each for the treatment of absssi and cabp . in the second quarter of 2016 , we expect to begin a phase 1 clinical study in uti . in the second half of 2016 , we expect to begin a phase 1 clinical study in acute sinusitis . we expect our research and development expenditures to increase in 2016 compared to 2015. we manage certain activities such as clinical trial operations , manufacture of therapeutic candidates , and preclinical animal toxicology studies through third-party cros . the only costs we track by each product candidate are external costs such as services provided to us by cros , manufacturing of preclinical and clinical drug product , and other outsourced research and development expenses . we do not assign or allocate to individual development programs internal costs such as salaries and benefits , facilities costs , lab supplies and the costs of preclinical research and studies . our external research and development expenses for omadacycline , sarecycline , and other projects during 2015 , 2014 and 2013 , are as follows : replace_table_token_17_th 65 general and administrative expense general and administrative expense consists primarily of salaries and other related costs for personnel , including benefits , and stock-based compensation in our executive , legal , finance , business development , information technology , general operations and human resources departments . story_separator_special_tag style= '' margin-bottom:0pt ; margin-top:0pt ; margin-left:0pt ; ; text-indent:0pt ; ; color : # 000000 ; font-family : times new roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > $ — $ 2,860 100 % 66 we recorded impairment charges of $ 2.9 million against our intangible assets , intermezzo and to-2070 product rights , during the year ended december 31 , 2015. intermezzo products rights were impaired as a result of the outcome of litigation that invalidated several intermezzo patents as obvious and triggered an evaluation of the carrying value and related contingent liability in light of an expected decline in intermezzo sales . to-2070 product rights were impaired due to significant uncertainty concerning snbl 's ability to find a potential partner to co-develop the rights as of december 31 , 2015 and triggered an evaluation of the carrying value and related contingent liability . refer to note 7 , intangible assets , net , in the accompanying notes to the consolidated financial statements for additional information . changes in fair value of contingent obligations year ended december 31 , 2015 compared to 2014 2015 2014 $ change % change changes in fair value of contingent obligations $ ( 3,560 ) $ — $ ( 3,560 ) ( 100 % ) we recorded a $ 3.6 million reduction in the fair value of our contingent obligations to former transcept shareholders during the year ended december 31 , 2015. the reduction in fair value was identified in conjunction with the outcome of litigation that invalidated several intermezzo patents as obvious and triggered an evaluation of the carrying value of the intermezzo product rights and related contingent obligations in light of an expected decline in intermezzo sales . in addition , during the fourth quarter , we were made aware of the unlikelihood that snbl will find a potential partner to co-develop the to-2070 asset . this significant uncertainty triggered an evaluation of the carrying value of the to-2070 product rights and related contingent obligation to former transcept shareholders . refer to note 12 , fair value measurements , in the accompanying notes to the consolidated financial statements for additional information . other income and expense replace_table_token_20_th interest expense , net interest expense for the year ended december 31 , 2015 represents interest expense from the term loan with hercules of $ 0.6 million and the accretion of interest expense on the intermezzo reserve in 2015 of $ 0.1 million as compared to non-cash interest accruing on our non-convertible notes outstanding during the year ended december 31 , 2014. in connection with the merger in october 2014 , the non-convertible notes were all exchanged for common stock and interest no longer accrues . our obligation to the former collaborative partner was also re-negotiated in june 2014 and interest no longer accrues . ( losses ) and gains associated with notes and warrants in 2014 , we engaged in several fundraising and re-capitalization transactions that gave rise to substantial non-operating gains and losses .
| results of operations comparison of the years ended december 31 , 2015 and 2014 revenue year ended december 31 , 2015 compared to 2014 2015 2014 $ change % change research and development collaboration $ - $ 4,342 $ ( 4,342 ) ( 100 % ) we did not earn research and development collaboration revenue during the year ended december 31 , 2015. research and development collaboration revenue in 2014 primarily represents a $ 4.0 million milestone payment from allergan for commencement of phase 3 clinical trials of sarecycline and recognition of $ 0.3 million in deferred revenue upon the termination of a collaborative research , development and commercialization agreement with a leading global animal health provider . for 2014 , revenue from allergan represented 92 % of our research and development revenue . research and development expense replace_table_token_18_th the increase in research and development expense for the year ended december 31 , 2015 was primarily the result of initiation of our planned phase 3 clinical trials of omadacycline and comprises higher costs incurred for cro fees , investigator fees , professional fees and costs associated with clinical sites and laboratories of $ 28.8 million , manufacturing of clinical material and registration batches of$ 12.4 million , personnel-related costs of $ 3.0 million , primarily from increased headcount , as well as other research and development costs of $ 0.9 million associated with travel , technology , licensees and seminars .
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our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those set forth under the heading item 1a . “ risk factors ” and elsewhere in this report . 32 although we believe that the expectations reflected in the forward-looking statements are reasonable based on our current knowledge of our business and operations , we can not guarantee future results , levels of activity , performance or achievements . we assume no obligation to provide revisions to any forward-looking statements should circumstances change , except as may be required by law . the following discussion summarizes the significant factors affecting the consolidated operating results , financial condition , liquidity and cash flows of our company as of and for the periods presented below . overview we are a fast-growing , full-service restaurant concept offering a distinct menu of authentic , freshly-prepared mexican and tex-mex inspired food . we were founded in austin , texas in 1982 by mike young and john zapp , and as of december 31 , 2017 , we operated 91 chuy 's restaurants across 19 states . we are committed to providing value to our customers through offering generous portions of made-from-scratch , flavorful mexican and tex-mex inspired dishes . we also offer a full-service bar in all of our restaurants providing our customers a wide variety of beverage offerings . we believe the chuy 's culture is one of our most valuable assets , and we are committed to preserving and continually investing in our culture and our customers ' restaurant experience . our restaurants have a common décor , but we believe each location is unique in format , offering an “ unchained ” look and feel , as expressed by our motto “ if you 've seen one chuy 's , you 've seen one chuy 's ! ” we believe our restaurants have an upbeat , funky , eclectic , somewhat irreverent atmosphere while still maintaining a family-friendly environment . our growth strategies and outlook our growth is based primarily on the following strategies : pursue new restaurant development in major markets ; backfill smaller existing markets to build brand awareness ; deliver consistent same store sales by providing high-quality food and service at a considerable value ; and leverage our infrastructure . we opened eleven restaurants in fiscal 2017 . during 2018 , we plan to open a total of eight to twelve restaurants for the year . we have an established presence in texas , the southeast and the midwest , with restaurants in multiple large markets in these regions . our growth plan over the next five years focuses on developing additional locations in our existing core markets and major new markets while continuing to `` backfill '' our smaller existing markets in order to build our brand awareness . for additional discussion of our growth strategies and outlook , see item 1 . “ business—our business strategies. ” newly opened restaurants typically experience normal inefficiencies in the form of higher cost of sales , labor and direct operating and occupancy costs for several months after their opening in both percentage and dollar terms when compared with our more mature , established restaurants . accordingly , the number and timing of newly opened restaurants has had , and is expected to continue to have , an impact on restaurant opening expenses , cost of sales , labor and occupancy and operating expenses . additionally , initial restaurant openings in new markets may experience even greater inefficiencies for several months , if not longer , due to lower initial sales volumes , which results from initially low consumer awareness levels , and a lack of operating cost leverage until additional restaurants can be opened in these markets and build the overall consumer awareness in the market . performance indicators we use the following performance indicators in evaluating our performance : number of restaurant openings . number of restaurant openings reflects the number of restaurants opened during a particular fiscal period . for restaurant openings we incur pre-opening costs , which are defined below , before the restaurant opens . typically new restaurants open with an initial start-up period of higher than normalized sales volumes , which decrease to a steady level approximately six to twelve months after opening . however , operating costs during this initial six to twelve month period are also higher than normal , resulting in restaurant operating margins that are generally lower during the start-up period of operation and increase to a steady level approximately nine to twelve months after opening . comparable restaurant sales . we consider a restaurant to be comparable in the first full quarter following the eighteenth month of operations . changes in comparable restaurant sales reflect changes in sales for the comparable group of restaurants over a specified period of time . changes in comparable sales reflect changes in customer count trends as well as changes in average check . our comparable restaurant base consisted of 70 , 61 and 51 restaurants at december 31 , 2017 , december 25 , 2016 and december 27 , 2015 , respectively . 33 average check . average check is calculated by dividing revenue by total entrées sold for a given time period . average check reflects menu price increases as well as changes in menu mix . our management team uses this indicator to analyze trends in customers ' preferences , effectiveness of menu changes and price increases and per customer expenditures . average weekly customers . average weekly customers is measured by the number of entrées sold per week . our management team uses this metric to measure changes in customer traffic . average unit volume . average unit volume consists of the average sales of our comparable restaurants over a certain period of time . this measure is calculated by dividing total comparable restaurant sales within a period of time by the total number of comparable restaurants within the relevant period . story_separator_special_tag this increase is primarily due to timing of our development schedules and delayed openings in new markets in fiscal year 2017. during the year ended december 31 , 2017 we incurred pre-opening costs for eleven new restaurants opened during 2017 as well as nine restaurants which will be opened during fiscal year 2018. during the year ended december 25 , 2016 we incurred pre-opening costs for twelve new restaurants and four restaurants which opened in fiscal year 2017. impairment and closure costs . closure costs were $ 1.5 million for the year ended december 25 , 2016 related to the closure and relocation of one restaurant . gain on insurance settlements . during the third quarter of 2017 , parts of texas and the southeast were struck by hurricanes harvey and irma . as a result of the hurricanes , the company incurred operating losses as well as property damage . the property damage was mainly related to a restaurant in the houston region which was closed through the middle of the fourth quarter of 2017 and required a complete reconstruction . most operating losses were offset by the recovery proceeds from our insurance in the same period they were incurred . the insurance settlements related to the property losses were resulted in a gain of $ 1.4 million recorded in the fourth quarter of 2017. depreciation and amortization . depreciation and amortization costs increased $ 2.5 million to $ 17.6 million for the year ended december 31 , 2017 , as compared to $ 15.1 million during the comparable period in 2016 , primarily as the result of an increase in equipment and leasehold improvement costs associated with our new restaurants . income tax expense . our effective income tax benefit rate is 23.4 % for the year ended december 31 , 2017 as compared to the effective income tax expense rate of 29.0 % during the comparable period in 2016 . the decrease in our effective tax rate is primarily related to a non-recurring deferred tax balance revaluation adjustment of $ 11.7 million recorded in the fourth quarter of 2017 as a result of a decrease in federal statutory tax rate from 35 % to 21 % effective january 1 , 2018. excluding the impact of the revaluation adjustment , our effective tax rate for fiscal year 2017 was 26.4 % as compared to 29.0 % for the comparable period in 2016. our effective tax rate was impacted by several other favorable discrete tax items during the fiscal year 2017 as compared to fiscal year 2016. the effective tax rates differ from the statutory rates primarily due to wage and employment tax related credits , non-deductible expenses , and discrete items . 36 net income . as a result of the foregoing , net income increased by $ 11.7 million to $ 28.9 million for the year ended december 31 , 2017 as compared to $ 17.2 million during the comparable period in 2016 . 52 weeks ended december 25 , 2016 compared to the 52 weeks ended december 27 , 2015 the following table presents , for the periods indicated , the consolidated statement of operations ( in thousands ) : replace_table_token_6_th revenue . revenue increased $ 43.6 million , or 15.2 % , to $ 330.6 million for the year ended december 25 , 2016 , as compared to $ 287.1 million for the year ended december 27 , 2015. this increase was primarily driven by $ 47.0 million in incremental revenue from an additional 596 operating weeks provided by 22 new restaurants opened during and subsequent to the year ended december 27 , 2015 and increased revenue at our comparable restaurants . these increases were partially offset by a decrease in revenue related to non-comparable restaurants that are not included in the incremental revenue discussed above . revenue related to non-comparable restaurants is historically lower as the stores transition out of the 'honeymoon ' period that follows a restaurant 's initial opening . the honeymoon period refers to the weeks following a restaurant 's initial opening , during which sales are typically higher than normal . comparable restaurant sales increased 0.8 % during the year ended december 25 , 2016 compared to the same period in 2015. the increase in comparable restaurant sales was driven primarily by a 1.5 % increase in average check , offset by a 0.7 % decrease in average weekly customers . our comparable restaurant sales and average weekly customers were negatively affected by approximately 20 to 40 bps during fiscal 2016 primarily due to unfavorable weather and christmas shifting from friday to sunday . our revenue mix attributed to bar sales increased to 18.3 % during the year ended december 25 , 2016 compared to 18.2 % during the same period in 2015. cost of sales . cost of sales as a percentage of revenue decreased to 25.9 % during the year ended december 25 , 2016 , from 26.4 % during the comparable period in 2015 , primarily as a result of decreases in grocery and chicken costs , partially offset by increases in produce and beef costs . labor costs . labor costs as a percentage of revenue increased to 33.5 % during the year ended december 25 , 2016 , from 32.6 % during the comparable period in 2015 , primarily due to new store labor inefficiencies as we opened twelve new restaurants during 2016 compared to ten new store openings in 2015 and hourly labor rate inflation of approximately 4.0 % . operating costs . operating costs as a percentage of revenue remained flat at 13.9 % during the year ended december 25 , 2016 from the comparable period in 2015. occupancy costs . occupancy costs as a percentage of revenue increased to 6.7 % during the year ended december 25 , 2016 from 6.6 % during the comparable period in 2015 , primarily as a result of higher rental expense as a percentage of sales in our newer locations , offset by lower real estate and personal property taxes in the current year .
| results of operations 53 weeks ended december 31 , 2017 compared to the 52 weeks ended december 25 , 2016 the following table presents , for the periods indicated , the consolidated statement of operations ( in thousands ) : replace_table_token_5_th revenue . revenue increased $ 39.0 million , or 11.8 % , to $ 369.6 million for the year ended december 31 , 2017 , as compared to $ 330.6 million for the year ended december 25 , 2016 . the company 's fiscal year 2017 included 53 weeks compared 52 weeks in fiscal year 2016. revenue attributed to the extra operating week was $ 7.3 million . in addition to the extra operating week , the increase was primarily driven by $ 44.6 million in incremental revenue from an additional 567 operating weeks provided by 23 new restaurants opened during and subsequent to the year ended december 25 , 2016 . this increase was partially offset by a decrease in our comparable sales , a $ 1.9 million decrease during the second half of the fiscal year as a result of hurricanes harvey and irma as well as revenue from our non-comparable restaurants that are not included in the incremental revenue discussed above . revenue related to non-comparable restaurants is historically lower as the stores transition out of the 'honeymoon ' period that follows a restaurant 's initial opening . the honeymoon period refers to the weeks following a restaurant 's initial opening , during which sales are typically higher than normal . comparable restaurant sales decreased 0.7 % during the year for the 52-weeks ended december 24 , 2017 compared to the same period in 2016 . the decrease in comparable restaurant sales was primarily driven by a 2.3 % decrease in average weekly customers , partially offset by a 1.6 % increase in average weekly check .
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for filings related to the period commencing april 1 , 2019 and thereafter , tdcc was deemed the predecessor to dow inc. , and the historical results of tdcc are deemed the historical results of dow inc. for periods prior to and including march 31 , 2019. as a result of the parent/subsidiary relationship between dow inc. and tdcc , and considering that the financial statements and disclosures of each company are substantially similar , the companies are filing a combined report for this annual report on form 10-k. the information reflected in the report is equally applicable to both dow inc. and tdcc , except where otherwise noted . the separation was contemplated by the merger of equals transaction effective august 31 , 2017 , under the agreement and plan of merger , dated as of december 11 , 2015 , as amended on march 31 , 2017. tdcc and e. i. du pont de nemours and company and its consolidated subsidiaries ( “ historical dupont ” ) each merged with subsidiaries of dowdupont and , as a result , tdcc and historical dupont became subsidiaries of dowdupont ( the “ merger ” ) . subsequent to the merger , tdcc and historical dupont engaged in a series of internal reorganization and realignment steps to realign their businesses into three subgroups : agriculture , materials science and specialty products . dow inc. was formed as a wholly owned subsidiary of dowdupont to serve as the holding company for the materials science business . as of the effective date and time of the distribution , dowdupont did not beneficially own any equity interest in dow and no longer consolidated dow and its consolidated subsidiaries into its financial results . the consolidated financial results of dow for all periods presented reflect the distribution of tdcc 's agricultural sciences business ( “ agco ” ) and specialty products business ( “ specco ” ) as discontinued operations , as well as reflect the receipt of historical dupont 's ethylene and ethylene copolymers businesses ( other than its ethylene acrylic elastomers business ) ( “ ecp ” ) as a common control transaction from the closing of the merger on august 31 , 2017 ( `` merger date '' ) . see note 3 to the consolidated financial statements and dow inc. 's amendment no . 4 to the registration statement on form 10 filed with the u.s. securities and exchange commission ( `` sec '' ) on march 8 , 2019 for additional information . throughout this annual report on form 10-k , unless otherwise indicated , amounts and activity are presented on a continuing operations basis . except as otherwise indicated by the context , the terms `` union carbide '' means union carbide corporation , a wholly owned subsidiary of the company , and `` dow silicones '' means dow silicones corporation , a wholly owned subsidiary of the company . items affecting comparability of financial results as a result of the separation from dowdupont , pro forma net sales and pro forma operating ebit for the years ended december 31 , 2019 and 2018 are provided in this section and based on the consolidated financial statements of tdcc , adjusted to give effect to the separation from dowdupont as if it had been consummated on january 1 , 2017. pro forma adjustments include ( 1 ) the margin impact of various manufacturing , supply and service related agreements entered into with dupont and corteva , inc. ( `` corteva '' ) in connection with the separation which provide for different pricing than the historical intercompany and intracompany pricing practices of tdcc and historical dupont , and ( 2 ) the elimination of the impact of events directly attributable to the merger , internal reorganization and business realignment , separation , distribution and other related transactions ( e.g. , one-time transaction costs ) . these adjustments impacted the consolidated results as well as the reportable segments . see note 26 to the consolidated financial statements for a summary of the pro forma adjustments impacting segment measures for the years ended december 31 , 2019 and 2018 . 28 statement on covid-19 and oil price volatility overview of dow 's response to covid-19 the pandemic caused by coronavirus disease 2019 ( `` covid-19 '' ) has impacted all geographic regions where dow products are produced and sold . financial markets were volatile towards the end of the first quarter and early in the second quarter of 2020 , primarily due to uncertainty with respect to the severity and duration of the pandemic , coupled with fluctuations in crude oil prices due in part to the global spread of covid-19 . as the second quarter progressed , crude oil prices increased , driven by improved supply and demand fundamentals , which continued into the second half of 2020. financial markets also continued a gradual and uneven recovery in the second half of 2020. the global , regional and local spread of covid-19 resulted in significant global mitigation measures , including government-directed quarantines , social distancing and shelter-in-place mandates , travel restrictions and or bans , and restricted access to certain corporate facilities and manufacturing sites . most of the company 's manufacturing facilities have been designated essential operations by local governments . as a result , nearly all of the company 's manufacturing sites and facilities continue to operate and are doing so safely , having implemented social distancing and enhanced health , safety and sanitization measures as directed by dow 's regional crisis management teams ( “ cmts ” ) . the cmts continue to work closely with site leadership and are adjusting alert levels as warranted on a site by site basis . in the second quarter of 2020 , the cmts initiated implementation of the company 's comprehensive return to workplace ( `` rtw '' ) plan that is tailored for each site and includes several health and safety measures to be followed in a gradual and phased approach . story_separator_special_tag the most significant impacts from the pandemic occurred in the first half of the year , with a gradual yet uneven recovery taking hold as the second half of the year progressed . in the first six months of 2020 , the company 's sales declined 18 percent compared with the same period last year , with the most significant impact on demand in the second quarter of 2020. strong demand in food packaging , health and hygiene , home care and pharma end-markets was more than offset by volume declines for products used in consumer durable good end-markets , including construction , furniture and bedding and automotive , with the most notable impacts in the industrial intermediates & infrastructure and performance materials & coatings operating segments . demand for products used in consumer durable goods remained lower through the second quarter largely due to the delayed restart in these industries from may to june . 1. operating ebitda is a non-gaap measure . dow defines operating ebitda as earnings ( i.e. , `` income ( loss ) from continuing operations before income taxes '' ) before interest , depreciation and amortization , excluding the impact of significant items . 30 local price declined in the first and second quarters of 2020 , largely impacted by lower global energy prices . in march and april 2020 , crude oil prices declined significantly , due in part to the covid-19 pandemic , coupled with increased supply from oil producers . crude oil prices increased in the latter half of the second quarter as supply and demand fundamentals improved , driving higher feedstock costs , which proved beneficial to product prices and margins in the third and fourth quarters of 2020. in the third quarter of 2020 , net sales increased 16 percent compared with the second quarter of 2020 , due to increasing demand and higher local prices . sales increased sequentially in all operating segments and geographic regions , reflecting improved demand trends in furniture and bedding , appliances , packaging , construction and automotive end-markets . local price also increased sequentially , reflecting higher global energy prices and improved supply and demand fundamentals , with increases in all geographic regions . local price increases were reported in packaging & specialty plastics and industrial intermediates & infrastructure , which more than offset declines in performance materials & coatings . operating rates increased from second quarter lows , as the company raised rates to match demand trends as the global economic recovery gained traction . the company 's deliberate focus on structural cost reductions and prudent cash management resulted in sequentially higher margins and cash flow in the third quarter of 2020. net sales in the fourth quarter of 2020 increased 10 percent sequentially , with continued demand recovery as the global economy continued to strengthen . sales increased sequentially in all operating segments and geographic regions , reflecting strong supply and demand fundamentals which drove both price and volume gains . local price increased in all segments and all geographic regions . volume increased in all geographic regions and in packaging & specialty plastics and industrial intermediates & infrastructure , reflecting consumer-driven demand and industrial market recovery . volume declined in performance materials & coatings , primarily due to seasonal demand declines for coating applications . operating rates continued to increase in the fourth quarter of 2020 and margins expanded . notably , net sales in the fourth quarter of 2020 increased 5 percent compared with the fourth quarter of 2019 , with increases in local price and volume . local price increased 2 percent compared with the same quarter last year , primarily driven by improved pricing in polyethylene and polyurethane applications . volume returned to pre-pandemic levels in all operating segments and was led by demand growth in packaging & specialty plastics and performance materials & coatings . the company enters 2021 with sequential momentum and is well-positioned for continued profitable growth in the ongoing economic recovery and improving industry cycle . the company will maintain its disciplined focus on capital allocation priorities as it benefits from an improving cost structure , financial flexibility and a low-cost operating model . as the market recovery broadens , dow anticipates increasing margins as differentiated parts of the portfolio see improving demand . longer-term , the company expects to deliver ongoing significant value through increased innovation , operational efficiencies and a leading environmental , social , and governance profile that will further distinguish dow from its peers . at the time of this filing , the ultimate severity and duration of the covid-19 pandemic can not be reasonably estimated . th e covid-19 pandemic has had , and could continue to have , a substantial negative impact on the company 's results of operations , financial condition and cash flows . the effects of the covid-19 pandemic for the year ended december 31 , 2020 and the additional risks associated with these conditions are more fully discussed in this report in part i , item 1a , risk factors . the company is actively monitoring for potential financial impacts from the covid-19 pandemic and oil price volatility , including , but not limited to : gauging the financial health of its customers ; assessing liquidity ; evaluating the recoverability of its assets ; enhancing cyber security monitoring ; and evaluating ongoing appropriateness of its estimates . the coronavirus aid , relief , and economic security act ( “ cares act ” ) was enacted on march 27 , 2020 in the united states . while there have been no significant impacts to the company 's provision for income taxes on continuing operations in 2020 as a result of the cares act legislation , the company filed a tax loss carryback claim for $ 291 million in accordance with the provisions of the cares act .
| segment results 43 packaging & specialty plastics 43 industrial intermediates & infrastructure 45 performance materials & coatings 46 corporate 48 outlook 48 liquidity and capital resources 50 other matters 59 critical accounting estimates 59 environmental matters 63 asbestos-related matters of union carbide corporation 68 about dow dow combines global breadth , asset integration and scale , focused innovation and leading business positions to achieve profitable growth . the company 's ambition is to become the most innovative , customer centric , inclusive and sustainable materials science company , with a purpose to deliver a sustainable future for the world through our materials science expertise and collaboration with our partners . dow 's portfolio of plastics , industrial intermediates , coatings and silicones businesses delivers a broad range of differentiated science-based products and solutions for its customers in high-growth market segments , such as packaging , infrastructure , mobility and consumer care . dow operates 106 manufacturing sites in 31 countries and employs approximately 35,700 people . in 2020 , the company had annual sales of $ 38.5 billion , of which 35 percent of the company 's sales were to customers in the u.s. & canada ; 34 percent were in emeai ; while the remaining 31 percent were to customers in asia pacific and latin america . in 2020 , the company and its consolidated subsidiaries did not operate in countries subject to u.s. economic sanctions and export controls as imposed by the u.s. state department or in countries designated by the u.s. state department as state sponsors of terrorism , including iran , the democratic people 's republic of korea ( north korea ) , sudan and syria . the company has policies and procedures in place designed to ensure that it and its consolidated subsidiaries remain in compliance with applicable u.s. laws and regulations .
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f-9 alaska communications systems group , inc. notes to consolidated financial statements years ended december 31 , 2015 , 2014 and 2013 ( in thousands , except per share amounts ) 1. summary of significant accounting policies ( continued ) assets and liabilities held-for-sale assets and liabilities held-for-sale represented the assets and liabilities that were sold in connection with the company 's sale of its wireless operations . at december 31 , 2014 , these assets and liabilities were recorded at the lower of carrying value or net realizable value which approximated the consideration expected to be received from the sale of those assets and liabilities . impairment , if applicable , on property , plant and equipment classified as held-for-sale was recorded to reduce the carrying value to its fair value less cost to sell . depreciation expense on the property , plant and equipment and capital leases identified as held-for-sale was discontinued on december 4 , 2014 , with the exception of certain buildings accounted for as capital leases which were in use beyond that date . exit obligations in connection with the decision to sell its wireless operations , the company incurred certain costs associated with the wind-down of its retail wireless operations that met the criteria for reporting as exit obligations . these costs were incurred in the fourth quarter of 2014 through 2015. the accounting policies for these costs were as follows : employee termination costs associated with reductions in retail stores , contact center , and other support organizations , and termination costs associated with synergies and future cost reductions resulting from the company becoming a more focused broadband and managed it services company were accrued equal to the payout amount , undiscounted due story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes and the other financial information included elsewhere in this form 10-k. overview over the past two years , through a series of transactions and investments , we have evolved from a wireline telecom provider to a fiber broadband and managed it services provider , primarily to business and wholesale customers in and out of alaska . we also provide telecommunication services to consumers throughout the state . our facilities based communications network extends throughout alaska and connects to the contiguous states via our two diverse undersea fiber optic cable systems . our network is among the most expansive in alaska and forms the foundation of service to our customers . we operate in a two player terrestrial wireline market and we estimate our market share to be less than 25 % statewide . however , our revenue performance relative to our largest competitor suggests that we are gaining market share in the markets we are serving . the sections that follow provide information about important aspects of our operations and investments and include discussions of our results of operations , financial condition and sources and uses of cash . in addition , we have highlighted key trends and uncertainties to the extent practicable . the content and organization of the financial and non-financial data presented in these sections are consistent with information we use in evaluating our own performance and allocating our resources . we operate in a geographically diverse state with unique characteristics . we monitor the state of the economy in general . in doing so , we compare alaska economic activity with broader economic conditions . in general , we believe that the alaska telecommunications market , as well as general economic activity in alaska , is affected by certain economic factors , which include : investment activity in the oil and gas markets and the price of crude oil tourism levels governmental spending and activity of military personnel the price and price trends of bandwidth the growth in demand for bandwidth decline in demand for voice and other legacy services local customer preferences unemployment levels housing activity and development patterns we have observed variances in the factors affecting the alaska economy as compared to the u.s. as a whole . some factors , particularly the price of oil and gas , have a greater direct impact on the alaska economy compared to other macro-economic trends impacting the u.s. economy as a whole . overall , the alaska economy has benefited from a stable employment base , including a growing tourism industry . however , economic indicators are being impacted by the substantial decline in the price of crude oil . economists are forecasting that these declines will impact the level of spending by the state of alaska , which relies on tax revenue from the production of crude oil , and investment in resource development projects by exploration companies in alaska . economic forecasts indicate these impacts are beginning , with new resource development projects being reduced , and state spending declining . as a result , employment levels in certain sectors are forecasted to be negatively impacted . at the same time , the state of alaska has built certain reserves over the years that allow the state to manage its spending reductions in a somewhat more considered manner , thus mitigating the impact of the oil price declines on the economy in the near term . in the long term , this dynamic will impact the overall economy and our future financial performance . 30 management estimates the telecom market in alaska to be approximately $ 1.9 billion , including the it services market of approximately $ 700 million and the wireless market of approximately $ 400 million . the wireless market has experienced significant disruption over the past several years , primarily related to verizon 's entry into the alaska market in 2013 , and reforms in wireless cetc revenue for wireless carriers in alaska . as a result of these disruptions , on july 22 , 2013 , the company announced the awn formation , allowing us to combine our wireless network with gci , one of the other wireless providers in alaska . story_separator_special_tag we track virtually every customer interaction and we utilize the net promoter score framework for assessing the satisfaction of our customers . relentlessly simplify how we do business . we believe we must reduce waste , which is defined as any activity that does not add value to its intended customer . doing so improves the experience we deliver to our customers . we make investments in technology and process improvement , utilize the lean framework , and expect these efforts to meaningfully impact our financial performance in the long-term . offer broadband solutions to our customers at work and home . we are building on strength in designing , building and operating quality broadband networks and providing new products and solutions to our customers . we believe we can create value for our shareholders by : driving revenue growth through increasing business broadband and managed it service revenues , generating adjusted ebitda and free cash flow growth through margin management , and careful allocation of capital , including selectively investing success based capital into opportunities that generate appropriate return on investment . 2016 operating initiatives organic revenue growth , driven by business and wholesale , and continued growth in adjusted ebitda and free cash flow as one of the lowest levered companies in our industry on an adjusted ebitda basis . continue to advance our offerings and partnerships related to managed it services including security services and monitoring . we intend to be the premier cloud enabler for businesses in the state of alaska . continue improving our service experience to all of our customers in a differentiated manner from our competition . consider strategic opportunities in and out of alaska that address scale and geographic diversification and reduce the risk of investments made in our company . 32 expand our deployment of broadband solutions such as hosted voip and vpls , and take advantage of our metro ethernet forum designation . continue building strategic customer relationships , including with anchor tenant type customers such as a regional health care consortium and a regional medical center , and conocophillips alaska , inc. , all of which were consummated in 2015. drive continued improvements in our service delivery organization to shorten service intervals and meet customers ' desired due dates . revenue sources by customer group over the past several years our areas of focus have shifted to the following customer categories , and following the wireless sale , our focus is exclusively on the first three of these categories . prior to the wireless sale we provided retail wireless services and generated certain revenue streams related to our ownership in awn . business and wholesale ( broadband , voice and managed it services ) consumer ( broadband and voice services ) other services ( including carrier termination , access services and high cost support ) wireless and awn related business and wholesale providing services to business and wholesale customers provides the majority of our service revenues and is expected to be the primary driver of our growth over the next few years . our business customers include small and medium businesses , larger enterprises , and government customers . we are the only alaska-based carrier that is carrier ethernet 2.0 certified . this certification means that we meet international standards for the quality of our broadband services . we also offer ip based voice including the largest sip implementations in the state of alaska , and are the first microsoft express route provider in the state . we believe our network differentiates us in the markets we serve , because we prefer not to compete on price ; but on the quality , reliability and the overall value of our solutions . accordingly , we have significant capacity to sell into the network we operate and do so at what we believe are attractive incremental gross margins . business services have experienced significant growth and we believe the incremental economics of business services are attractive . given the demand from our customers for more bandwidth and services , we expect revenue growth from these customers to continue for the foreseeable future . we provide services such as voice and broadband , managed it services including remote network monitoring and support , managed it security and it professional services , and long distance services primarily over our own terrestrial network . we are also positioning the company to become the premier cloud enabler for business in the state of alaska . our wholesale customers are national and international telecommunications carriers who rely on us to provide connectivity for broadband and other needs to access their customers over our alaskan network . the wholesale market is characterized by larger transactions that can create variability in our operating performance . we have a dedicated sales team that sells into this customer segment , and we expect wholesale revenue to grow for the foreseeable future . consumer we also provide voice and broadband services to residential customers . given that our primary competitor has extensive quad play capabilities ( video , voice , wireless and broadband ) we target how and where we offer products and services to this customer group in order to maintain our returns . our focus is to offer higher bandwidth speeds to these customers , leveraging the capabilities of our existing network . our primary competitive advantage is that we offer bandwidth without data caps , while our competitor charges customers or throttles customers ' speeds for exceeding given levels of data usage . we expect modest declines in revenues from these customers in the near term and expect to stabilize revenues within a couple of years . 33 other services we provide voice and broadband origination and termination services to inter and intrastate carriers who serve our retail customers . we are compensated for these services , primarily by charging terminating and originating per minute rates to these carriers . these revenue streams have been in decline and we expect them to continue to decline .
| results of operations the following tables summarize our results of operations for the years ended december 31 , 2015 , 2014 and 2013. results in 2015 were impacted by the sale and wind-down of our wireless operations beginning in the first quarter . revenue growth was realized in business and wholesale and overall broadband in both 2015 and 2014. in 2014 , this growth was offset by the impact of the first full year of operations under the awn structure , which reflected the movement of roaming and backhaul revenue to awn . results in 2013 were affected by the gain on the awn transaction . replace_table_token_5_th 37 replace_table_token_6_th year ended december 31 , 2015 compared to the year ended december 31 , 2014 operating revenue business and wholesale business and wholesale revenue of $ 120.2 million increased $ 10.3 million , or 9.3 % , in 2015 from $ 109.9 million in 2014. this improvement was primarily driven by a $ 6.2 million increase from new and existing customers buying or increasing their consumption of bandwidth using our advanced network services such as mpls , dedicated internet and enhanced metro ethernet . although broadband connections of 18,824 in 2015 were essentially unchanged from 18,798 in 2014 , growth of broadband arpu drove overall revenue growth and reflects customer demand for increasing amounts of bandwidth . broadband arpu increased to $ 220.07 in 2015 from $ 196.16 in 2014 , an increase of 12.2 % . additionally , wholesale revenue increased $ 3.7 million related to an increase in carrier circuits , of which $ 1.9 million was associated with our new capacity agreement with gci . prior to the wireless sale , the revenues associated with this agreement were associated with a related-party agreement with awn and reported as wireless and awn related revenue .
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overview the following overview is a top level discussion of our operating results , as well as trends that have , or that we reasonably believe will , impact our operations . management believes that an understanding of these trends and drivers is important in order to understand our results for the fiscal year ended march 31 , 2009 , as well as our future prospects . this summary is not intended to be exhaustive , nor is it intended to be a substitute for the detailed discussion and analysis provided elsewhere in this annual report on form 10-k and in other documents we have filed with the sec . trends affecting our business our revenues and profitability decreased in the fiscal year ended march 31 , 2009 as compared to the prior fiscal year . the decreases are related to the following significant trends affecting our business : general economic conditions . lower net sales and operating income in fiscal 2009 as compared to fiscal 2008 , was partly due to the macroeconomic environment , which began to impact our sales in certain international territories at the end of our second quarter in fiscal 2009. we continued to experience more conservative consumer spending in all major markets during the fiscal 2009 holiday quarter , brought on by the slowing global economy , and we expect this trend to continue for the foreseeable future . additionally , due to the weak economic conditions and tightened credit environment , some of our retailers and distributors may not have the same purchasing power , leading to lower purchases of our games for placement into distribution channels . with respect to the industry overall , calendar 2008 video game software sales increased 21 % in north america and 11 % in europe compared to the prior year , yet much of this growth was realized by nintendo and other publishers of a relatively small number of `` hit '' titles . we expect video game software sales in our industry to be flat or to increase in a mid-single digit range in calendar 2010 as compared to calendar 2009. in addition to reduced consumer spending and reduced purchases of our games in our distribution channels , our profitability during fiscal 2009 has been negatively affected due to the insolvency of some of our major retail distributors , including circuit city in the united states and euk in the united kingdom . the inability of our customers to timely pay us or the insolvency of other major customers would further impact our profitability . increasing concentration in top titles and higher development costs . during the last fiscal year , the majority of money spent on video game software was spent on select top titles . we expect this trend to continue into fiscal 2010. additionally , the cost to deliver video games has increased significantly over the last few years . current generation consoles have functionality that allows us to deliver exciting gaming experiences at high quality levels , but this increased functionality increases the overall cost to develop games and accordingly , our software development costs have increased as we developed more games for these consoles . because of the demand for select `` hit '' titles and the increased development investment , we believe that it is important to focus our development expenses on bringing a smaller number of high-quality , competitive products to market . this focus may lower our revenue and profitability in any given quarter , as we generally aim to ship games only when we believe the quality is high and the competitive window is most advantageous . shift in kids preferences . growth in our kids licensed business ( which represented approximately 25 % of our net sales for fiscal 2009 ) has slowed considerably and the business has become less profitable . during the last year , we have seen kids preferences shift from games based on traditional licensed movies and television shows , such as walle and spongebob squarepants , to original games published by nintendo 25 for play on their platforms , such as its super mario games , and games that tap into mass-market trends , such as music games . additionally , sales of our games on the `` kid friendly '' playstation 2 decreased by $ 160.6 million during the fiscal year ended march 31 , 2009 as compared to the prior year . we believe that much of this business has shifted to the nintendo wii and that , as discussed above , kids are choosing to play original nintendo games and music games on this console . foreign currency exchange rates impact on results of operations . approximately 45 % of our revenue for the fiscal year ended march 31 , 2009 was produced by sales outside of north america . we are exposed to significant risks of foreign currency fluctuation , primarily from receivables denominated in foreign currency , and are subject to transaction gains and losses , which are recorded as a component in determining net income . the income statements of our non-u.s. operations are translated into u.s. dollars at the month-to-date average exchange rates for each applicable month in a period . to the extent the u.s. dollar strengthens against foreign currencies , as it did during fiscal 2009 , the translation of these foreign currency denominated transactions results in decreased revenue , operating expenses and income from our non-u.s. operations . similarly , our revenue , operating expenses and income from our non-u.s. operations will increase if the u.s. dollar weakens against foreign currencies . seasonality . the interactive entertainment software market is highly seasonal . sales are typically significantly higher during the third quarter of our fiscal year , due primarily to the increased demand for interactive games during the holiday buying season . story_separator_special_tag cash used in operations was $ 194.2 million in fiscal year 2009 , as compared to $ 9.7 million in fiscal year 2008. the increase in cash used was primarily a result of an increase in our net loss for the year ended march 31 , 2009 as compared to last fiscal year , partially offset by non-cash goodwill impairment and higher amortization of licenses and software development in fiscal 2009 as compared to fiscal 2008. additionally , we had larger investments in software development and prepaid licenses and we had higher payments to our vendors in fiscal 2009 as compared to fiscal 2008. these increases in cash usage were partially offset by higher collections of accounts receivable and fewer product purchases reflected in our ending inventory balance . critical accounting estimates the management 's discussion and analysis of financial condition and results of operations discusses our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . the estimates discussed below are considered by management to be critical because they are both important to the portrayal of our financial condition and results of operations and because their application places the most significant demands on management 's judgment , with financial reporting results relying on estimates about the effect of matters that are inherently uncertain . specific risks for these critical accounting estimates are described in the following paragraphs . for all of these estimates , we caution that actual results may differ materially from these estimates under different assumptions or conditions . 27 accounts receivable allowances . we derive revenue from sales of packaged software for video game systems and personal computers and sales of content and services for wireless devices . product revenue is recognized net of allowances for price protection and returns and various customer discounts . we typically only allow returns for our personal computer products ; however , we may decide to provide price protection or allow returns for our video games after we analyze : ( i ) inventory remaining in the retail channel , ( ii ) the rate of inventory sell-through in the retail channel , and ( iii ) our remaining inventory on hand . we maintain a policy of giving credits for price protection and returns , but do not give cash refunds . we use significant judgment and make estimates in connection with establishing allowances for price protection , returns , and doubtful accounts in any accounting period . included in our accounts receivable allowances is our allowance for co-operative advertising that we engage in with our retail channel partners . our co-operative advertising allowance is based upon specific contractual commitments and does not involve estimates made by management . we establish sales allowances based on estimates of future price protection and returns with respect to current period product revenue . we analyze historical price protection granted , historical returns , current sell-through of retailer and distributor inventory of our products , current trends in the video game market and the overall economy , changes in customer demand and acceptance of our products , and other related factors when evaluating the adequacy of the price protection and returns allowance . in addition , we monitor the volume of our sales to retailers and distributors and their inventories , because slow-moving inventory in the distribution channel can result in the requirement for price protection or returns in subsequent periods . actual price protection and returns in any future period are uncertain . while we believe we can make reliable estimates for these matters , if we changed our assumptions and estimates , our price protection and returns reserves would change , which would impact the net revenue we report . in addition , if actual price protection and returns were significantly greater than the reserves we have established , the actual results of our reported net sales would decrease . conversely , if actual price protection and returns were significantly less than our reserves , our reported net sales would increase . in circumstances when we do not have a reliable basis to estimate returns and price protection or are unable to determine that collection of a receivable is probable , we defer the revenue until such time as we can reliably estimate any related returns and allowances and determine that collection of the receivable is probable . similarly , we must use significant judgment and make estimates in connection with establishing allowances for doubtful accounts in any accounting period . we analyze customer concentrations , customer credit-worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts . material differences may result in the amount and timing of our bad debt expense for any period if we made different judgments or utilized different estimates . if our customers experience financial difficulties and are not able to meet their ongoing financial obligations to us , our results of operations may be adversely impacted . licenses . minimum guaranteed royalty payments for intellectual property licenses are initially recorded on our balance sheet as an asset ( licenses ) and as a liability ( accrued royalties ) at the contractual amount upon execution of the contract if no significant performance obligation remains with the licensor . when a significant performance obligation remains with the licensor , we record royalty payments as an asset ( licenses ) and as a liability ( accrued royalties ) when payable rather than upon execution of the contract .
| results of operations comparison of fiscal 2009 to fiscal 2008 our net loss from continuing operations for fiscal 2009 was $ 433.2 million , or $ 6.48 per diluted share , compared to a net loss from continuing operations of $ 36.9 million , or $ 0.55 per diluted share , for fiscal 2008. our net loss for fiscal 2009 was $ 431.1 million , or $ 6.45 per diluted share , and included a $ 2.1 million gain on sale of discontinued operations . net sales in fiscal 2009 and 2008 , net sales were $ 830.0 million and $ 1,030.5 million , respectively . we derive revenue principally from ( 1 ) sales of packaged interactive software games designed for play on home video game consoles , personal computers and handheld devices , ( 2 ) downloads by mobile phone users of our wireless content , ( 3 ) interactive online-enabled packaged goods , digital distribution of our products and downloadable content/micro-transactions , and ( 4 ) in-game advertising . net sales for fiscal 2009 are impacted by the deferral or recognition of revenue from the sale of titles with significant online functionality . the balance of deferred revenue related to these titles is included within accrued and other current liabilities in our consolidated balance sheets . we also defer certain costs related to these titles ; these costs are included within software development , and prepaid expenses and other current assets in our consolidated balance sheets . net sales decreased by $ 200.5 million in fiscal 2009 as compared to fiscal 2008 , from $ 1,030.5 million to $ 830.0 million . worldwide net sales in fiscal 2009 were primarily driven by sales of wwe smackdown vs. raw 2009 , saints row 2 , and walle .
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as of december 31 , 2012 , excluding independent affiliates , we operated in more than 300 offices worldwide , with approximately 37,000 employees providing commercial real estate services under the cbre brand name , investment management services under the cbre global investors brand name and development services under the trammell crow brand name . our business is focused on several competencies , including commercial property and corporate facilities management , occupier and property/agency leasing , property sales , real estate investment management , valuation , commercial mortgage origination and servicing , capital markets ( equity and debt ) solutions , development services and proprietary research . we generate revenue from management fees on a contractual and per-project basis , and from commissions on transactions . we have been the only commercial real estate services company in the s & p 500 since 2006 , and in the fortune 500 since 2008. in 2012 , for the second year in a row , we were the highest ranked commercial real estate services company among the fortune most admired companies , and were also named the global real estate advisor of the year by euromoney . additionally , the international association of outsourcing professionals has included us among the top 100 global outsourcing companies across all industries for six consecutive years , including 2012 when we ranked fourth overall and were the highest ranked commercial real estate services company . in its most recent subscriber survey , conducted in late 2011 , we achieved the highest brand reputation ranking among all commercial real estate companies in a survey of wall street journal subscribers . when you read our financial statements and the information included in this section , you should consider that we have experienced , and continue to experience , several material trends and uncertainties that have affected our financial condition and results of operations that make it challenging to predict our future performance based on our historical results . we believe that the following material trends and uncertainties are crucial to an understanding of the variability in our historical earnings and cash flows and the potential for continued variability in the future : macroeconomic conditions economic trends and government policies affect global and regional commercial real estate markets as well as our operations directly . these include : overall economic activity and employment growth , interest rate levels , the cost and availability of credit and the impact of tax and regulatory policies . periods of economic weakness or recession , significantly rising interest rates , fiscal uncertainty , declining employment levels , decreasing demand for commercial real estate , falling real estate values , disruption to the global capital or credit markets , or the public perception that any of these events may occur , may negatively affect the performance of some or all of our business lines . from late 2007 through 2009 , the severe global economic downturn and credit market crisis had significant adverse effects on our operations and materially reduced our revenue from property management fees and commissions derived from property sales , leasing , valuation and financing , and reduced the funds available to invest in commercial real estate and related assets . these negative trends began to reverse in early 2010 and commercial real estate markets have improved gradually for the past three years in step with the slow recovery of global economic activity . weak economic conditions from late 2007 through 2009 also affected our compensation expense , which is structured to generally decrease in line with a fall in revenue . compensation is our largest expense and the sales and leasing professionals in our largest line of business , advisory services , generally are paid on a commission and bonus basis that correlates with their revenue production . as a result , the negative effect of difficult market conditions on our operating margins was partially mitigated by the inherent variability of our compensation cost structure . in addition , when negative economic conditions are particularly severe , as they were in 2008 and 2009 , we have moved decisively to improve financial performance by lowering operating expenses . as general economic conditions and our financial performance improved , we restored certain expenses beginning in 2010 . 34 notwithstanding the ongoing , slow market recovery , a return of adverse global and regional economic trends given u.s. fiscal uncertainty , a continuing sovereign debt crisis in europe and slower growth in china , remains one of the most significant risks to the performance of our operations and our financial condition . economic conditions first began to negatively affect our performance in the americas , our largest segment in terms of revenue , beginning in the third quarter of 2007. the effects became more severe as the decline in economic activity ( particularly in the united states ) accelerated throughout 2008 and most of 2009. the global capital markets disruption in late 2008 , in particular , caused a significant and prolonged decline in property sales , leasing , financing and investment activity that adversely affected all our business lines . commercial real estate fundamentals began to stabilize in early 2010 and have steadily improved for the past three years due to the slow but positive economic recovery in the united states . reflecting this gradual recovery , national vacancy rates in the united states declined modestly and rental rates rose slightly in 2012 , while the ready availability of low-cost credit and investors ' search for yield sustained continued increases in property sales activity . story_separator_special_tag our material assets under management consist of : a ) the total fair market value of the real estate properties and other assets either wholly-owned or held by joint ventures and other entities in which our sponsored funds or investment vehicles and client accounts have invested or to which they have provided financing . committed ( but unfunded ) capital from investors in our sponsored funds is not included in this component of our aum . the value of development properties is included at estimated completion cost . in the case of real estate operating companies , the total value of real properties controlled by the companies , generally through joint ventures , is included in aum ; and b ) the net asset value of our managed securities portfolios , including investments ( which may be comprised of committed but uncalled capital ) in private real estate funds under our fund of funds program . our calculation of aum may differ from the calculations of other asset managers , and as a result , this measure may not be comparable to similar measures presented by other asset managers . strategic in-fill acquisitions have also played a key role in expanding our geographic coverage and broadening and strengthening our service offerings . the companies we acquired have generally been quality regional or specialty firms that complement our existing platform within a region , or affiliates in which , in some cases , we held a small equity interest . from 2005 to 2010 , we completed 60 in-fill acquisitions for an aggregate purchase price of approximately $ 601 million , with most of these completed before the recession in 2008. in 2011 , we completed five in-fill acquisitions , including a valuation business in australia , a retail property management business in central and eastern europe , our former affiliate company in switzerland , a retail services business in the united kingdom and a shopping center management business in the netherlands . during 36 2012 , we completed five in-fill acquisitions , including our former affiliate companies in turkey and vietnam , a niche real estate investment advisor and an independent commercial and residential property partnership in the united kingdom , and a brokerage and property management firm in atlanta . as market conditions continue to improve , we believe acquisitions may once again serve as a growth engine , supplementing our organic growth . although our management believes that strategic acquisitions can significantly decrease the cost , time and commitment of management resources necessary to attain a meaningful competitive position within targeted markets or to expand our presence within our current markets , our management also believes that most acquisitions will initially have an adverse impact on our operating and net income , both as a result of transaction-related expenditures , which include severance , lease termination , transaction and deferred financing costs , among others , and the charges and costs of integrating the acquired business and its financial and accounting systems into our own . for example , through december 31 , 2012 , we incurred $ 258.9 million of transaction-related expenditures and integration costs in connection with the trammell crow company acquisition . in addition , through december 31 , 2012 , we incurred $ 109.4 million of transaction-related expenditures and integration costs in connection with the reim acquisitions . international operations as we increase our international operations through either acquisitions or organic growth , fluctuations in the value of the u.s. dollar relative to the other currencies in which we may generate earnings could adversely affect our business , financial condition and operating results . our management team generally seeks to mitigate our exposure by balancing assets and liabilities that are denominated in the same currency and by maintaining cash positions outside the united states only at levels necessary for operating purposes . in addition , from time to time we enter into foreign currency exchange contracts to mitigate our exposure to exchange rate changes related to particular transactions and to hedge risks associated with the translation of foreign currencies into u.s. dollars . our global investment management business has a significant amount of euro-denominated assets under management as well as associated revenue and earnings in europe , which has seen a developing crisis in sovereign debt resulting in a more pronounced movement in the value of the euro against the u.s. dollar . fluctuations in foreign currency exchange rates have resulted and may continue to result in corresponding fluctuations in our aum , revenue and earnings . due to the constantly changing currency exposures to which we are subject and the volatility of currency exchange rates , we can not predict the effect of exchange rate fluctuations upon future operating results . in addition , fluctuations in currencies relative to the u.s. dollar may make it more difficult to perform period-to-period comparisons of our reported results of operations . our international operations also are subject to , among other things , political instability and changing regulatory environments , which may adversely affect our future financial condition and results of operations . our management routinely monitors these risks and related costs and evaluates the appropriate amount of resources to allocate towards business activities in foreign countries where such risks and costs are particularly significant . leverage we are highly leveraged and have significant debt service obligations . as of december 31 , 2012 , our total debt , excluding our notes payable on real estate ( which are generally nonrecourse to us ) and warehouse lines of credit ( which are recourse only to our wholly-owned subsidiary , cbre capital markets , inc. , or cbre capital markets , and are secured by our related warehouse receivables ) , was approximately $ 2.5 billion . our level of indebtedness and the operating and financial restrictions in our debt agreements place constraints on the operation of our business .
| results of operations the following table sets forth items derived from our consolidated statements of operations for the years ended december 31 , 2012 , 2011 and 2010 : replace_table_token_6_th ( 1 ) includes ebitda related to discontinued operations of $ 5.6 million , $ 14.1 million and $ 16.4 million for the years ended december 31 , 2012 , 2011 and 2010 , respectively . ebitda represents earnings before net interest expense , write-off of financing costs , income taxes , depreciation and amortization , while amounts shown for ebitda , as adjusted , remove the impact of certain cash and non-cash charges related to acquisitions , cost containment and asset impairments . our management believes that both of these measures are useful in evaluating our operating performance compared to that of other companies in our industry because the calculations of ebitda and ebitda , as adjusted , generally eliminate the effects of financing and income taxes and the accounting effects of capital spending and acquisitions , which would include impairment charges of goodwill and intangibles created from acquisitions . such items may vary for different companies for reasons unrelated to overall operating performance . as a result , our management uses these measures to evaluate operating performance and for other discretionary purposes , including as a significant 45 component when measuring our operating performance under our employee incentive programs . additionally , we believe ebitda and ebitda , as adjusted , are useful to investors to assist them in getting a more complete picture of our results from operations . however , ebitda and ebitda , as adjusted , are not recognized measurements under u.s. generally accepted accounting principles , or gaap , and when analyzing our operating performance , readers should use ebitda and ebitda , as adjusted , in addition to , and not as an alternative for , net income as determined in accordance with gaap .
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part ii i item 10. directors , executive officers and corporate governanc e the information required by this item is incorporated herein by reference to the material under the captions “ board of directors , executive officers and corporate governance , ” and “ security ownership of certain beneficial owners and management – section 16 ( a ) beneficial ownership reporting compliance ” in our proxy statement for the 2018 annual meeting of stockholders to be filed no later than 120 days after the end of our fiscal year ended december 31 , 2017 ( the “ 2018 proxy statement ” ) . item 11. executive compensatio n the information required by this item is incorporated herein by reference to the material under the captions “ board of directors , executive officers and corporate governance , ” “ director compensation ” and “ executive compensation ” in our 2018 proxy statement . item 12. security ownership of certain beneficial owners and management and related stockholde r matters the following table contains information about our equity compensation plans as of december 31 , 2017. equity compensation plan information number of securities number of weighted- remaining available securities to average for future issuance story_separator_special_tag s the following discussion summarizes the significant factors affecting the operating results , financial condition , liquidity and cash flows of our company as of and for the periods presented below . the following discussion and analysis should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this report . the statements in this discussion regarding industry outlook , our expectations regarding our future performance , liquidity and capital resources and all other non‑historical statements in this discussion are forward‑looking statements and are based on the beliefs of our management , as well as assumptions made by , and information currently available to , our management . actual results could differ materially from those discussed in or implied by forward‑looking statements as a result of various factors , including those discussed below and elsewhere in this report , particularly in the section entitled “ risk factors. ” overview company overview we are a clinical stage specialty pharmaceutical company dedicated to the development and commercialization of innovative transdermal pharmaceutically-produced cannabinoid treatments for rare ( meeting the u.s. food and drug administration 's , or fda 's , designation of an orphan disease , affecting fewer than 200,000 people in the united states ) and near-rare ( affecting fewer than one million people in the united states ) neurological and psychiatric , or neuropsychiatric , disorders in patients with high unmet medical needs . we are currently evaluating two patent protected product candidates , zyn002 and zyn001 , in four neuropsychiatric indications . in 2017 , we completed three phase 2 clinical trials for zyn002 and two of those studies have open-label extensions that are ongoing . in 2018 we plan to initiate additional clinical trials evaluating zyn002 for the treatment of behavioral symptoms of fragile x syndrome , or fxs , in pediatric and adolescent patients , developmental and epileptic encephalopathies , or dee , in pediatric and adolescent patients , and refractory focal seizures in adults with epilepsy . we intend to study zyn001 in patients with tourette syndrome , or ts , and anticipate initiating a phase 2 clinical trial in late 2018. we believe these product candidates will provide new treatment options for patients . in 2017 we were also developing zyn002 and zyn001 for the treatment of certain pain indications . we have decided to discontinue our development programs in the capital-intensive pain spaces . cannabinoids are a class of compounds derived from cannabis plants . the two primary cannabinoids contained in cannabis are cannabidiol , or cbd , and ∆9-tetrahydrocannabinol , or thc . clinical and preclinical data suggest that cbd has positive effects on treating behavioral symptoms of fxs and epilepsy , and thc may have positive effects on treating ts . we believe zyn002 may potentially offer first‑line therapies to patients suffering from fxs , dee and focal seizures in adults with epilepsy , and zyn001 may potentially offer first-line therapies to patients suffering from ts . zyn002 is the first and only pharmaceutically-produced cbd formulated as a permeation‑enhanced gel for transdermal delivery , and is patent protected through 2030. cbd is the primary non‑psychoactive component of cannabis . in preclinical animal studies , zyn002 's permeation enhancer increased delivery of cbd through the layers of the skin and into the circulatory system . these preclinical studies suggest increased bioavailability , consistent plasma levels and the avoidance of first‑pass liver metabolism of cbd when delivered transdermally . in addition , an in vitro study published in cannabis and cannabinoid research in april 2016 demonstrated that cbd is degraded to thc in an acidic environment such as the stomach . we believe such degradation may lead to increased psychoactive effects if cbd is delivered orally and may be avoided with the transdermal delivery of zyn002 , which maintains cbd in a neutral ph . zyn002 , which is being developed as a clear gel with once- or twice-daily dosing , is targeting treatment of behavioral symptoms of fxs and dee in pediatric and adolescent patients and refractory focal seizures in adults with epilepsy . we have been granted orphan drug designation from the fda for the use of cbd for the treatment of fxs . zyn001 is a pro‑drug of thc that enables effective transdermal delivery of thc via a patch and is patent protected through 2031. a pro‑drug is a drug administered in an inactive or less active form and designed to enable more effective delivery , which is then converted into an active form through a normal enzymatic process . in addition , we expect that zyn001 will be classified by the fda as a new chemical entity , or nce . story_separator_special_tag our general and administrative expenses also include facility and related costs not included in research and development expenses , professional fees for legal services , including patent‑related expenses , consulting , tax and accounting services , insurance , market research and general corporate 77 expenses . we expect that our general and administrative expenses will increase for the next several years as we increase our headcount with the continued development and potential commercialization of our product candidates . interest income — interest income primarily consists of interest earned on balances maintained in our money market bank account . income taxes — the 2017 tax cuts and jobs act , which was signed into law on december 22 , 2017 , has resulted in significant changes to the u.s. corporate income tax system . these changes include a federal statutory rate reduction from 34 % to 21 % , the elimination or reduction of certain domestic deductions and credits and limitations on the deductibility of interest expense and executive compensation . the 2017 tax cuts and jobs act also transitions international taxation from a worldwide system to a modified territorial system and includes base erosion prevention measures on non-u.s. earnings , which has the effect of subjecting certain earnings of our foreign subsidiaries to u.s. taxation as global intangible low-taxed income ( gilti ) . these changes are effective beginning in 2018. the 2017 tax cuts and jobs act also includes a one-time mandatory deemed repatriation tax on accumulated foreign subsidiaries ' previously untaxed foreign earnings . on december 22 , 2017 , the sec staff issued staff accounting bulletin , or sab , no . 118 to address the application of u.s. gaap in situations when a registrant does not have the necessary information available , prepared , or analyzed ( including computations ) in reasonable detail to complete the accounting for certain income tax effects of the tax cuts and jobs act . we have recognized the provisional tax impacts related to the revaluation of the deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended december 31 , 2017. the ultimate impact may differ from these provisional amounts due to , among other things , additional analysis , changes in interpretations and assumptions we have made , additional regulatory guidance that may be issued , and actions we may take as a result of the tax cuts and jobs act . the accounting is expected to be complete when the 2017 u.s. corporate income tax return is filed in 2018. in regard to the change in the federal tax rate as it relates to our deferred tax assets and liabilities , we have decreased our related deferred tax assets by $ 8.7 million along with a corresponding offset against the valuation allowance for these deferred tax assets . as of december 31 , 2017 , we had $ 56.8 million of federal operating loss carryforwards and $ 1.7 million of research tax credit carryforwards available to offset future taxable income . these operating loss and research tax credit carryforwards will begin to expire in 2028 and 2027 , respectively . at december 31 , 2017 and 2016 , we concluded that a full valuation allowance is necessary for our deferred tax assets . the closing of our ipo in august 2015 , together with our follow-on equity offerings , private placements and other transactions that have occurred since our inception , may trigger , or may have already triggered , an “ ownership change ” pursuant to section 382 of the internal revenue code of 1986. if an ownership change is triggered , it will limit our ability to use some of our net operating loss carryforwards . in addition , since we will need to raise substantial additional funding to finance our operations , we may undergo further ownership changes in the future , which could further limit our ability to use net operating loss carryforwards . as a result , if we generate taxable income , our ability to use some of our net operating loss carryforwards to offset u.s. federal taxable income may be subject to limitations , which could result in increased future tax liability to us . additionally , u.s. tax laws limit the time during which these carryforwards may be applied against future taxes ; therefore , we may not be able to take full advantage of these carryforwards for federal income tax purposes . critical accounting policies and use of estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles , or gaap . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reported period . in accordance with gaap , we base our estimates on historical experience , known trends and events and various other factors that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the 78 carrying amounts of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we define our critical accounting policies as those that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations . while our significant accounting policies are more fully discussed in note 2 to our audited consolidated financial statements appearing elsewhere in this report , we believe that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements .
| results of operations comparison of the years ended december 31 , 2017 and december 31 , 2016 replace_table_token_6_th revenue revenue in 2016 was related to work performed in connection with grants received prior to 2016. grants received were recorded as deferred revenue and recognized as revenue as the designated preclinical study progressed and amounts were earned . research and development expenses research and development expenses increased by $ 6.0 million , or 36 % , to $ 22.8 million for the year ended december 31 , 2017 from $ 16.8 million for the year ended december 31 , 2016. the increase was primarily related to increases in the number and size of our non-clinical studies and clinical trials for zyn002 and zyn001 and personnel costs , including stock-based compensation expense . general and administrative expenses general and administrative expenses increased by $ 3.6 million , or 56 % , to $ 10.0 million for the year ended december 31 , 2017 from $ 6.4 million for the year ended december 31 , 2016. the increase primarily related to increases in expenses associated with the development of commercialization plans for our product candidates , if approved , intellectual property-related expenses , public company reporting and compliance expenses and personnel costs , including stock-based compensation expense . other income ( expense ) during the years ended december 31 , 2017 and 2016 , we recognized $ 0.5 million and $ 0.1 million , respectively , in interest income . the increase in interest income was primarily related to a higher amount of invested cash resulting from the receipt of $ 54.2 million from our public follow-on offering in the first quarter of 2017. during the years ended december 31 , 2017 and 2016 , we recognized a foreign currency gain of $ 0.3 million and a foreign currency loss of $ 0.2 million , respectively .
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for purposes of meeting future milestone payments , with certain exceptions , annual net sales are measured on a rolling quarterly basis . cumulatively through december 31 , 2014 , the company has recorded an additional $ 7.8 million as goodwill for earn-out payments which are based on a percentage of net sales of exparel collected . any remaining earn-out payments will also be treated as additional costs of the acquisition and , therefore , recorded as goodwill if and when each contingency is resolved . the change in the carrying value of goodwill is summarized as follows ( in thousands ) : replace_table_token_24_th intangible assets , net , consist of core technology 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 this 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 i , item 1a of this annual report on form 10-k , our actual results may differ materially from those anticipated in these forward-looking statements . overview we are a specialty pharmaceutical company focused on the development , commercialization and manufacture of proprietary pharmaceutical products , based on our proprietary depofoam extended release drug delivery technology , for use primarily in hospitals and ambulatory surgery centers . as of december 31 , 2014 , our commercial stage products are exparel and depocyt ( e ) : exparel is a liposome injection of bupivacaine , an amide-type local anesthetic indicated for administration into the surgical site to produce postsurgical analgesia , and was approved by the fda on october 28 , 2011. we commercially launched exparel in april 2012. we drop-ship exparel directly to the end user based on orders placed to wholesalers or directly to us , and we have no product held by wholesalers . depocyt ( e ) is a sustained release liposomal formulation of the chemotherapeutic agent cytarabine and is indicated for the intrathecal treatment of lymphomatous meningitis . depocyt ( e ) was granted accelerated approval by the fda in 1999 and full approval in 2007. we sell depocyt ( e ) to our commercial partners located in the united states and europe . since inception , we have incurred significant operating losses . we expect to continue to incur significant expenses as we commercialize exparel ; pursue the use of exparel in additional indications , such as for nerve block , oral surgery , chronic pain and pediatrics ; advance the development of product candidates , such as depomeloxicam and depotranexamic acid ; seek fda approval for our product candidates that successfully complete clinical trials ; develop our sales force and marketing capabilities to prepare for their commercial launch and expand and enhance our manufacturing capacity for exparel . 2014 highlights and developments total revenues increased $ 112.1 million , or 131 % , in the year ended december 31 , 2014 , as compared to 2013 , primarily driven by exparel product sales of $ 188.5 million , net of allowances for sales returns , prompt payment discounts , volume rebates and distribution service fees payable to wholesalers . in september 2014 , we made an $ 8.0 million milestone payment to skyepharma in connection with achieving $ 100.0 million of exparel net sales collected . in may 2014 , we announced the submission of an snda for a nerve block indication based on data from a phase 3 study demonstrating the efficacy and safety of exparel in femoral nerve block for total knee arthroplasty , as well as data from a phase 3 study in intercostal nerve block for thoracotomy . the fda has accepted our snda for review and has set a prescription drug user fee act , or pdufa , action date of march 5 , 2015. in april 2014 , we and patheon entered into a strategic co-production agreement , technical transfer and service agreement and manufacturing supply agreement to collaborate in the manufacture and packaging of exparel . patheon has agreed to undertake certain technical transfer activities and construction services needed to prepare its swindon , united kingdom facility for the manufacture and packaging of exparel in two dedicated manufacturing suites . we expect the first suite to begin commercial production in the second half of 2016 and the second suite to become operational in the 2018 or 2019 timeframe . we expect that the expansion of our manufacturing capacity with patheon , coupled with our manufacturing facility at our science center campus , will enable us to meet the future demand for exparel . in april 2014 , we completed a follow-on underwritten public offering , selling 1,840,000 shares of common stock , which included the underwriters ' exercise of the over-allotment option , at an offering price of $ 64.00 per share . we received net proceeds after underwriting fees and related expenses of $ 110.5 million . in april 2014 , we and mundipharma amended our agreements to , among other things , ( i ) extend the term of such agreements by an additional 15 years to june 2033 and ( ii ) expand the territory where mundipharma can market 51 and distribute depocyte to all countries other than the united states of america , canada and japan . in connection with the agreements , we received a non-refundable upfront payment of $ 8.0 million from mundipharma . the revenue has been deferred and will be recognized over the contractual term . in march 2014 , the fda approved an additional bulk manufacturing suite , or suite c , for exparel at our science center campus in san diego , california , which has more than doubled our manufacturing capacity . exparel we are pursuing several additional indications for exparel . story_separator_special_tag we believe depotxa , a long acting local antifibrinolytic agent combining immediate and extended release txa , could address the unmet , increasing need for rapid ambulation and discharge in the ambulatory surgery environment for joint surgery ( primarily orthopedic surgery , including spine and trauma procedures and cardiothoracic surgery ) . designed for single dose local administration into the surgical site , depotxa could provide enhanced hemostabilization and improved safety and tolerability for patients over the systemic use of txa by reducing bleeding , the need for blood transfusions , swelling , soft-tissue hematomas and the need for postoperative drains , thereby increasing not only vigor in patients , but also by decreasing overall costs to the hospital system . depotxa is currently in the preclinical phase , and we expect to commence a phase 3 study in 2017. results of operations comparison of years ended december 31 , 2014 , 2013 and 2012 revenues the following table provides information regarding our revenues during the periods indicated , including percent changes ( dollar amounts in thousands ) : replace_table_token_6_th exparel revenue grew 147 % in 2014 , of which 135 % was attributable to an increase in sales volume . the strong demand for exparel has continued as a result of new accounts and growth within existing accounts , which has been driven by continued adoption in soft tissue procedures as well as rapid adoption in orthopedic procedures . in addition , as a result of both major hospital system formulary wins and the reduction of formulary restrictions , physician access has improved . the remaining increase in exparel revenue was due to a 5 % price increase in may 2014 coupled with changes in sales-related allowances and accruals , including volume rebates and chargebacks and returns allowances . depocyt ( e ) product sales decreased 13 % in 2014 primarily due to a lower number of depocyt ( e ) lots sold to our commercial partners . in 2014 , the increase in collaborative licensing and development revenue of 32 % was primarily driven by the receipt of an $ 8.0 million upfront payment in may 2014 from mundipharma , which is being recognized on a straight-line basis over the contractual term . exparel revenue grew 422 % in 2013 resulting from both a full year of exparel sales and continued penetration into the soft tissue and orthopedic markets . in addition , we experienced improved physician access due to the completion of drug utilization evaluations , which reduced restrictions on access to exparel . the entire growth in this period was attributable to increases in sales volume . depocyt ( e ) product sales increased 62 % in 2013 driven by the lifting of a selective recall recommended by the european medicines agency in countries where depocyt ( e ) was not considered to be an “ essential medicinal product , ” resulting in decreased sales in 2012 . 53 in 2013 , the decrease in collaborative licensing and development revenue of 95 % was primarily driven by the recognition of $ 17.4 million in deferred revenue in connection with the termination of certain licensing agreements in 2012. royalty revenue reflects royalties earned on collections of end user sales of depocyt ( e ) by our commercial partners . cost of revenues the following table provides information regarding cost of revenues during the periods indicated , including our gross margin percentage ( dollar amounts in thousands ) : replace_table_token_7_th * the gross margin calculation excludes collaborative licensing and development revenue and expenses . the increase in cost of goods sold in 2014 was due to the increase in net product sales discussed above . the improvement in gross margin to 61 % in 2014 was driven by increased utilization of our facilities to manufacture exparel . during 2014 , we added two new manufacturing lines in suite c to offset the high fixed cost infrastructure at our exparel manufacturing facility . in 2013 , cost of goods sold increased as net product sales increased . the improvement in gross margin to 35 % in 2013 was driven by increased utilization of our facility to manufacture exparel 24/7 to meet demand ; a decrease in consulting costs and the resumption of depocyt ( e ) production after a selective recall was lifted . the improvement was partially offset by the impact of producing suite c batches in preparation for fda approval submission , which could not be sold for commercial use and resulted in $ 3.7 million of expense in 2013. there was no cost of collaborative licensing and development revenue in 2013 due to the termination of services performed under a licensing agreement with novo nordisk as in 2012. research and development expenses research and development expenses consist primarily of costs related to clinical studies and related outside service , stock-based compensation expenses and other research and development costs . clinical study expenses include costs for clinical personnel , clinical studies performed by third-party contract research organizations , materials and supplies , database management and other third party fees . other research and development expenses include personnel and other costs for both new process development and new product candidates , toxicology studies , medical information services and overhead allocations . stock-based compensation expenses largely relate to the costs of option grants to employees and non-employees . the following table provides a breakout of our research and development expenses during the periods indicated , including percent changes ( dollar amounts in thousands ) : replace_table_token_8_th research and development expenses decreased 13 % in 2014 primarily due to decreases in clinical development expenses related to the conclusion of our phase 2/3 pivotal trial of exparel administered as a femoral nerve block for total knee arthroplasty and our phase 3 pivotal trial of exparel as an intercostal nerve block for thoracotomy . this decrease was partially offset by an increase in stock-based compensation expense , primarily due to the requirement to revalue non-employee options periodically until they vest .
| summary of cash flows the following table summarizes our cash flows from operating , investing and financing activities for the years ended december 31 , 2014 , 2013 and 2012 ( in thousands ) : replace_table_token_12_th operating activities in 2014 , net cash provided by operating activities increased by $ 68.7 million . this increase was primarily driven by higher exparel product sales and improved gross margins , which were partially offset by expenditures for additional field-based personnel and related educational , selling and promotional initiatives , as well as additional administrative support . we also received an $ 8.0 million upfront payment from mundipharma in connection with the extension of the term of existing supply and distribution agreements and the expansion of the territory where mundipharma can market and distribute depocyte . in 2013 , net cash used in operating activities decreased by $ 26.9 million , primarily driven by higher exparel product sales and improved gross margins . this improvement was partially offset by increased operating expenses incurred for commercial manufacturing and the phase 2/3 exparel nerve block trials , increases in the number of our field-based personnel and various promotional and educational programs to support exparel . investing activities in 2014 , net cash used in investing activities was $ 119.3 million . this was due to a net investment of $ 84.0 million in short and long-term investments , mainly purchased using the net proceeds from our april 2014 follow-on underwritten public offering . we spent $ 21.9 million in purchases of fixed assets , which included major investments for an exparel manufacturing fill line and our capacity expansion project with patheon . we also paid $ 13.4 million in contingent consideration payments to skyepharma , which included an $ 8.0 million milestone payment in september 2014 and $ 5.4 million in percentage payments on collections of net sales of exparel .
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the company intends to disclose any amendments to or waivers of its code of ethics as it applies to directors or executive officers by disclosing them on form 8-k. item 11 : executive compensation the information required by this item is incorporated by reference to the company 's proxy statement for the 2017 annual meeting of shareholders to be filed with the sec within 120 days of the fiscal year ended december 31 , 2016. item 12 : security ownership of certain beneficial owners and management and related shareholder matters the information concerning the company 's equity compensation plan is set forth below in this item 12. all other information required by this item is incorporated by reference to the company 's proxy statement for the 2017 annual meeting of shareholders . 28 equity compensation plan information the table below provides information as of december 31 , 2016 regarding the compensation plans ( 2011 equity incentive plan and 2013 consultant stock plan ) under which equity securities of clearsign are authorized for issuance . number of securities remaining number of securities to be weighted-average available for future issuance under issued upon exercise of exercise price of equity compensation plans outstanding options , outstanding options , ( excluding securities reflected in warrants and rights warrants and rights column a ) plan category ( a ) ( b ) ( c ) equity compensation story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited financial statements and related notes included elsewhere in this annual report on form 10-k. in addition to historical information , this discussion and analysis here and throughout this form 10-k contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements due to a number of factors , including but not limited to , the risks described in the section titled “ risk factors ” . overview we design and are developing technologies for the purpose of improving key performance characteristics of combustion systems , including emission and operational performance , energy efficiency and overall cost-effectiveness . our patented duplex and electrodynamic combustion control ( ecc ) platform technologies enhance the performance of combustion systems in a broad range of markets , including the energy ( upstream oil production and down-stream refining ) , commercial/industrial boiler , chemical , petrochemical , and power industries . our duplex technology uses a porous ceramic tile above a standard burner to significantly reduce flame length and achieve very low emissions without the need for external flue gas recirculation , selective catalytic reduction , or excess air systems . our ecc technology introduces a computer-controlled high voltage electric field into a combustion volume in order to better control gas-phase chemical reactions and improve system performance and cost-effectiveness . to date , our operations have been funded primarily through sales of our securities . we have earned limited revenue since inception on january 23 , 2008. we are headquartered in seattle , washington with offices in tulsa , oklahoma and houston , texas . as indicated in the discussion of our business , our initial target markets center on the energy sector , including upstream crude oil production through the use of once through steam generators ( otsgs ) and wellhead enclosed flares and downstream oil refineries through the use of process heaters . in recent years , the energy sector has been significantly affected by the volatile market price of crude oil and marginal economic growth . crude oil prices have stabilized during 2016 and enjoyed end of year appreciation with the general post-election upswing in certain commodities and improved economic outlook . according to the u.s. energy information administration , the spot price of west texas intermediate crude oil in the last five years has ranged from approximately $ 110 per barrel to approximately $ 25 per barrel , with 2016 prices reaching a low of $ 27 per barrel and finishing the year at approximately $ 50+ per barrel . regardless of the effect of crude oil prices , based upon our experience and feedback from current and prospective customers , we believe that the market continues to validate the appeal of our duplex technology to the energy sector due to the technology 's ability to lower emissions and maintain certain operational efficiencies . we believe that operators in all of our target markets are under intense pressure to meet current and proposed federal , state and local emissions standards . the standards applicable to our target markets have been developed over the past 50 years with broad political input . we expect these standards to continue to become more stringent regardless of political leadership . as a result , we believe that these standards are a significant driver in our development and sales efforts and that our duplex technology can provide a unique , cost-effective pollution control solution for operators in comparison to competing products . emissions standards largely emanate from the clean air act , which is administered by the environmental protection agency ( epa ) and regulates six common criteria air pollutants , including ground-level ozone . these regulations are enforced by state and local air quality districts as part of their compliance plans . as a precursor to ground-level ozone , nitrogen oxides ( nox ) are regulated emissions by local air quality districts in order to achieve the epa limits . the 8-hour ground-level ozone regulations have been reduced from 84 parts per billion ( ppb ) in 1997 , to 75 ppb in 2008 , and 70 ppb in 2015 , with the requirement of realizing these levels approximately 25 years following the year of legislation . the areas of non-attainment related to this 1997 limit of 84 ppb are depicted below in the map on the left and the projected areas of non-attainment related to the 2015 limit of 70 ppb are depicted below in the map on the right . story_separator_special_tag additionally , the process heater at tricor had been out of service since 1984. our duplex technology retrofit allowed tricor to bring this obsolete asset back into production and to provide what we believe is another helpful demonstration to refiners . because this work was completed under conditional sales contracts and the conditions had not been met in prior quarters , $ 477,000 of project costs , including design and start-up costs associated with unique aspects of this market vertical , were previously expensed . costs of $ 262,000 incurred in the third and fourth quarters were reflected as costs against the revenue of $ 260,000. duplex plug & play - a texas based refiner will provide the initial field testing site for the duplex plug & play . this refiner 's application awaits an appropriate shut-down schedule in the coming months to install and test the product . field testing at this texas refinery will provide the last phase of product assessment and allow for operational feedback from this beta site customer . the customer has expressed interest in purchasing additional units if the testing is completed to their satisfaction . we believe that successful launch of this product could cultivate interest in licensing and potential manufacturing arrangements with oems with established manufacturing and distribution capabilities . tesoro refining & marketing company llc is furthering its design process based on the refinery results observed to date and is formulating a strategy to test duplex under its environment and supervision . otsgs in enhanced oil recovery industry – there are three otsg projects in the enhanced oil recovery industry : two unit installations in southern california and one design contract for a canadian operator . one of the southern california units was completed and accepted by our original otsg customer , a major southern california oil producer , and the canadian design project was completed during the year ended december 31 , 2016. because the unit installed in the fourth quarter was completed under a conditional sales contract and the conditions had not been met in prior quarters , $ 89,000 of project costs , including unique start-up costs associated with this unit , were previously expensed . costs of $ 140,000 incurred in the third quarter and fourth quarters was reflected as costs against the recording of revenue of $ 101,000 in the fourth quarter . the design work for the unnamed canadian oil producer was completed and the $ 75,000 partial reimbursement of costs was realized in the third and fourth quarters . the final field project is nearing completion and involves an antiquated otsg and burner with unique installation issues that we do not believe apply to our target markets . 21 we have now achieved emission results which exceeded current local best available control technology ( bact ) levels in four installations in california related to our three target industries . we intend to continue to demonstrate duplex capabilities through ( i ) operating in place units , ( ii ) engineering and testing with new customers and applications , ( iii ) pursuing additional lab research and development of new applications ( e.g . packaged boilers ) and next generation improvements to duplex design and standardization , including the pursuit of more complete systems , similar to the duplex plug and play , for application in other vertical markets , and ( iv ) assisting our customers in making emission results available for designation as bact by local regulatory bodies . we are pursuing development of our ecc technology through laboratory research where we have demonstrated certain attributes of our proprietary technology operating in our research facility with thermal output of up to 2 million btu/hr . ecc appears to be appropriate for established entities that use solid fuel burners or related combustion systems . we intend to continue our laboratory research and to enter into collaborative arrangements which would enable us to work closely with established companies in targeted industries to apply solutions developed in our laboratory . our business plan contemplates licensing our technology after we prove commercial viability and generate interest from original equipment manufacturers ( oems ) . licensing would significantly change the makeup of our sales mix , sales recognition , and margins . licensing our technology within one or an array of selected vertical markets ( e.g . burners for refinery process heaters or packaged boilers ) could dramatically accelerate the global sales and market adoption rate of our technology . however , in order to create channel flexibility and meet end user demand , we intend to continue to pursue end user customers through direct sales , sub-contractors , or channel partners . while we are currently pursuing various licensing arrangements , we have no agreements at this time and do not anticipate entering into any such agreements prior to completing the field development projects discussed above and completing a meaningful number of installations and sales . we believe that the continuing development of duplex , the completion of sales and an increase in end-users will enhance our ability to license our technology . the success we experienced in recording revenues in the wellhead enclosed flare and oil refining sectors along with the demonstration success in the enhanced oil recovery sector and the $ 900,000 of sales contracts currently in process has allowed us to refocus our personnel and resources to enhance our sales and business development efforts , capitalize on our recent successful product development results , and generate revenue . to that end , we opened a houston sales location , enhanced our operations engineering and project management capabilities , and restructured certain senior personnel . we appointed donald kendrick , ph.d. as our new chief technology officer ( cto ) and reassigned our former cto , joe colannino , to the new position of sr. vp – engineering supporting business development , sales , and operations . we also decided to significantly reduce the number of patents we pursue .
| results of operations comparison of the years ended december 31 , 2016 and 2015 revenue , cost of goods sold , and gross profit . the company reported its first meaningful annual revenue of $ 621,000 in 2016 earned from the completion of four conditional contracts with customers that were evaluating our duplex technology for their applications . the revenue resulted in a gross profit of $ 136,000 and a gross margin of 22 % . these initial projects were more costly than expected due to a number of reasons that we believe are related to start-up . we anticipate gross margins will normalize in the range of 50 % . 2015 revenue was $ 61,000. operating expenses . operating expenses increased by $ 3,388,000 to $ 11,341,000 in 2016 compared to $ 7,953,000 in operating expenses in 2015 , an increase of approximately 43 % . the company increased its research and development ( r & d ) expenses by $ 1,899,000 to $ 4,831,000 for 2016 compared to $ 2,932,000 for 2015. r & d expenses rose due primarily to a $ 1,127,000 increase in field testing costs related to the evaluation of our duplex technology , laboratory , and related costs , all of which totaled $ 1,921,000 in 2016 as compared to $ 794,000 in 2015. r & d expenses in 2016 also included the addition of personnel hired to support increased research activities , resulting in an increase in compensation expense of $ 990,000 , to $ 2,469,000. g & a expenses increased by $ 1,489,000 to $ 6,510,000 for 2016 compared to $ 5,021,000 for 2015. this increase resulted primarily from increased impairment losses of $ 1,378,000 on capitalized patents pending , increases to consulting costs of $ 404,000 , and an increase of $ 111,000 to the costs attributable to being a public company .
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the securities and exchange commission 's ( “ sec ” ) order approving the company 's application to deregister from the 1940 act was granted on january 19 , 2016. on january 19 , 2016 , the company changed its name to global self storage , inc. from self storage group , inc. , changed its sec registration from an investment company to an operating company reporting under the securities exchange act of 1934 , as amended ( the “ exchange act ” ) , and listed its common stock on nasdaq under the symbol “ self ” . the company was incorporated on december 12 , 1996 under the laws of the state of maryland . the company has elected to be treated as a reit under the internal revenue code of 1986 , as amended ( the “ code ” ) . to the extent the company continues to qualify as a reit , it will not generally be subject to u.s. federal income tax , with certain limited exceptions , on its taxable income that is distributed to its stockholders . our store operations generated most of our net income for all periods presented herein . accordingly , a significant portion of management 's time is devoted to seeking to maximize cash flows from our existing stores , as well as seeking investments in additional stores . the company expects to continue to earn a majority of its gross income from its store operations as its current store operations continue to develop and as it makes additional store acquisitions . over time , the company expects to divest its remaining portfolio of investment securities and use the proceeds to acquire and operate additional stores . the company expects its income from investment securities to continue to decrease as it continues to divest its holdings of investment securities . 30 story_separator_special_tag in 2019 , the company broke ground on the millbrook , ny expansion , which , upon completion in february 2020 , added approximately 16,500 of gross square feet of all-climate-controlled units . there is no guarantee that we will experience demand for the newly added expansion or that we will be able to successfully lease-up the expansion to the occupancy level of our other properties . on december 18 , 2019 , we completed our previously announced rights offering ( the “ rights offering ” ) , which expired on december 13 , 2019. at the closing of the rights offering , the company sold and issued an aggregate of 1,601,291 shares of the company 's common stock ( “ common stock ” ) at the subscription price of $ 4.18 per whole share of common stock , pursuant to the exercise of subscriptions and oversubscriptions from the company 's stockholders . the company raised aggregate gross proceeds of approximately $ 6.7 million in the rights offering . as of december 31 , 2019 , we had capital resources totaling approximately $ 11.1 million , comprised of $ 4.2 million of cash and cash equivalents , $ 1.8 million of marketable securities , and $ 5.1 million available for withdrawal under the credit facility loan agreement . capital resources derived from retained cash flow have been and are currently expected to continue to be negligible . retained operating cash flow represents our expected cash flow provided by operating activities , less stockholder distributions and capital expenditures to maintain stores . these capital resources allow us to continue to execute our strategic business plan , which includes funding acquisitions , either directly or through joint ventures ; expansion projects at our existing properties ; and broadening our revenue base and pipeline of potential acquisitions through developing global maxmanagement sm , our third-party management platform . our board of directors regularly reviews our strategic business plan , including topics and metrices like capital formation , debt versus equity ratios , dividend policy , use of capital and debt , ffo and affo performance , and optimal cash levels . we expect that the results of our operations will be affected by a number of factors . many of the factors that will affect our operating results are beyond our control . the company and its properties could be materially and adversely affected by the risks , or the public perception of the risks , related to an epidemic , pandemic , outbreak , or other public health crisis , such as the current outbreak of the novel coronavirus ( “ covid-19 ” ) . on march 11 , 2020 , the world health organization declared covid-19 as a pandemic , and on march 13 , 2020 the united states declared a national emergency with respect to covid-19 . the outbreak of covid-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets . the global impact of the outbreak has been rapidly evolving and many countries , including the united states , have reacted by instituting quarantines , mandating business and school closures and restricting travel . such actions are creating disruption in global supply chains , and adversely impacting a number of industries , such as transportation , hospitality and entertainment . the outbreak could have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown . the rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of covid-19 . nevertheless , covid-19 presents material uncertainty and risk 32 with respect to the to the company 's business , financial condition , results of operations and cash flows , such as the potential negative impact to occupancy at its properties , financing arrangements , increa sed costs of operations , changes in law and or regulation , and uncertainty regarding government and regulatory policy . accordingly , we can not predict the extent to which our financial condition and results of operations will be affected at this time . story_separator_special_tag adjusted ffo ( “ affo ” ) represents ffo excluding the effects of business development , capital raising , and acquisition related costs and non-recurring items , which we believe are not indicative of the company 's operating results . we present affo because we believe it is a helpful measure in understanding our results of operations insofar as we believe that the items noted above that are included in ffo , but excluded from affo , are not indicative of our ongoing operating results . we also believe that the analyst community considers our affo ( or similar measures using different terminology ) when evaluating us . because other reits or real estate companies may not compute affo in the same manner as we do , and may use different terminology , our computation of affo may not be comparable to affo reported by other reits or real estate companies . we believe net operating income or “ noi ” is a meaningful measure of operating performance because we utilize noi in making decisions with respect to , among other things , capital allocations , determining current store values , evaluating store performance , and in comparing period-to-period and market-to-market store operating results . in addition , we believe the investment community utilizes noi in determining operating performance and real estate values , and does not consider depreciation expense because it is based upon historical cost . noi is defined as net store earnings before general and administrative expenses , interest , taxes , depreciation , and amortization . noi is not a substitute for net income , net operating cash flow , or other related gaap financial measures , in evaluating our operating results . 34 same-store self storage operations we consider our same-store portfolio to consist of only those stores owned and operated on a stabilized basis at the beginning and at the end of the applicable periods presented . we consider a store to be stabilized once it has achieved an occupancy rate that we believe , based on our assessment of market-specific data , is representative of similar self storage assets in the applicable market for a full year measured as of the most recent january 1 and has not been significantly damaged by natural disaster or undergone significant renovation or expansion . we believe that same-store results are useful to investors in evaluating our performance because they provide information relating to changes in store-level operating performance without taking into account the effects of acquisitions , dispositions or new ground-up developments . at december 31 , 2019 , we owned eleven same-store properties and one non-same-store property . the company believes that by providing same-store results from a stabilized pool of stores , with accompanying operating metrics including , but not limited to , variances in occupancy , rental revenue , operating expenses , noi , etc. , stockholders and potential investors are able to evaluate operating performance without the effects of non-stabilized occupancy levels , rent levels , expense levels , acquisitions or completed developments . same-store results should not be used as a basis for future same-store performance or for the performance of the company 's stores as a whole . same-store occupancy for the three months and year ended december 31 , 2019 decreased by 1.1 % to 91.4 % from 92.5 % for the same period in 2018. as a result of the millbrook , ny expansion construction , certain units at the existing millbrook , ny property were required to be temporarily vacated . this resulted in artificially reduced occupancy at our millbrook , ny property for the year ended december 31 , 2019 and was reflected in our same-store occupancy statistics . we grew our top-line results by increasing same-store revenues by 3.9 % for the three months ended december 31 , 2019 versus the three months ended december 31 , 2018 , and by 6.0 % for the year ended december 31 , 2019 versus the year ended december 31 , 2018. same-store cost of operations increased by 2.8 % for the three months ended december 31 , 2019 versus the three months ended december 31 , 2018 , and increased by 8.5 % for the twelve months ended december 31 , 2019 versus the twelve months ended december 31 , 2018. all major categories of expenses for same-store cost of operations ( including categories for employment , professional , marketing , administrative , lien administration , and general ) decreased for the year ended december 31 , 2019 , except for real estate property tax , which increased significantly . same-store noi increased by 4.6 % for the three months ended december 31 , 2019 versus the three months ended december 31 , 2018 , and increased by 4.2 % for the twelve months ended december 31 , 2019 versus the twelve months ended december 31 , 2018. as described in the section titled “ property tax expenses at dolton , il , ” the increase in same-store cost of operations for the year ended december 31 , 2019 , was attributable in significant part to the loss of our class 8 tax incentive and subsequent property tax increase at ssg dolton llc . we believe that our results were driven by , among other things , our internet and digital marketing initiatives which helped maintain our overall average occupancy in the low 90 % range as of december 31 , 2019. also , contributing to our results were our customer service efforts which we believe were essential in building local brand loyalty resulting in powerful referral and word-of-mouth market demand for our storage units and services . another significant contributing factor to our results was our revenue rate management program which helped increase our total annualized revenue per leased square foot by 4.6 % for the three months ended december 31 , 2019 versus the three months ended december 31 , 2018 , and by 6.8 % for the twelve months ended december 31 , 2019 versus the twelve months ended december 31 , 2018 .
| financial condition and results of operations our financing strategy is to minimize the cost of our capital in order to maximize the returns generated for our stockholders . for future acquisitions , the company may continue to use various financing and capital raising alternatives including , but not limited to , debt and or equity offerings ( such as our recent rights offering that closed in the fourth quarter of 2019 ) , credit facilities , mortgage financing , and joint ventures with third parties . on june 24 , 2016 , certain of our wholly owned subsidiaries ( “ term loan secured subsidiaries ” ) entered into a loan agreement and certain other related agreements ( collectively , the “ term loan agreement ” ) between the term loan secured subsidiaries and insurance strategy funding iv , llc ( the “ term loan lender ” ) . under the term loan agreement , the term loan secured subsidiaries are borrowing from term loan lender in the principal amount of $ 20 million pursuant to a promissory note ( the “ term loan promissory note ” ) . the term loan promissory note bears an interest rate equal to 4.192 % per annum and is due to mature on july 1 , 2036. pursuant to a security agreement ( the “ term loan security agreement ” ) , the obligations under the term loan agreement are secured by certain real estate assets owned by the term loan secured subsidiaries . j.p. morgan investment management , inc. acted as special purpose vehicle agent of the term loan lender . we entered into a non-recourse guaranty ( the “ term loan guaranty , ” and together with the term loan agreement , the term loan promissory note and the term loan security agreement , the “ term loan documents ” ) on june 24 , 2016 to guarantee the payment to the term loan lender of certain obligations of the term loan secured subsidiaries under the term loan agreement .
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our aggregate expense for the u.s. defined contribution plans was $ 61 million in 2020 , 2019 and 2018. the defined benefit pension plans include employees still accruing benefits , as well as employees and participants who no longer accrue service-related benefits , but instead , may participate in the enhanced defined contribution plan . benefits under the qualified defined benefit pension plan are determined using a formula based on years of service and the highest five consecutive years of compensation . we intend to contribute amounts to this plan to meet the minimum funding requirements of applicable local laws and regulations , plus such additional amounts as we deem appropriate . the non-qualified defined benefit plans are unfunded and closed to new participants . u.s. retiree health care benefit plan u.s. employees who meet eligibility requirements are offered medical coverage during retirement . we make a contribution toward the cost of those retiree medical benefits for certain retirees and their dependents . the contribution rates are based upon various factors , the most important of which are an employee 's date of hire , date of retirement , years of service and eligibility for medicare benefits . the balance of the cost is borne by the plan 's participants . employees hired after january 1 , 2001 , are responsible for the full cost of their medical benefits during retirement . non-u.s. retirement plans we provide retirement coverage for non-u.s. employees , as required by local laws or to the extent we deem appropriate , through a number of defined benefit and defined contribution plans . retirement benefits are generally based on an employee 's years of service and compensation . funding requirements are determined on an individual country and plan basis and are subject to local country practices and market circumstances . as of december 31 , 2020 and 2019 , as a result of employees ' elections , ti 's non-u.s. defined contribution plans held ti common stock valued at $ 36 million and $ 28 million , respectively . dividends paid on these shares of ti common stock in 2020 and 2019 were not material . effects on our consolidated statements of income and balance sheets expenses related to defined benefit and retiree health care benefit plans are as follows : replace_table_token_33_th all defined benefit and retiree health care benefit plan expense components other than service cost are recognized in oi & e in our consolidated statements of income . service cost is recognized within operating profit . for the u.s. qualified pension and retiree health care plans , the expected return on plan assets component of net periodic benefit cost is based upon a market-related value of assets . in accordance with u.s. gaap , the market-related value of assets is the fair value adjusted by a smoothing technique whereby certain gains and losses are phased in over a period of three years . 44 changes in the benefit obligations and plan assets for defined benefit and story_separator_special_tag overview we design , make and sell semiconductors to electronics designers and manufacturers all over the world . technology is the foundation of our company , but ultimately , our objective and the best metric to measure progress and generate long-term value for owners is the growth of free cash flow per share . our strategy to maximize free cash flow per share growth has three elements : 1. a great business model that is focused on analog and embedded processing products and built around four sustainable competitive advantages . the four sustainable competitive advantages are powerful in combination and provide tangible benefits : i. a strong foundation of manufacturing and technology that provides lower costs and greater control of our supply chain . ii . a broad portfolio of analog and embedded processing products that offers more opportunity per customer and more value for our investments . iii . the reach of our market channels that gives access to more customers and more of their design projects , leading to the opportunity to sell more of our products into each design and gives us better insight and knowledge of customer needs . iv . diversity and longevity of our products , markets and customer positions that provide less single point dependency and longer returns on our investments . together , these competitive advantages help position ti in a unique class of companies capable of generating and returning significant amounts of cash for our owners . we make our investments with an eye towards long-term strengthening and leveraging of these advantages . 2. discipline in allocating capital to the best opportunities . this spans how we select r & d projects , develop new capabilities like ti.com , invest in new manufacturing capacity or how we think about acquisitions and returning cash to our owners . 3. efficiency , which means constantly striving for more output for every dollar spent . we believe that our business model with the combined effect of our four competitive advantages sets ti apart from our peers and will for a long time to come . we will invest to strengthen our competitive advantages , be disciplined in capital allocation and stay diligent in our pursuit of efficiencies . finally , we will remain focused on the belief that long-term growth of free cash flow per share is the ultimate measure to generate value . management 's discussion and analysis of financial condition and results of operations ( md & a ) should be read in conjunction with the financial statements and the related notes that appear elsewhere in this document . story_separator_special_tag billion of short-term investments as of december 31 , 2020. we believe we have the necessary financial resources and operating plans to fund our working capital needs , capital expenditures , dividend and debt-related payments and other business requirements for at least the next 12 months . non-gaap financial information this md & a includes references to free cash flow and ratios based on that measure . these are financial measures that were not prepared in accordance with generally accepted accounting principles in the united states ( gaap ) . free cash flow was calculated by subtracting capital expenditures from the most directly comparable gaap measure , cash flows from operating activities ( also referred to as cash flow from operations ) . we believe that free cash flow and the associated ratios provide insight into our liquidity , our cash-generating capability and the amount of cash potentially available to return to shareholders , as well as insight into our financial performance . these non-gaap measures are supplemental to the comparable gaap measures . reconciliation to the most directly comparable gaap measures is provided in the table below . replace_table_token_5_th 19 this md & a also includes references to an annual operating tax rate , a non-gaap term we use to describe the estimated annual effective tax rate , a gaap measure that by definition does not include discrete tax items . we believe the term annual operating tax rate helps differentiate from the effective tax rate , which includes discrete tax items . long-term contractual obligations replace_table_token_6_th ( a ) principal and related interest payments for our long-term debt obligations , including amounts classified as the current portion of long-term debt . ( b ) includes payments for software licenses and contractual arrangements with suppliers when there is a fixed , non-cancellable payment schedule or when minimum payments are due with a reduced delivery schedule . excludes cancellable arrangements . see note 11 to the financial statements . ( c ) includes payments for the one-time transition tax on our indefinitely reinvested earnings related to the 2017 enactment of the u.s. tax cuts and jobs act . ( d ) includes minimum payments for leased facilities and equipment and purchases of industrial gases under contracts accounted for as operating leases . see note 10 to the financial statements . ( e ) estimated payments for certain liabilities that existed as of december 31 , 2020 . ( f ) excludes $ 89 million of uncertain tax liabilities under asc 740 , as well as any planned future funding contributions to retirement benefit plans . amounts associated with uncertain tax liabilities have been excluded because of the difficulty in making reasonably reliable estimates of the timing of cash settlements with the respective taxing authorities . regarding future funding of retirement benefit plans , we plan to contribute about $ 10 million in 2021 , but funding projections beyond 2021 are not practical to estimate due to the rules affecting tax-deductible contributions and the impact from the plans ' asset performance , interest rates and potential u.s. and non-u.s. legislation . critical accounting policies our accounting policies are more fully described in note 2 of the consolidated financial statements . as disclosed in note 2 , the preparation of consolidated financial statements in conformity with u.s. gaap requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes . however , based on facts and circumstances inherent in developing estimates and assumptions , management believes it is unlikely that applying other estimates and assumptions would have a material impact on the financial statements . we consider the following accounting policies to be those that are most important to the portrayal of our financial condition and that require a higher degree of judgment . income taxes in determining net income for financial statement purposes , we must make certain estimates and judgments in the calculation of tax provisions and the resultant tax liabilities and in the recoverability of deferred tax assets that arise from temporary differences between the tax and financial statement recognition of revenue and expense . 20 in the ordinary course of global business , there may be many transactions and calculations where the ultimate tax outcome is uncertain . the calculation of tax liabilities involves dealing with uncertainties in the interpretation and application of complex tax laws , and significant judgment is necessary to ( i ) determine whether , based on the technical merits , a tax position is more likely than not to be sustained and ( ii ) measure the amount of tax benefit that qualifies for recognition . we recognize potential liabilities for anticipated tax audit issues in the united states and other tax jurisdictions based on an estimate of the ultimate resolution of whether , and the extent to which , additional taxes will be due . although we believe the estimates are reasonable , no assurance can be given that the final outcome of these matters will not be different from what is reflected in the historical income tax provisions and accruals . as part of our financial process , we must assess the likelihood that our deferred tax assets can be recovered . if recovery is not likely , the provision for taxes must be increased by recording a reserve in the form of a valuation allowance for the deferred tax assets that are estimated not to be ultimately recoverable . our judgment regarding future recoverability of our deferred tax assets may change due to various factors , including changes in u.s. or international tax laws and changes in market conditions and their impact on our assessment of taxable income in future periods . these changes , if any , may require adjustments to the deferred tax assets and an accompanying reduction or increase in net income in the period when such determinations are made . inventory valuation allowances inventory is
| results of operations our strategic focus is on analog and embedded processing products sold into six end markets : industrial , automotive , personal electronics , communications equipment , enterprise systems and other . while all end markets represent good opportunities , we place additional strategic emphasis on designing and selling those products into the industrial and automotive markets , which we believe represent the best growth opportunities . gross margin of 64.1 % reflected the quality of our product portfolio , as well as the efficiency of our manufacturing strategy , including the benefit of 300-millimeter analog production . our focus on analog and embedded processing allows us to generate strong cash flow from operations . our cash flow from operations of $ 6.14 billion underscored the strength of our business model . free cash flow was $ 5.49 billion and represented 38.0 % of revenue . during 2020 , consistent with our commitment to return free cash flow to owners , we returned $ 5.98 billion to shareholders through a combination of dividends and stock repurchases . our dividend represented 62 % of free cash flow , underscoring its sustainability . details of financial results – 2020 compared with 2019 revenue of $ 14.46 billion increased $ 78 million , or 1 % , primarily due to higher revenue from analog , partially offset by lower revenue from embedded processing . gross profit of $ 9.27 billion was up $ 105 million , or 1 % , due to higher revenue and increased factory loadings . as a percentage of revenue , gross profit increased to 64.1 % from 63.7 % . operating expenses ( r & d and sg & a ) were $ 3.15 billion compared with $ 3.19 billion . acquisition charges were $ 198 million compared with $ 288 million and were non-cash . see note 7 to the financial statements .
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the forward-looking statements in this discussion regarding the mattress and pillow industries , our expectations regarding our future performance , liquidity and capital resources and other non-historical statements in this discussion are subject to numerous risks and uncertainties . see “ special note regarding forward-looking statements ” and “ item 1a . risk factors ” in part i of this report . our actual results may differ materially from those contained in any forward-looking statements . in this discussion and analysis , we discuss and explain the consolidated financial condition and results of operations for tempur-pedic international for the years ended december 31 , 2011 , 2010 and 2009 including the following topics : ● an overview of our business and strategy ; ● our net sales and costs in the periods presented as well as changes between periods ; ● discussion of new initiatives that may affect our future results of operations and financial condition ; ● expected future expenditures for capital projects and sources of liquidity for future operations ; and ● the effect of the foregoing on our overall financial performance and condition , as well as factors that could affect our future performance . business overview general . we are the leading manufacturer , marketer and distributor of premium mattresses and pillows , which we sell in approximately 80 countries under the tempur® and tempur-pedic® brands . we believe our premium mattresses and pillows are more comfortable than standard bedding products because our proprietary pressure-relieving tempur® material is temperature sensitive , has a high density and therapeutically conforms to the body . we sell our premium mattresses and pillows through four distribution channels in each operating business segment : retail ( furniture and bedding , non-spring and department stores ) ; direct ( direct response , internet and company-owned stores ) ; healthcare ( hospitals , nursing homes , healthcare professionals and medical retailers ) ; and third party distributors in countries where we do not sell directly through our own subsidiaries . in our international segment certain of our subsidiaries sell directly through company-owned stores . prior to 2011 , these sales have not been material and were reported through our retail channel . in 2011 , and consistent with our growth initiatives , we are reporting company-owned stores in the international segment within the direct channel . prior period amounts have been reclassified to conform to the 2011 presentation of net sales , by channel and by segment . these changes do not impact previously reported international segment net sales totals . business segments . we have two reportable business segments : north america and international . these reportable segments are strategic business units that are managed separately based on the fundamental differences in their geographies . the north american operating segment consists of two u.s. manufacturing facilities and our north american distribution subsidiaries . the international segment consists of our manufacturing facility in denmark , whose customers include all of our distribution subsidiaries and third party distributors outside the north american operating segment . we evaluate segment performance based on net sales and operating income . on april 1 , 2010 , we purchased our third party distributor in canada . accordingly , net sales in the canadian market are reported in the appropriate channels within the north american segment . as canada represented essentially all sales through the north american third party channel , we no longer report third party sales in this segment . 26 for a further discussion of factors that could impact operating results , including the current economic environment and the steps we are taking to address this environment , see the section entitled “ factors that may affect future performance ” included within this section and `` risk factors '' in item 1a , which are incorporated herein by reference . strategy our goal is to become the world 's favorite mattress and pillow brand . in order to achieve this long-term goal while managing through the current economic environment , we expect to continue to pursue certain key strategic goals using the related strategies discussed below . ● make sure everyone knows that they would sleep better on a tempur-pedic ® mattress – we plan to continue to invest in our global brand awareness through advertising campaigns that further associate our brand name with overall sleep and premium quality products . ● make sure there is a tempur-pedic ® bed and pillow that appeals to everyone – we plan to continue to maintain our focus on premium mattresses and pillows and regularly introduce new products . ● make sure that tempur-pedic ® products are available to everyone – we plan to expand our points of distribution and the effectiveness of our distribution channels . ● make sure that tempur-pedic ® bedding products continue to deliver the best sleep – we plan to continue to invest in product research and development . in pursuing these strategic goals , we expect to continue to optimize our cost structure in order to enable these marketing and product development investments . story_separator_special_tag selling and marketing expenses . selling and marketing expenses include advertising and media production associated with our direct channel , other marketing materials such as catalogs , brochures , videos , product samples , direct customer mailings and point of purchase materials , and sales force compensation . we also include in selling and marketing expense certain new product development costs , including market research and new product testing . selling and marketing expenses increased to $ 276.9 million for the year ended december 31 , 2011 as compared to $ 199.7 million for the year ended december 31 , 2010 , an increase of $ 77.1 million , or 38.6 % . story_separator_special_tag % . in 2009 , our industry was affected by an unstable macroeconomic environment which had an adverse impact on our net sales . however , during 2010 , we experienced a significant improvement in net sales . we believe our revenues gained momentum primarily as a result of investments made in marketing , research and development and new product introductions . we were well positioned to make these investments because we maintained our financial flexibility during the economic downturn . consolidated mattress sales increased $ 185.6 million , or 33.8 % , compared to the full year 2009. the increase in mattress sales occurred primarily in our retail channel with net sales increasing to $ 953.2 million from $ 699.0 million in the same period in 2009 , an increase of $ 254.1 million , or 36.3 % . consolidated pillow sales increased approximately $ 23.0 million , or 21.4 % compared to the twelve months ended december 31 , 2009. consolidated other , which includes adjustable bed bases , foundations and other related products , increased $ 65.6 million , or 37.8 % . many of our pillows and other products are sold with mattress purchases . therefore , when mattress sales increase , pillows and other products are also impacted . the principal factors that impacted net sales for each segment are discussed below , in the respective segment discussion . north america . north american net sales for the year ended december 31 , 2010 increased to $ 772.0 million from $ 525.3 million for the same period in 2009 , an increase of $ 246.7 million , or 47.0 % . our north american retail channel contributed $ 694.7 million in net sales for the twelve months ended december 31 , 2010 , for an increase of $ 235.0 million , or 51.1 % . the introduction of our new product line , the tempur-cloud ® collection , was well received by retailers and consumers . this latest generation of proprietary tempur® material was developed for consumers who want a soft sleep surface with the underlying support provided by a tempur-pedic mattress . during 2009 , we launched the first product in the collection , the tempur-cloud supreme ® . in january 2010 , we launched the second mattress in this line , the tempur-cloud ® , and during the third quarter of 2010 we introduced the tempur-cloud luxe ® . the tempur-cloud ® collection has been extremely successful , and by appealing to a different group of consumers , has greatly increased our target market and accordingly was a significant driver of our net sales and market share growth in 2010. additionally , we believe that our “ ask me ” advertising campaign has had a positive impact on our performance . as a result , north american mattress sales increased $ 172.3 million , or 47.0 % , over the same period in 2009 , driven by the increase in our retail channel . net sales in the direct channel increased by $ 16.4 million , or 37.9 % . we believe increased sales in the direct channel are a result of our focus on building brand awareness and encouraging consumers to visit our website through our advertisements . the third party channel net sales decrease was attributable to our april 1 , 2010 acquisition of our third-party distributor in canada . pillow sales increased $ 16.9 million , or 34.6 % , over the same period in 2009. other net sales increased $ 57.5 million , or 52.5 % , compared to the same period in 2009. many of our pillows and other products are sold with mattress purchases . therefore , when mattress sales increase , pillows and other products are also impacted . additionally , we have emphasized and experienced improved attach rates on adjustable bed bases which are sold at a higher price point than traditional foundations . 32 international . international net sales for the year ended december 31 , 2010 increased to $ 333.4 million from $ 305.8 million for the same period in 2009 , an increase of $ 27.6 million , or 9.0 % . on a constant currency basis , our international sales increased approximately 10.9 % . we experienced some stabilization of the global economic slowdown in our international markets , which impacted net sales in 2009. additionally , we added new key customers in certain international markets . the international retail channel increased $ 19.1 million , or 8.0 % , for the twelve months ended december 31 , 2010. international retail increased primarily because of growing our distribution and from the success of the sensation mattress . third party net sales increased $ 6.1 million , or 19.3 % . the primary factor for the increase in third party sales was related to improved macroeconomic environments in our significant third party regions in our international segment . our introduction of the sensation mattress line in the international segment has been well accepted by retailers and consumers . as a result , international mattress sales in 2010 increased $ 13.4 million , or 7.3 % , compared to 2009. pillow sales in 2010 increased $ 6.1 million , or 10.4 % , as compared to 2009. other product net sales increased $ 8.1 million , or 12.6 % , as compared to 2009. many of our pillows and other products are sold with mattress purchases . therefore , when mattress sales increase , pillows and other products are also impacted . gross profit . gross profit for the year ended december 31 , 2010 increased to $ 555.4 million from $ 393.7 million for the same period in 2009 , an increase of $ 161.7 million , or 41.1 % . gross profit margin for the year ended december 31 , 2010 was 50.2 % , as compared to 47.4 % in the same period of 2009. our gross profit margin is impacted by , among other factors , geographic mix between segments .
| results of operations key financial highlights for the year ended december 31 , 2011 include : ● earnings per common share ( eps ) were $ 3.18 per diluted share compared to $ 2.16 for the full year 2010 . ● net sales increased to $ 1.4 billion compared to $ 1.1 billion for the full year 2010 . ● our gross profit margin was 52.4 % compared to 50.2 % for the year ended december 31 , 2010 . ● our operating income margin was 24.0 % compared to 22.2 % for the year ended december 31 , 2010 . ● during the year ended december 31 , 2011 , we generated $ 248.7 million of operating cash flow compared to $ 184.1 million for the year ended december 31 , 2010 . ● during the year ended december 31 , 2011 , we repurchased 6.5 million shares of our common stock for a total cost of $ 368.5 million . 27 the following table sets forth the various components of our consolidated statements of income , and expresses each component as a percentage of net sales : replace_table_token_4_th year ended december 31 , 2011 compared with year ended december 31 , 2010 a summary of net sales , by channel and by segment , is set forth below : replace_table_token_5_th a summary of net sales , by product and by segment , is set forth below : replace_table_token_6_th 28 net sales . net sales for the year ended december 31 , 2011 increased to $ 1.4 billion from $ 1.1 billion , an increase of $ 312.5 million , or 28.3 % . we believe our revenues have continued gaining momentum primarily as a result of investments made in marketing , the ongoing success of new product introductions and expanding points of distribution .
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certified public accountants a professional corporation 1438 north highway 89 , suite 130 farmington , utah 84025 _ ( 801 ) 447-9572 fax ( 801 ) 447-9578 report of independent registered public accounting firm board of directors sigma labs , inc. santa fe , new mexico we have audited the accompanying balance sheets of sigma labs , inc. as of december 31 , 2015 and 2014 and the related statements of operations , stockholders ' equity and cash flows for the years then ended . sigma labs , inc. 's management is responsible for these financial statements . our responsibility is to express an opinion on these financial statements based on our audits . we conducted our audits in accordance with the standards of the public company accounting oversight board ( united states ) . those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement . the company is not required to have , nor were we engaged to perform , an audit of its internal control over financial reporting . our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances , but not for the purpose of expressing an opinion on the effectiveness of the company 's internal control over financial reporting . accordingly , we express no such opinion . an audit includes examining , on a test basis , evidence supporting the amounts and disclosures in the financial statements , assessing the accounting principles used and significant estimates made by management , as well as evaluating the overall financial statement presentation . we believe that our audits provide a reasonable basis for our opinion . in our opinion , the financial statements referred to above present fairly , in all material respects , the financial position of sigma labs , inc. as of december 31 , 2015 and 2014 and the results of its operations and its cash flows for the years then ended , in conformity with accounting principles generally accepted in the united states of america . pritchett , siler & hardy , p.c . farmington , utah march 16 , 2016 f- 1 replace_table_token_6_th f- 2 replace_table_token_7_th f- 3 sigma labs , inc. statement of stockholders ' equity years ended december 31 , 2015 and 2014 replace_table_token_8_th f- 4 sigma labs , inc. statements of cash flows years ended december 31 , 2015 and 2014 years ended december 31 2015 2014 operating activities net income ( loss ) $ ( 1,696,282 ) $ ( 3,116,080 ) adjustments to reconcile net income ( loss ) to net cash provided ( used ) by operations : noncash expenses : amortization 2,308 2,309 depreciation 166,744 20,340 stock compensation 518,438 582,550 impairment of deferred stock offering costs 95,511 - ( decrease ) in allowance for doubtful accounts ( 4,884 ) - loss on investment in joint venture 778 - warrant expense - 1,283,333 change in assets and liabilities : ( increase ) decrease in accounts receivable ( 157,612 ) 185,719 decrease ( increase ) in inventory 36,046 ( 55,008 ) decrease ( increase ) in prepaid assets 23,702 ( 4,912 ) ( decrease ) increase in accounts payable ( 271,305 ) 207,073 increase in accrued expenses 26,871 6,116 net cash provided ( used ) by operating activities ( 1,259,685 ) ( 888,560 ) investing activities purchase of furniture and equipment ( 78,471 ) ( 811,948 ) purchase of intangible assets ( 74,104 ) ( 27,662 ) investment in joint venture ( 10,000 ) - net cash ( used ) by investing activities ( 162,575 ) ( 839,610 ) financing activities proceeds from sale of stock subscriptions - 4,000,000 deferred stock offering costs - ( 95,511 ) stock offering costs - ( 206,698 ) story_separator_special_tag critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the reported assets , liabilities , sales and expenses in the accompanying financial statements . critical accounting policies are those that require the most subjective and complex judgments , often employing the use of estimates about the effect of matters that are inherently uncertain . such critical accounting policies , including the assumptions and judgments underlying them , are disclosed in note 1 to the financial statements included in this annual report . however , we do not believe that there are any alternative methods of accounting for our operations that would have a material affect on our financial statements . story_separator_special_tag printrite3d® systems and supporting field services , as applicable , and providing printrite3d®-enabled engineering consulting services concerning our areas of expertise ( materials and manufacturing quality assurance and process control technologies ) and contract manufacturing for metal am , and through the use of proceeds from sales of our securities . 20 cash flows used in operating activities in 2015 increased to $ 1,259,685 from $ 888,560 in 2014 due primarily to reductions in accounts payable and increases in accounts receivable in 2015 , and fewer non-cash expenses in 2015 partially offset by a reduction in net losses of $ 1,419,798. the company anticipates fewer losses in 2016 , due to increased revenues , offset by the increased cost of growth in salaries and related expenses in connection with our additional employees . cash flows used in investing activities decreased substantially in 2015 from $ 839,610 to $ 162,575 primarily because we purchased our eos m290 in 2014. purchases in 2016 are not expected to increase dramatically over 2015. there were no cash flows used or provided by financing activities in 2015 , whereas there was a private offering in 2014 that raised net proceeds of $ 3,697,791. as of march 16 , 2016 , we have seven active contracts with respect to which we expect to perform and generate up to approximately $ 690,000 in revenues story_separator_special_tag certified public accountants a professional corporation 1438 north highway 89 , suite 130 farmington , utah 84025 _ ( 801 ) 447-9572 fax ( 801 ) 447-9578 report of independent registered public accounting firm board of directors sigma labs , inc. santa fe , new mexico we have audited the accompanying balance sheets of sigma labs , inc. as of december 31 , 2015 and 2014 and the related statements of operations , stockholders ' equity and cash flows for the years then ended . sigma labs , inc. 's management is responsible for these financial statements . our responsibility is to express an opinion on these financial statements based on our audits . we conducted our audits in accordance with the standards of the public company accounting oversight board ( united states ) . those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement . the company is not required to have , nor were we engaged to perform , an audit of its internal control over financial reporting . our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances , but not for the purpose of expressing an opinion on the effectiveness of the company 's internal control over financial reporting . accordingly , we express no such opinion . an audit includes examining , on a test basis , evidence supporting the amounts and disclosures in the financial statements , assessing the accounting principles used and significant estimates made by management , as well as evaluating the overall financial statement presentation . we believe that our audits provide a reasonable basis for our opinion . in our opinion , the financial statements referred to above present fairly , in all material respects , the financial position of sigma labs , inc. as of december 31 , 2015 and 2014 and the results of its operations and its cash flows for the years then ended , in conformity with accounting principles generally accepted in the united states of america . pritchett , siler & hardy , p.c . farmington , utah march 16 , 2016 f- 1 replace_table_token_6_th f- 2 replace_table_token_7_th f- 3 sigma labs , inc. statement of stockholders ' equity years ended december 31 , 2015 and 2014 replace_table_token_8_th f- 4 sigma labs , inc. statements of cash flows years ended december 31 , 2015 and 2014 years ended december 31 2015 2014 operating activities net income ( loss ) $ ( 1,696,282 ) $ ( 3,116,080 ) adjustments to reconcile net income ( loss ) to net cash provided ( used ) by operations : noncash expenses : amortization 2,308 2,309 depreciation 166,744 20,340 stock compensation 518,438 582,550 impairment of deferred stock offering costs 95,511 - ( decrease ) in allowance for doubtful accounts ( 4,884 ) - loss on investment in joint venture 778 - warrant expense - 1,283,333 change in assets and liabilities : ( increase ) decrease in accounts receivable ( 157,612 ) 185,719 decrease ( increase ) in inventory 36,046 ( 55,008 ) decrease ( increase ) in prepaid assets 23,702 ( 4,912 ) ( decrease ) increase in accounts payable ( 271,305 ) 207,073 increase in accrued expenses 26,871 6,116 net cash provided ( used ) by operating activities ( 1,259,685 ) ( 888,560 ) investing activities purchase of furniture and equipment ( 78,471 ) ( 811,948 ) purchase of intangible assets ( 74,104 ) ( 27,662 ) investment in joint venture ( 10,000 ) - net cash ( used ) by investing activities ( 162,575 ) ( 839,610 ) financing activities proceeds from sale of stock subscriptions - 4,000,000 deferred stock offering costs - ( 95,511 ) stock offering costs - ( 206,698 ) story_separator_special_tag critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the reported assets , liabilities , sales and expenses in the accompanying financial statements . critical accounting policies are those that require the most subjective and complex judgments , often employing the use of estimates about the effect of matters that are inherently uncertain . such critical accounting policies , including the assumptions and judgments underlying them , are disclosed in note 1 to the financial statements included in this annual report . however , we do not believe that there are any alternative methods of accounting for our operations that would have a material affect on our financial statements . story_separator_special_tag printrite3d® systems and supporting field services , as applicable , and providing printrite3d®-enabled engineering consulting services concerning our areas of expertise ( materials and manufacturing quality assurance and process control technologies ) and contract manufacturing for metal am , and through the use of proceeds from sales of our securities . 20 cash flows used in operating activities in 2015 increased to $ 1,259,685 from $ 888,560 in 2014 due primarily to reductions in accounts payable and increases in accounts receivable in 2015 , and fewer non-cash expenses in 2015 partially offset by a reduction in net losses of $ 1,419,798. the company anticipates fewer losses in 2016 , due to increased revenues , offset by the increased cost of growth in salaries and related expenses in connection with our additional employees . cash flows used in investing activities decreased substantially in 2015 from $ 839,610 to $ 162,575 primarily because we purchased our eos m290 in 2014. purchases in 2016 are not expected to increase dramatically over 2015. there were no cash flows used or provided by financing activities in 2015 , whereas there was a private offering in 2014 that raised net proceeds of $ 3,697,791. as of march 16 , 2016 , we have seven active contracts with respect to which we expect to perform and generate up to approximately $ 690,000 in revenues
| results of operations year ended december 31 , 2015 compared to the year ended december 31 , 2014. we expect to generate revenue primarily by selling and licensing our manufacturing and materials technologies to businesses that seek to improve their manufacturing production processes and or manipulate and improve the most functional characteristics of the materials and other input components used in their business operations . we also expect to generate revenues though contract am manufacturing using our in-house metal 3d printing capability . however , we presently make limited sales of these technologies and services , which include limited sales of non-exclusive licenses to use our printrite3d® technologies , including under our recently established early adopter program and oem partner program , as described above . our ability to generate revenues in the future will depend on our ability to further commercialize and increase market presence of our printrite3d® technologies . during the fiscal year ended december 31 , 2015 ( “ fiscal 2015 ” ) , we generated an aggregate of $ 1,234,810 in revenues , as compared to an aggregate of $ 548,723 in revenues that were generated by us during the fiscal year ended december 31 , 2014 ( “ fiscal 2014 ” ) . the increase in revenue was primarily due to our ongoing work under additional contracts as compared to the prior year . we generated revenues and financed our operations in fiscal 2015 and fiscal 2014 primarily from engineering consulting services we provided to third parties during these periods and through private sales of our common stock .
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of the loan receivable balance , $ 80 million was classified as current held-for-sale assets and $ 1.2 billion was classified as noncurrent held-for-sale assets on the consolidated balance sheet . see note 20— revenue included in item 8.— financial statements and supplementary data of this form 10-k for further information . 103 | 2020 annual report cash sources and uses the primary sources of cash for the company in the year ended december 31 , 2020 were debt financings , cash flows from operating activities , sales of short-term investments , and sales to noncontrolling interests . the primary uses of cash in the year ended december 31 , 2020 were repayments of debt , capital expenditures , and purchases of short-term investments . the primary sources of cash for the company in the year ended december 31 , 2019 were debt financings , cash flows from operating activities , and sales of short-term investments . the primary uses of cash in the year ended december 31 , 2019 were repayments of debt , capital expenditures , and purchases of short-term investments . the primary sources of cash for the company in the year ended december 31 , 2018 were debt financings , cash flows from operating activities , proceeds from the sales of business interests , and sales of short-term investments . the primary uses of cash in the year ended december 31 , 2018 were repayments of debt , capital expenditures , and purchases of short-term investments . a summary of cash-based activities are as follows ( in millions ) : replace_table_token_21_th consolidated cash flows the following table reflects the changes in operating , investing , and financing cash flows for the comparative twelve month periods ( in millions ) : replace_table_token_22_th 104 | 2020 annual report operating activities fiscal year 2020 versus 2019 net cash provided by operating activities increased $ 289 million for the year ended december 31 , 2020 , compared to december 31 , 2019. operating cash flows ( 1 ) ( in millions ) ( 1 ) amounts included in the chart above include the results of discontinued operations , where applicable . ( 2 ) the change in adjusted net income is defined as the variance in net income , net of the total adjustments to net income as shown on the consolidated statements of cash flows in item 8.— financial statements and supplementary data of this form 10-k. ( 3 ) the change in working capital is defined as the variance in total c hanges in operating assets and liabilities as shown on the consolidated statements of cash flows in item 8.— financial statements and supplementary data of this form 10-k. adjusted net income decreased $ 40 million , primarily due to lower margins at our us and utilities sbu and prior year gains on insurance proceeds associated with the lightning incident at the andres facility in 2018 and the changuinola tunnel leak , partially offset by higher margins at our south america and mcac sbus . working capital requirements decreased $ 329 million , primarily due to an increase in deferred income at angamos as a result of the early contract terminations with minera escondida and minera spence . fiscal year 2019 versus 2018 net cash provided by operating activities increased $ 123 million for the year ended december 31 , 2019 , compared to december 31 , 2018. operating cash flows ( 1 ) ( in millions ) ( 1 ) amounts included in the chart above include the results of discontinued operations , where applicable . ( 2 ) the change in adjusted net income is defined as the variance in net income , net of the total adjustments to net income as shown on the consolidated statements of cash flows in item 8.— financial statements and supplementary data of this form 10-k. ( 3 ) the change in working capital is defined as the variance in total c hanges in operating assets and liabilities as shown on the consolidated statements of cash flows in item 8.— financial statements and supplementary data of this form 10-k. 105 | 2020 annual report adjusted net income decreased $ 24 million , primarily due to lower margins at our south america and mcac sbus . these impacts were partially offset by the gains on insurance recoveries in 2019 associated with the lightning incident at the andres facility in 2018 and the changuinola tunnel leak , and higher margins at our us and utilities sbu . working capital requirements decreased $ 147 million , primarily due to higher collections of overdue receivables from distribution companies in the dominican republic , higher collections of insurance receivables at andres , and lower supplier payments and vat recoveries at gener . these impacts were partially offset by a decrease in income tax liabilities at argentina as a result of lower operating margin and income tax rates , and higher supplier payments and collections at puerto rico in 2018. investing activities story_separator_special_tag href= '' https : //www.sec.gov/archives/edgar/data/0000874761/000087476121000015/ # ib8a9d8a86e19404b8f4f50535106f937_319 '' style= '' color : # 000000 ; font-family : 'arial ' , sans-serif ; font-size:7pt ; font-style : italic ; font-weight:400 ; line-height:120 % ; text-decoration : none '' > debt in item 8.— financial statements and supplementary data of this form 10-k for more information regarding significant debt transactions . the $ 483 million impact from recourse debt activity is primarily due to higher net repayments of parent company debt in 2018. the $ 480 million impact from non-recourse debt transactions is primarily due to net issuances at gener , alto maipo and dpl , which were partially offset by net repayments at aes brasil , and lower net issuances in 2018 at ipalco . the $ 387 million impact from parent company revolver transactions is primarily from higher repayments in 2018 , and higher borrowings in 2019 for general corporate cash management activities . story_separator_special_tag see note 11— debt in item 8.— financial statements and supplementary data of this form 10-k for additional detail . none of the subsidiaries that are currently in default are subsidiaries that met the applicable definition of materiality under the parent company 's debt agreements as of december 31 , 2020 , in order for such defaults to trigger an event of default or permit acceleration under the parent company 's indebtedness . however , as a result of additional dispositions of assets , other significant reductions in asset carrying values or other matters in the future that may impact our financial position and results of operations or the financial position of the individual subsidiary , it is possible that one or more of these subsidiaries could fall within the definition of a `` material subsidiary '' and thereby trigger an event of default and possible acceleration of the indebtedness under the parent company 's outstanding debt securities . a material subsidiary is defined in the parent company 's revolving credit facility as any business that contributed 20 % or more of the parent company 's total cash distributions from businesses for the four most recently completed fiscal quarters . as of december 31 , 2020 , none of the defaults listed above , individually or in the aggregate , results in or is at risk of triggering a cross-default under the recourse debt of the parent company . contractual obligations and parent company contingent contractual obligations a summary of our contractual obligations , commitments and other liabilities as of december 31 , 2020 is presented below ( in millions ) : replace_table_token_24_th _ ( 1 ) includes recourse and non-recourse debt presented on the consolidated balance sheet . these amounts exclude finance lease liabilities which are included in the finance lease category . ( 2 ) excludes any businesses classified as held-for-sale . see note 25— held-for- sale and dispositions in item 8.— financial statements and supplementary data of this form 10-k for additional information related to held-for-sale businesses . ( 3 ) interest payments are estimated based on final maturity dates of debt securities outstanding at december 31 , 2020 and do not reflect anticipated future refinancing , early redemptions or new debt issuances . variable rate interest obligations are estimated based on rates as of december 31 , 2020 . ( 4 ) these amounts do not include current liabilities on the consolidated balance sheet except for the current portion of uncertain tax obligations . noncurrent uncertain tax obligations are reflected in the `` other '' column of the table above as the company is not able to reasonably estimate the timing of the future payments . in addition , these amounts do not include : ( 1 ) regulatory liabilities ( see note 10— regulatory assets and liabilities ) , ( 2 ) contingencies ( see note 13— contingencies ) , ( 3 ) pension and other postretirement employee benefit liabilities ( see note 15— benefit plans ) , ( 4 ) derivatives and incentive compensation ( see note 6— derivative instruments and hedging activities ) or ( 5 ) any taxes ( see note 23— income taxes ) except for uncertain tax obligations , as the company is not able to reasonably estimate the timing of future payments . see the indicated notes to the consolidated financial statements included in item 8 of this form 10-k for additional information on the items excluded . ( 5 ) for further information see the note referenced below in item 8.— financial statements and supplementary data of this form 10-k. 111 | 2020 annual report the following table presents our parent company 's contingent contractual obligations as of december 31 , 2020 : replace_table_token_25_th _ ( 1 ) excludes normal and customary representations and warranties in agreements for the sale of assets ( including ownership in associated legal entities ) where the associated risk is considered to be nominal . we have a diverse portfolio of performance-related contingent contractual obligations . these obligations are designed to cover potential risks and only require payment if certain targets are not met or certain contingencies occur . the risks associated with these obligations include change of control , construction cost overruns , subsidiary default , political risk , tax indemnities , spot market power prices , sponsor support and liquidated damages under power sales agreements for projects in development , in operation and under construction . while we do not expect that we will be required to fund any material amounts under these contingent contractual obligations beyond 2020 , many of the events which would give rise to such obligations are beyond our control . we can provide no assurance that we will be able to fund our obligations under these contingent contractual obligations if we are required to make substantial payments thereunder . critical accounting policies and estimates the consolidated financial statements of aes are prepared in conformity with u.s. gaap , which requires the use of estimates , judgments , and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented . aes ' significant accounting policies are described in note 1— general and summary of significant accounting policies to the consolidated financial statements included in item 8 of this form 10-k. an accounting estimate is considered critical if the estimate requires management to make assumptions about matters that were highly uncertain at the time the estimate was made , different estimates reasonably could have been used , or the impact of the estimates and assumptions on financial condition or operating performance is material . management believes that the accounting estimates employed are appropriate and the resulting balances are reasonable ; however , actual results could materially differ from the original estimates , requiring adjustments to these balances in future periods . management has discussed these critical accounting policies with the audit committee , as appropriate .
| fiscal year 2020 versus 2019 net cash used in investing activities decreased $ 426 million for the year ended december 31 , 2020 compared to december 31 , 2019. investing cash flows ( in millions ) cash from short-term investing activities increased $ 78 million , primarily at tietê as a result of lower net short-term investment purchases in 2020. insurance proceeds decreased $ 141 million , largely due to prior year insurance proceeds associated with the lightning incident at the andres facility in 2018 and the changuinola tunnel leak . capital expenditures decreased $ 505 million , discussed further below . 106 | 2020 annual report capital expenditures ( in millions ) growth expenditures decreased $ 356 million , primarily driven by the timing of payments for the southland repowering project , renewable energy projects in argentina , and a pipeline project at andres , as well as the completion of solar projects at aes brasil , a wind project in hawaii , and the colon lng facility in panama . this impact was partially offset by higher investments at ipalco and in renewable projects at gener . maintenance expenditures decreased $ 143 million , primarily due to prior year expenditures at andres as a result of the steam turbine lightning damage and in panama as a result of the changuinola tunnel lining upgrade , as well as due to the timing of payments in the prior year at ipalco . environmental expenditures decreased $ 6 million , primarily due to the timing of payments in the prior year related to projects at gener .
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however , our ability to raise additional capital in the equity markets is dependent on a number of factors , including , but not limited to , the market demand story_separator_special_tag the following discussion is included to describe our financial position and results of operations for each of the three years in the period ended april 30 , 2013. the consolidated financial statements and notes thereto contain detailed information that should be referred to in conjunction with this discussion . overview we are a biopharmaceutical company with a portfolio of innovative monoclonal antibodies in clinical trials focused on the treatment and diagnosis of cancer . we are advancing two oncology programs with our lead product candidates , bavituximab and cotara , for the treatment of various cancers . in addition , we are advancing our lead molecular imaging agent , 124i-pgn650 , in an exploratory clinical trial for the imaging of multiple solid tumor types . our pipeline of novel investigational monoclonal antibodies is based on two first-in-class technology platforms , including phosphatidylserine ( “ ps ” ) -targeting antibodies and dna/histone-targeting antibody ( cotara ) . the following is an update of our oncology and imaging programs in clinical-stage development under these first-in-class technology platforms : bavituximab for the treatment of solid tumors bavituximab is our lead therapeutic ps-targeting antibody , which has demonstrated broad therapeutic potential and represents a new approach to treating cancer . ps is a highly immunosuppressive molecule usually located inside the membrane of healthy cells , but `` flips '' and becomes exposed on the outside of cells that line tumor blood vessels , causing the tumor to evade immune detection . bavituximab targets ps and activates the maturation of dendritic cells and cancer-fighting ( m1 ) macrophages leading to the development of cytotoxic t-cells that fight tumors . we have conducted three randomized phase ii trials for bavituximab in combination with standard chemotherapy in both front and second-line non-small cell lung cancer ( “ nsclc ” ) as well as front-line pancreatic cancer . in addition , we have four ongoing investigator-sponsored trials ( “ ist ” ) evaluating bavituximab with additional drug combinations in additional oncology indications . from these randomized phase ii clinical trials and ists conducted to date , we have identified second-line nsclc as our lead indication for bavituximab based on : · promising survival data from our phase iib randomized , double-blind , placebo-controlled trial of stage iiib/iv nsclc patients treated with bavituximab plus docetaxel versus docetaxel alone as second-line treatment , which was recently presented at the 2013 american society of clinical oncology ( “ asco ” ) annual meeting ; · data presented at the 2013 american academy for cancer research ( “ aacr ” ) annual meeting which yielded definitive insight into bavituximab 's immunotherapy mechanism of action ; · our increased understanding of docetaxel 's immune stimulatory properties and apoptotic inducing properties ; · promising survival data from our single arm phase iia evaluating bavituximab plus docetaxel in advanced metastatic breast cancer ; and · compelling preclinical data demonstrating synergistic anti-tumor effects when bavituximab is combined with docetaxel . in addition , in june 2013 , we conducted a comprehensive review of our bavituximab oncology program with the goal of adapting a clinical development plan in accordance with the recent increased understanding of the immune-stimulatory properties of bavituximab . we believe that several of the ongoing clinical trials could corroborate bavituximab 's immunotherapy mechanism of action in the clinic as they include patient sample collection for immune correlative testing . we are also actively working with our clinical collaborators on how best to design future trials evaluating the potential of combining bavituximab with other immunotherapy agents in addition to the chemotherapy combinations that are currently underway . 44 the following represents an overview of recently completed , ongoing or currently planned bavituximab clinical trials : phase iii registration trial – bavituximab plus docetaxel in second-line nsclc in may 2013 , we reached agreement with the u.s. food and drug administration ( “ fda ” ) on a pivotal phase iii registration trial design of our lead clinical immunotherapeutic candidate bavituximab in second-line nsclc . this phase iii clinical trial will be a randomized , double-blind , placebo-controlled trial evaluating bavituximab plus docetaxel versus docetaxel alone and will enroll approximately 600 patients at clinical sites worldwide . the trial will enroll non-squamous , nsclc patients who have progressed after standard front-line treatment . the patients will be randomized into one of two treatment arms . one treatment arm will receive docetaxel ( 75 mg/m 2 ) , up to six 21-day cycles , in combination with bavituximab ( 3 mg/kg ) weekly until progression or toxicity . the second treatment arm will receive docetaxel ( 75 mg/m 2 ) , up to six 21-day cycles , in combination with placebo weekly until progression or toxicity . the primary endpoint of the trial will be overall survival . we anticipate initiating this trial by calendar year-end 2013. the design of this phase iii trial was supported by promising data from our phase iib trial in the same indication as described below . phase iib trial – bavituximab plus docetaxel in second-line nsclc we conducted a randomized , double-blind , placebo-controlled phase iib second-line nsclc trial evaluating two dose levels of bavituximab plus docetaxel ( “ bavituximab-containing arms ” ) versus docetaxel plus placebo ( “ control arm ” ) as second-line treatment in 121 patients with stage iiib/iv nsclc . patients were randomized to one of three treatment arms at clinical sites worldwide and enrollment was completed in october 2011. all patients were randomized to receive up to six 21-day cycles of docetaxel ( 75 mg/m 2 ) . in addition , one arm was randomized to receive bavituximab ( 3 mg/kg ) weekly , a second arm was randomized to receive bavituximab ( 1 mg/kg ) weekly , and a third arm was randomized to receive placebo weekly until progression or toxicity . story_separator_special_tag all patients were randomized to receive gemcitabine ( 1000 mg/m2 ) on days 1 , 8 and 15 of each 28-day cycle ( 4 weeks ) until disease progression or unacceptable toxicities . in addition , patients in one arm were randomized to receive bavituximab ( 3 mg/kg ) weekly . the primary endpoint of this trial was median os and secondary endpoints include median pfs , orr , duration of response , and safety . patients were evaluated regularly for tumor response according to recist criteria . in february 2013 , we announced results from this trial showing that the combination of bavituximab and gemcitabine resulted in more than a doubling of orr and an improvement in os when compared with gemcitabine alone ( control arm ) . in the trial , patients treated with a combination of bavituximab and gemcitabine had a 28 % tumor response rate as compared to 13 % in the control arm . median os was 5.6 months for the bavituximab plus gemcitabine arm and 5.2 months for the control arm . in this trial , bavituximab was generally safe and well tolerated in combination with gemcitabine with similar adverse events occurring in both arms . as this trial allowed for the enrollment of patients 18 and older without any age limit , distant organ involvement and ecog performance status of 0-2 , further analysis of the patient group was warranted . in june 2013 , we announced final results from this trial which included a further analysis of patient subgroups . median os , pfs and orr results were unchanged from the february announcement with data showing encouraging activity in this patient population with very rapid disease progression . results from a subgroup analysis showed that the effect of bavituximab plus gemcitabine was more pronounced in patients with ecog ≤ 1 and those without hepatic metastases . while we believe the final data combined with the results from subgroup analyses warrant future consideration , given the fast progression of pancreatic cancer and the need for longer treatment periods associated with immunotherapies such as bavituximab , there are no plans to initiate a follow-on trial in pancreatic cancer at this time . 47 investigator-sponsored trials ( “ ist ” ) with respect to our ists , our clinical collaborators are evaluating bavituximab with additional drug combinations in additional oncology indications , which we believe will provide additional insight into bavituximab 's mechanism of action , augment our safety database and evaluate new combination therapy approaches to treating cancer patients . the below table is a summary of our current ists : indication product combination no . patients phase status her2-negative metastic breast cancer bavituximab combined with paclitaxel 14 i · patient enrollment completed . · interim data showed 85 % of patients ( or 11 of 13 patients ) achieved an objective tumor response , including 15 % of patients ( or 2 of 13 patients ) achieving a complete response measured in accordance with recist criteria . one patients was not evaluable as of data analysis . · combination of bavituximab and paclitaxel was safe and well-tolerated . advanced hepatocellular carcinoma ( hcc ) , or liver cancer bavituximab combined with sorafenib ( nexavar® ) up to 48 i/ii · patient enrollment in phase i portion of study completed . patient enrollment in phase ii portion of study ongoing . · interim data from patients enrolled in the phase i portion of study showed no dose-limiting toxicities or serious adverse events . front-line nsclc bavituximab combined with pemetrexed and carboplatin up to 25 ib · patient enrollment ongoing . · interim data from the first five patients showed three of the five patients achieving a partial tumor response and there were no signs of unexpected safety events . rectal adenocarcinoma ( stage ii or iii patients ) bavituximab combined with capecitabine and radiation up to 18 i · patient enrollment ongoing . · no data reported to date . in addition , we periodically evaluate our ist program based on a number of factors , including enrollment and changes in the standard of care of patients for each of our ongoing ists . as a result of our recent evaluation , during march 2013 , we discontinued a phase i/ii ist evaluating bavituximab combined with cabazitaxel in patients with second-line castration resistant prostate cancer due to slow enrollment in the trial which we believe will continue due to two new oral drugs that had been approved for the same indication following the inception of this ist . we will continue to monitor our ist program as we look to evaluate new indications and combinations based on the broad therapeutic potential of bavituximab . ps-targeting molecular imaging program ( pgn650 ) in addition to bavituximab 's therapeutic potential to treat multiple solid tumors , we believe these ps-targeting antibodies may have broad potential for the imaging and diagnosis of multiple diseases , including cancer . in april 2012 , we filed an exploratory investigational new drug application ( “ ind ” ) with the fda to advance our lead molecular imaging agent , 124i-pgn650 ( “ pgn650 ” ) , into clinical development for the imaging of multiple solid tumor types . our initial goal for the pgn650 program is to further validate the broad nature of the ps-targeting platform in the clinic . the current trial will enroll up to 12 patients and results from this study may provide new insight into new indications and potential applications , including development of antibody drug conjugates , the ability of pgn650 to monitor the effectiveness of current standard cancer treatments , and the ability to potentially select patients that may benefit from bavituximab-based treatment . cotara for the treatment of brain cancer cotara is our lead dna/histone-targeting antibody and represents a novel approach to treating brain cancer .
| results of operations the following table compares the consolidated statements of operations for the fiscal years ended april 30 , 2013 , 2012 and 2011. this table provides an overview of the changes in the statement of operations for the comparative periods , which changes are further discussed below . replace_table_token_5_th contract manufacturing revenue years ended april 30 , 2013 and 2012 compared to the years ended april 30 , 2012 and 2011 : the increases in contract manufacturing revenue of $ 6,550,000 ( or 44 % ) and $ 6,281,000 ( or 74 % ) during the years ended april 30 , 2013 and 2012 , respectively , compared to fiscal years 2012 and 2011 , respectively , were primarily due to increases in the number of completed manufacturing runs in the years ended april 30 , 2013 and 2012 , which can be attributed to increases in demand for manufacturing services from avid 's third-party customers . based on the current commitments for manufacturing services from avid 's third-party customers and the anticipated completion of in-process third-party customer manufacturing runs , we expect contract manufacturing revenue for fiscal year 2014 to be in-line with fiscal year 2013 . 49 government contract revenue year ended april 30 , 2012 compared to the year ended april 30 , 2011 : government contract revenue was derived from a former government contract ( the “ government contract ” ) awarded to us in june 2008 , through the transformational medical technologies ( “ tmt ” ) of the u.s. department of defense 's defense threat reduction agency . the purpose of the government contract , which expired on april 15 , 2011 , was to test and develop bavituximab and an equivalent fully human antibody as potential broad-spectrum treatments for viral hemorrhagic fever infections .
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actual results could differ materially from those contained in or implied by 23 united 's statements for a variety of factors including , but not limited to : changes in economic conditions ; business conditions in the banking industry ; movements in interest rates ; competitive pressures on product pricing and services ; success and timing of business strategies ; the nature and extent of governmental actions and reforms ; and rapidly changing technology and evolving banking industry standards . introduction the following discussion and analysis presents the significant changes in financial condition and the results of operations of united and its subsidiaries for the periods indicated below . this discussion and the consolidated financial statements and the notes to consolidated financial statements include the accounts of united bankshares , inc. and its wholly-owned subsidiaries , unless otherwise indicated . management has evaluated all significant events and transactions that occurred after december 31 , 2011 , but prior to the date these financial statements were issued , for potential recognition or disclosure required in these financial statements . this discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes thereto , which are included elsewhere in this document . in addition , on july 8 , 2011 , united completed its acquisition of centra financial holdings , inc. ( centra ) of morgantown , west virginia . the results of operations of centra are included in the consolidated results of operations from the date of acquisition . as a result , comparisons for the fourth quarter and year of 2011 to the same time periods of 2010 are impacted by increased levels of average balances , income , expense , and asset quality results due to the acquisition . at consummation , centra had assets of approximately $ 1.3 billion , loans of $ 1.0 billion , deposits of $ 1.1 billion and shareholders ' equity of $ 131 million . application of critical accounting policies the accounting and reporting policies of united conform with u.s. generally accepted accounting principles . in preparing the consolidated financial statements , management is required to make estimates , assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes . these estimates , assumptions and judgments , which are reviewed with the audit committee of the board of directors , are based on information available as of the date of the financial statements . actual results could differ from these estimates . these policies , along with the disclosures presented in the financial statement notes and in this financial review , provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined . based on the valuation techniques used and the sensitivity of financial statement amounts to the methods , assumptions , and estimates underlying those amounts , management has identified the determination of the allowance for credit losses , the valuation of investment securities and the related other-than-temporary impairment analysis , and the calculation of the income tax provision to be the accounting areas that require the most subjective or complex judgments , and as such could be most subject to revision as new information becomes available . the most significant accounting policies followed by united are presented in note a , notes to consolidated financial statements . allowance for credit losses the allowance for credit losses represents management 's estimate of the probable credit losses inherent in the lending portfolio . determining the allowance for credit losses requires management to make forecasts of losses that are highly uncertain and require a high degree of judgment . at december 31 , 2011 , the allowance for loan losses was $ 73.9 million and is subject to periodic adjustment based on management 's assessment of current probable losses in the loan portfolio . such adjustment from period to period can have a significant impact on united 's consolidated financial statements . to illustrate the potential effect on the financial statements of our estimates of the allowance for loan losses , a 10 % increase in the allowance for loan losses would have required $ 7.4 million in additional allowance ( funded by additional provision for credit losses ) , which would have negatively impacted the year of 2011 net income by approximately $ 4.8 million , or $ 0.10 diluted per common share . management 's evaluation of the adequacy of the allowance for credit losses and the appropriate provision for credit losses is based upon a quarterly evaluation of the loan portfolio and lending related commitments . this evaluation is inherently subjective and requires significant estimates , including estimates related to the amounts and timing of future cash 24 flows , value of collateral , losses on pools of homogeneous loans based on historical loss experience , and consideration of current economic trends , all of which are susceptible to constant and significant change . the allowance allocated to specific credits and loan pools grouped by similar risk characteristics is reviewed on a quarterly basis and adjusted as necessary based upon subsequent changes in circumstances . in determining the components of the allowance for credit losses , management considers the risk arising in part from , but not limited to , charge-off and delinquency trends , current economic and business conditions , lending policies and procedures , the size and risk characteristics of the loan portfolio , concentrations of credit , and other various factors . the methodology used to determine the allowance for credit losses is described in note a , notes to consolidated financial statements . a discussion of the factors leading to changes in the amount of the allowance for credit losses is included in the provision for credit losses section of this management 's discussion and analysis of financial condition and results of operations ( md & a ) . story_separator_special_tag asc topic 820 establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value . the classification of assets and liabilities within the hierarchy is based on whether the inputs in the methodology for determining fair value are observable or unobservable . observable inputs reflect market-based information obtained from independent sources ( level 1 or level 2 ) , while unobservable inputs reflect management 's estimate of market data ( level 3 ) . for assets and liabilities that are actively traded and have quoted prices or observable market data , a minimal amount of subjectivity concerning fair value is needed . prices and values obtained from third party vendors that do not reflect forced liquidation or distressed sales are not adjusted by management . when quoted prices or observable market data are not available , management 's judgment is necessary to estimate fair value . at december 31 , 2011 , approximately 8.67 % of total assets , or $ 732.77 million , consisted of financial instruments recorded at fair value . of this total , approximately 92.96 % or $ 681.21 million of these financial instruments used valuation methodologies involving observable market data , collectively level 1 and level 2 measurements , to determine fair value . approximately 7.04 % or $ 51.56 million of these financial instruments were valued using unobservable market information or level 3 measurements . most of these financial instruments valued using unobservable market information were pooled trust preferred investment securities classified as available-for-sale . at december 31 , 2011 , only $ 5.05 million or less than 1 % of total liabilities were recorded at fair value . this entire amount was valued using methodologies involving observable market data . united does not believe that any changes in the unobservable inputs used to value the financial instruments mentioned above would have a material impact on united 's results of operations , liquidity , or capital resources . see note t for additional information regarding asc topic 820 and its impact on united 's financial statements . 2011 compared to 2010 financial condition summary united 's total assets as of december 31 , 2011 were $ 8.45 billion which was an increase of $ 1.30 billion or 18.11 % from december 31 , 2010 , primarily the result of the acquisition of centra financial holdings inc. ( centra ) on july 8 , 2011. portfolio loans increased $ 976.38 million or 18.56 % , cash and cash equivalents increased $ 174.61 million or 37.85 % , investment securities increased $ 29.50 million or 3.71 % , goodwill increased $ 59.93 million or 19.22 % , other assets increased $ 35.17 million or 11.17 % , and bank premises and equipment increased $ 21.06 million or 38.04 % . loans available for sale decreased $ 2.97 million or 43.19 % . the increase in total assets is reflected in a corresponding increase in total liabilities of $ 1.12 billion or 17.60 % from year-end 2010. the increase in total liabilities was due mainly to an increase of $ 1.11 billion or 19.35 % and $ 20.46 million or 3.53 % in deposits and borrowings , respectively , mainly due to the centra acquisition . shareholders ' equity increased $ 175.83 million or 22.17 % from year-end 2010 due primarily to the acquisition of centra and the retention of earnings after paying dividends to shareholders . 26 the following discussion explains in more detail the changes in financial condition by major category . cash and cash equivalents cash and cash equivalents at december 31 , 2011 increased $ 174.61 million or 37.85 % from year-end 2010. of this total increase , interest-bearing deposits with other banks increased $ 161.05 million or 46.64 % as united placed its excess cash in an interest-bearing account with the federal reserve while cash and due from banks increased $ 13.28 million or 11.51 % and federal funds sold increased $ 291 thousand or 40.53 % . during the year of 2011 , net cash of $ 118.57 million and $ 158.34 million was provided by operating activities and investing activities , respectively , while net cash of $ 102.29 million was used in financing activities . further details related to changes in cash and cash equivalents are presented in the consolidated statements of cash flows . securities total investment securities at december 31 , 2011 increased $ 29.50 million or 3.71 % from year-end 2010. centra added approximately $ 128.08 million in investment securities , including purchase accounting amounts , upon the merger . securities available for sale increased $ 43.24 million or 6.62 % . this change in securities available for sale reflects $ 1.49 billion in sales , maturities and calls of securities , $ 1.42 billion in purchases , and a $ 9.50 million increase in market value . securities held to maturity decreased $ 7.75 million or 11.56 % from year-end 2010 due to calls and maturities of securities . other investment securities decreased $ 5.99 million or 8.05 % from year-end 2010. the following is a summary of available for sale securities at december 31 : replace_table_token_5_th the following is a summary of held to maturity securities at december 31 : replace_table_token_6_th at december 31 , 2011 , gross unrealized losses on available for sale securities were $ 68.86 million . securities in an unrealized loss position at december 31 , 2011 consisted primarily of pooled trust preferred collateralized debt obligations ( trup cdos ) , single issue trust preferred securities and non-agency residential mortgage-backed securities . the trup cdos and the single issue trust preferred securities relate mainly to securities of financial institutions . as of december 31 , 2011 , united 's mortgage-backed securities had an amortized cost of $ 225.15 million , with an estimated fair value of $ 231.03 million .
| financial condition summary united 's total assets as of december 31 , 2010 were $ 7.16 billion which was a decline of $ 649.38 million or 8.32 % from december 31 , 2009. the decrease was primarily the result of decreases in investment securities and portfolio loans of $ 172.21 million or 17.81 % and $ 476.48 million or 8.31 % , respectively . the decrease in investment securities was due mainly to a decline of $ 158.50 million or 19.53 % in securities available for sale . this change in securities available for sale reflects $ 1.39 billion in sales , maturities and calls of securities , $ 1.24 billion in purchases , and an increase of $ 32.92 million in fair value . securities held to maturity decreased $ 10.39 million or 13.41 % from year-end 2009 due to calls and maturities of securities . other investment securities declined $ 3.32 million or 4.27 % from year-end 2009 due to the redemption of $ 3.48 million of fhlb stock and an other-than-temporary impairment charge of $ 1.29 million on an investment security during the fourth quarter of 2010. the decline in the loan portfolio was due mainly to a decline in each major loan category as loan demand was soft during 2010 due to poor economic conditions . commercial , financial and agricultural loans declined $ 165.61 million or 5.51 % . within the commercial , financial and agricultural loans category , commercial real estate loans and commercial loans ( not secured by real estate ) decreased $ 95.64 million or 5.05 % and $ 69.96 million or 6.31 % , respectively . residential real estate loans and construction loans declined $ 159.06 million or 8.55 % and $ 88.67 million or 15.84 % , respectively . consumer loans decreased $ 64.09 million or 20.13 % .
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during 2019 , the company plans to test selected models , build policy and process documentation , model the impact of the asu on the capital and strategic plans , perform story_separator_special_tag the following discussion and analysis of the financial condition and results of operations of the company for the years ended december 31 , 2018 and 2017 should be read in conjunction with the consolidated financial statements and related notes to the consolidated financial statements included in item 8 of this form 10-k. executive overview the company first national corporation ( the company ) is the bank holding company of : first bank ( the bank ) . 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 and , together with trust ii , the trusts ) 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 and are not included in the company 's consolidated financial statements in accordance with authoritative accounting guidance because management has determined that the trusts qualify as variable interest entities . products , services , customers and locations the bank offers loan , deposit , and wealth management products and services . loan products and services include consumer loans , residential mortgages , home equity loans , and commercial loans . deposit products and services include checking accounts , treasury management solutions , savings accounts , money market accounts , certificates of deposit , and individual retirement accounts . wealth management services include estate planning , investment management of assets , trustee under an agreement , trustee under a will , individual retirement accounts , and estate settlement . customers include small and medium-sized businesses , individuals , estates , local governmental entities , and non-profit organizations . the bank 's office locations are well-positioned in attractive markets along the interstate 81 , interstate 66 , and interstate 64 corridors in the shenandoah valley and central regions of virginia . within this market area , there are various types of industry including medical and professional services , manufacturing , retail , warehousing , federal government , hospitality , and higher education . the bank 's products and services are delivered through 14 bank branch offices located throughout the shenandoah valley and central regions of virginia , a loan production office , and a customer service center in a retirement village . the branch offices are comprised of 13 full service retail banking offices and one drive-thru express banking office . for the location and general character of each of these offices , see item 2 of this form 10-k. the bank entered a new market in the central region of virginia by opening a branch office in the city of richmond during the fourth quarter of 2017. many of the bank 's services are also delivered through the bank 's mobile banking platform , its website , www.fbvirginia.com , and a network of atms located throughout its market area . 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 . primary expense categories are salaries and employee benefits , which comprised 56 % of noninterest expenses during 2018 , followed by occupancy and equipment expense , which comprised 14 % of noninterest expenses . historically , the provision for loan losses has also been a primary expense of the bank . 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 , 26 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 . overview of financial performance and condition net income increased by $ 3.7 million to $ 10.1 million , or $ 2.04 per diluted share , for the year ended december 31 , 2018 , compared to $ 6.4 million , or $ 1.30 per diluted share , for the same period in 2017 . return on average assets was 1.34 % and return on average equity was 16.36 % for the year ended december 31 , 2018 , compared to 0.89 % and 11.57 % , respectively , for the year ended december 31 , 2017 . the $ 3.7 million increase in net income for the year ended december 31 , 2018 resulted primarily from a $ 2.4 million , or 9 % , increase in net interest income , an $ 865 thousand , or 10 % , increase in noninterest income , and a $ 1.4 million , or 39 % , decrease in income tax expense , compared to the same period of 2017 . these favorable variances were partially offset by a $ 500 thousand increase in provision for loan losses and a $ 477 thousand , or 2 % , increase in noninterest expenses . story_separator_special_tag this risk rating scale is the company 's primary credit quality indicator . the company has various committees 28 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 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 . commercial and industrial loans carry risks associated with the successful operation of a business because repayment of these loans may be dependent upon the profitability and cash flows of the business . 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 creditworthiness of the borrower and the value of the collateral , if any . these loans are typically either unsecured or secured by rapidly depreciating assets such as automobiles . they are also likely to be immediately and adversely affected by job loss , divorce , illness , personal bankruptcy , or other changes in circumstances . 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 , fair value of collateral less estimated costs to sell , 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 typically 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 included in this form 10-k. other-than-temporary impairment of securities impairment of securities occurs when the fair value of a security is less than its amortized cost . for debt securities , impairment is considered other-than-temporary and recognized in its entirety in net income if either the company ( 1 ) intends to sell the security or ( 2 ) it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis . if , however , the company does not intend to sell the security and it is not more-than-likely that it will be required to sell the security before recovery , the company must determine what portion of the impairment is attributable to a credit loss , which occurs when the amortized cost of the security exceeds the present value of the cash flows expected to be collected from the security . if there is no credit loss , there is no other-than-temporary impairment . if there is a credit loss , other-than-temporary impairment exists , and the credit loss must be recognized in net income and the remaining portion of impairment must be 29 recognized in other comprehensive income ( loss ) .
| 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 , subordinated debt , and junior subordinated debt . 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 , amortization expense , and other real estate owned income . net interest income for the year ended december 31 , 2018 , net interest income increased $ 2.4 million , or 9 % , to $ 27.6 million , compared to $ 25.3 million for the same period in 2017 . the increase resulted from a higher net interest margin and higher average earning asset balances . average earning asset balances increased 4 % , and the net interest margin increased 16 basis points to 3.93 % for the year ended december 31 , 2018 , compared to 3.77 % for the same period in 2017 . the increase in the net interest margin resulted from a 31 basis point increase in the yield on earning assets , which was partially offset by a 15 basis point increase in interest expense as a percent of average earning assets .
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as a result of the issuance of 1,128,849 units described in note 3 ( b ) ( 4 ) , the mediapark loan and the convertible loan described above in the aggregate amount of $ 370,772 ( including principal and interest ) outstanding as of march 3 , 2014 were converted on that date to 713,023 shares of common stock of the company at a conversion rate of $ 0.52 per share and to 713,023 warrants to acquire additional shares of the company 's common stock at an exercise price of $ 0.52 per share for a period of three years . the fair value of these warrants as of the date of issuance was $ 259,731 using the black scholes valuation model based on the following assumptions : dividend yield of 0 % for all years ; expected volatility of 104 % ; risk free interest of 0.66 % , and an expected life of three years . this amount recorded as financial expense . b. nine investments limited on may 29 , 2014 , the company entered into story_separator_special_tag cautionary notice regarding forward looking statements the information contained in item 7 contains forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended . actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this report . although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable , there is no assurance that the underlying assumptions will , in fact , prove to be correct or that actual results will not be different from expectations expressed in this report . we desire to take advantage of the safe harbor provisions of the private securities litigation reform act of 1995. this filing contains a number of forward-looking statements that reflect management 's current views and expectations with respect to our business , strategies , products , future results and events , and financial performance . all statements made in this filing other than statements of historical fact , including statements addressing operating performance , clinical developments which management expects or anticipates will or may occur in the future , including statements related to our technology , market expectations , future revenues , financing alternatives , statements expressing general optimism about future operating results , and non-historical information , are forward looking statements . in particular , the words believe , expect , intend , anticipate , estimate , may , variations of such words , and similar expressions identify forward-looking statements , but are not the exclusive means of identifying such statements , and their absence does not mean that the statement is not forward-looking . these forward-looking statements are subject to certain risks and uncertainties , including those discussed below . our actual results , performance or achievements could differ materially from historical results as well as those expressed in , anticipated , or implied by these forward-looking statements . we do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances . readers should not place undue reliance on these forward-looking statements , which are based on management 's current expectations and projections about future events , are not guarantees of future performance , are subject to risks , uncertainties and assumptions ( including those described below ) , and apply only as of the date of this filing . our actual results , performance or achievements could differ materially from the results expressed in , or implied by , these forward-looking statements . factors which could cause or contribute to such differences include , but are not limited to , the risks to be discussed in this annual report on form 10-k and in the press releases and other communications to shareholders issued by us from time to time which attempt to advise interested parties of the risks and factors which may affect our business . we undertake no obligation to publicly update or revise any forward-looking statements , whether as a result of new information , future events , or otherwise . 34 use of generally accepted accounting principles ( gaap ) financial measures we use united states gaap financial measures in the section of this report captioned management 's discussion and analysis or plan of operation ( md & a ) , unless otherwise noted . all of the gaap financial measures used by us in this report relate to the inclusion of financial information . this discussion and analysis should be read in conjunction with our financial statements and the notes thereto included elsewhere in this annual report . all references to dollar amounts in this section are in united states dollars , unless expressly stated otherwise . please see our risk factors for a list of our risk factors . overview this subsection of md & a provides an overview of the important factors that management focuses on in evaluating our businesses , financial condition and operating performance , our overall business strategy and our financial results for the periods covered . story_separator_special_tag company 's common stock , representing approximately two percent ( 2 % ) of our company 's issued and outstanding common stock , which will vest pursuant to performance milestones to be determined by our compensation committee no later than december 31 , 2014. as of the date of this filing , while the compensation committee has not yet determined the milestones or the expectations regarding such milestones , it expects to do so by the end of the company 's first fiscal quarter . ( iii ) all of the options are to have an exercise price equal to the par value per share of our common stock and all of them will expire on the 10th anniversary of the grant date . story_separator_special_tag private placement with mediapark a.g. on april 24 , 2014 , we issued 384,615 units to one investor in a non-brokered private placement , at a purchase price of $ 0.52 per unit for proceeds of $ 200,000. each unit consists of one share of our common stock and one nontransferable common share purchase warrant , with each warrant entitling the holder to acquire one additional share of our common stock at a price of $ 0.52 per share for a period of three years . convertible loans with nine investments ltd. on may 29 , 2014 , we entered into a convertible loan agreement with nine investments limited , a hong kong company ( “ nine investments ” ) , pursuant to which nine investments loaned us $ 1,500,000 which we subsequently transferred to our belgian subsidiary , orgenesis sprl , to fund a research project to develop new medical technologies and cell therapies for the treatment of diabetes . we received the funds on june 4 , 2014 ( the “ closing date ” ) . interest is calculated at 8 % semi-annually and is payable , along with the principal on or before december 31 , 2014 subject to acceleration for specific events including : ( i ) if a grant of money to orgenesis sprl is not approved by department de la gestion financiere direction de l'analyse financiere ( “ dgo6 ” ) within 90 days after the loan proceeds are advanced ; and ( ii ) if the company raises , in the aggregate , gross proceeds of more than $ 400,000 between the date of the loan and the maturity date , but only to the extent of gross proceeds so raised that are in excess of $ 400,000. nine investments may convert all or part of the loan into shares of its common stock at $ 0.40 per share . the conversion price and the number of shares of common stock deliverable upon the conversion of the loan shall be subject to adjustment in the event and in the manner following : ( i ) if and whenever the company 's common shares at any time outstanding shall be subdivided into a greater or consolidated into a lesser number of common shares , or in case of any capital reorganization or of any reclassification of the capital of the company or in case of the consolidation , merger or amalgamation of the company with or into any other company or of the sale of the assets of the company as or substantially as an entirety or of any other company , the conversion price shall be decreased or increased proportionately ; and ( ii ) in the event the company issues any shares of common stock or securities convertible into shares at a price less than the conversion price , the conversion price shall be reduced for any unpaid or unconverted loan amount to the new issuance price . 39 as consideration for entering into the loan agreement , on june 5 , 2014 , the company issued to nine investments 500,000 shares of its common stock . maryland technology development corporation research grant on june 30 , 2014 , the company 's subsidiary , orgenesis maryland , inc. , entered into a grant agreement with maryland technology development corporation ( “ tedco ” ) . tedco was created by the maryland state legislature in 1998 to facilitate the transfer and commercialization of technology from maryland 's research universities and federal labs into the marketplace and to assist in the creation and growth of technology-based businesses in all regions of the state . tedco is an independent organization that strives to be maryland 's lead source for entrepreneurial business assistance and seed funding for the development of startup companies in maryland 's innovation economy . tedco administers the maryland stem cell research fund to promote state-funded stem cell research and cures through financial assistance to public and private entities within the state . under the agreement , tedco has agreed to give the subsidiary an amount not to exceed $ 406,431 ( the “ grant ” ) . the grant will be used solely to finance the costs to conduct the research project entitled “ autologous insulin producing ( aip ) cells for diabetes ” during a period of two years . on july 22 , 2014 , the subsidiary received an advance payment of $ 203,216 on account of the grant . through november 30 , 2014 , an amount of $ 118,305 out of the $ 203,216 was spent . the amount of grant that was spent through november 30 , 2014 was recorded as a deduction of research and development expenses in the statement of operations . the excess of $ 84,911 is presented on the balance sheet as of november 30 , 2014 as a short-term liability . service agreement with masthercell s.a. on july 3 , 2014 , the company 's belgian subsidiary , orgenesis sprl ( the “ belgian subsidiary ” ) entered into a service agreement with masthercell , pursuant to which masthercell will conduct certain clinical tests related to diabetes treatment research . the belgian subsidiary will pay masthercell for its services euro 962,500 with 30 % payable upon the date of approval of the dgo6 grant with the balance being invoiced monthly . services will commence upon approval of the dg06 . the term of the service agreement will run until all work is completed or by either party providing 30 days ' written notice of termination . exercise of warrants and issuance of new warrants in july 2014 , one of our investors exercised warrants to purchase 96,154 shares of our common stock at an exercise price of $ 0.52 for a total consideration of $ 50,000. the company issued him 192,308 new warrants . each warrant entitles the holder to acquire one additional share of the company 's common stock at an exercise price of $ 0.52 per share for a period of three years .
| results of operations comparison of the twelve months ended november 30 , 2014 and the twelve months ended november 30 , 2013 revenue we have not earned any revenues since our inception and we do not anticipate earning revenues in the near future . expenses our expenses for the twelve months ended november 30 , 2014 are summarized as follows in comparison to our expenses for twelve months ended november 30 , 2013 : replace_table_token_2_th research and development expenses replace_table_token_3_th the increase in salaries and related expenses and in stock-based compensation in the twelve months ended november 30 , 2014 , compared to the same period last year is mainly due to a change in the mix of employees from general and administrative to research and development activities . the increase in lab expenses during the twelve months ended november 30 , 2014 , compared to the same period last year is related to expansion of research and development operations in 2014 , mainly in our belgian subsidiary . the grant deduction is due to a grant approved from dgo6 in our belgian subsidiary for our research and development activities in november 2014 . 35 general and administrative expenses replace_table_token_4_th the decrease in salaries and related expenses and in stock-based compensation for the twelve months ended november 30 , 2014 , compared to the same period last year is due to the prior year having higher employee compensation cost and stock-based compensation for a number of employees and consultant whose options had fully vested . in addition , the decrease resulted from a change in mix of employees from general and administrative to research and development activities .
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following is a table of the changes to intrepid 's asset retirement obligations for the following periods ( in thousands ) : replace_table_token_33_th the undiscounted amount of asset retirement obligation is $ 33.4 million as of december 31 , 2011 , and there are no significant payments expected to take place in the next five years . story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. in addition to historical consolidated financial information , the following discussion and analysis contains forward‑looking statements that involve risks , uncertainties , and assumptions as described under the “ cautionary note regarding forward‑looking statements , ” that appears in part i of this annual report on form 10-k. our actual results could differ materially from those anticipated by these forward‑looking statements as a result of many factors , including those discussed under “ item 1a . risk factors ” and elsewhere in this annual report on form 10-k. overview our company we are the largest producer of muriate of potash ( “ potassium chloride ” or “ potash ” ) in the united states and are dedicated to the production and marketing of potash and langbeinite ( “ sulfate of potash magnesia ” ) , another mineral containing potassium that is produced from langbeinite ore and which we will generally describe as langbeinite when we refer to production and as trio ® when we refer to sales and marketing . our revenues are generated exclusively from the sale of potash and trio ® . potassium is one of the three primary nutrients essential to plant formation and growth . we are one of two producers of sulfate of potash magnesia , a low-chloride potassium fertilizer with the additional benefits of sulfate and magnesium , providing a multi‑nutrient product . we also produce salt , magnesium chloride , and metal recovery salts from our potash mining processes , the sales of which are accounted for as by-product credits to our cost of sales . our potash is marketed for sale into three primary markets ; agricultural market as fertilizer , industrial market as a component in drilling and fracturing fluids for oil and gas wells , and animal feed market as a nutrient . our primary regional markets include agricultural areas and feed manufacturers in the central and western united states , as well as oil and gas drilling areas in the rocky mountains and the greater permian basin . in addition to the agricultural regions noted above , we also have sales , primarily of trio ® , that go into the southeastern and eastern united states . our potash production has a geographic concentration in the western united states and is therefore affected by weather and other conditions in this region . we own five active potash production facilities—three in new mexico ( referenced collectively below as “ carlsbad ” or individually as “ west , ” “ east , ” and “ north ” ) and two in utah ( “ moab ” and “ wendover ” ) —and we have a current estimated productive capacity to produce approximately 870,000 tons of potash and approximately 270,000 tons of langbeinite annually . actual production is affected by operating rates , recoveries , mining rates , evaporation rates , and the amount of development work that we do and , therefore , our production results tend to be lower than our productive capacity . we are actively developing the hb solar solution mine , located adjacent to our existing producing assets near carlsbad , new mexico , which is an idled potash mine that we are in the process of permitting to reopen . as a solution mine , it will utilize solar evaporation techniques in the production of potash . we also have additional opportunities to develop mineralized deposits of potash in new mexico which could include the reopening of the north mine , which was operated as a traditional underground mine until the early 1980s , as well as the acceleration of production from our reserves and mineralized deposits of potash through new access points in the area and the potential construction of additional production facilities in the region . our profitability is directly linked to the sales price of our product , our sales volumes , our production rates , and the resulting production costs of our products . production costs are impacted by production rates and , to a lesser extent , the price of variable costs such as natural gas and other commodities used in production . our current operating strategy is to run our mining operations and plants at normal and full operating rates to reduce per unit production costs while also focusing on production flexibility and granulation capacity . our sales strategy is to seek to maximize our margins by selling tonnage into markets where we have freight and logistic advantages based on the location of our facilities , while still selling selected amounts of product into more distant markets to maintain sales volumes . market prices vary to some degree across the country and we attempt to manage our sales to take advantage of these pricing variations with consideration of freight differentials . recent events and market trends our 2011 net income was $ 109.4 million , or $ 1.46 per share with cash flows from operations of $ 173.9 million . we had capital investments of $ 136.3 million in 2011 and ended the year with $ 176.8 million of cash and investments with no debt outstanding . story_separator_special_tag the market for our trio ® product continues to be strong and we have been able to effectively increase the price through the year and into early 2012. in mid-2011 , we placed an emphasis on restoring the recovery rate at the old trio ® production plant from the levels experienced late in 2010 and early 2011. during 2011 , production volumes and costs at our east surface facility continued to be challenged in part due to the tie-in and commissioning activities of the new plant . as we continue to actively upgrade and improve the east surface plant , including work associated with the langbeinite recovery improvement project , we have experienced , and expect to continue to experience , operating inefficiencies from time-to-time , which may result in variations to production levels and increased cash costs of goods sold . we will continue to focus on improving the reliability and productivity of our east mill . in 2011 , we experienced decreased sales volumes of trio ® relative to 2010 , as we sold 173,000 tons of trio ® in 2011 compared to 204,000 tons of trio ® in 2010. this was principally a result of having fewer tons of granular trio ® available for sale . demand for trio ® continues to exceed supply and we expect that granular-sized trio ® sales demand will at least meet our production capabilities for the next few quarters . average net realized sales price domestic pricing of our products is influenced principally by the pricing established by the canadian producers and other large world producers , as well as the interaction of global potash supply and demand ; ocean , land and barge freight rates ; and currency fluctuations . any of these factors could have a positive or negative impact on the price of our products . in the first quarter of 2011 , we experienced a seasonal increase in our just-in-time truck sales that allowed us to realize the increased net sales price earlier than on our rail shipments . however , as the drought conditions continued in the geographic area around our new mexico facilities , we experienced a slowdown in the truck market , particularly into texas starting in the second quarter of 2011. we expect the truck market to remain relatively slow during 2012 , and as a result , we continue to accept sales orders from rail customers at regional market prices for the tons that might otherwise be shipped via truck to more local markets . the higher relative freight costs associated with those rail orders reduces our average net realized sales price per ton compared to the price we receive on the just-in-time truck sales . our average net realized sales price per ton historically has been approximately between 85 and 90 percent of our posted price driven by a variety of factors , including , but not limited to , the different competitive markets in which we sell our products , associated customer discounts , and the mix of standard-sized and granular-sized product sold into the market . to some degree , international prices influence the prices at which we sell our products . generally , we benefit from a weakening u.s. dollar . in addition , due to the fact that our sales and costs are denominated in u.s. dollars , changes in the value of the u.s. dollar against other currencies have less of an effect on us compared to our competitors . the strengthening in price we experienced in 2011 , however , is believed to be much more directly linked to the supply and demand fundamentals of the grain markets and the associated profitability of farmers at today 's commodity prices . given the short-term softness of the domestic potash market towards the end of 2011 and early 2012 , we expect that the average net realized sales price for potash will be lower in the early part of 2012 as compared to the fourth quarter of 2011. the table below demonstrates the progression of our average net realized sales price for potash and trio ® in 2011 and 2010. replace_table_token_16_th 43 selected operations data the following table presents selected operations data for the periods noted . analysis of the details of this information is contained throughout this discussion . we present this table as a summary of information relating to key indicators of financial condition and operating performance that we believe are important . average net realized sales price is calculated by deducting freight costs from gross revenues and then by dividing this result by tons of product sold during the period . costs associated with abnormal production that occurred in 2009 and 2010 are excluded from the following analysis . 44 replace_table_token_17_th * on a per ton basis , by-product credits were $ 8 , $ 8 and $ 17 for the years ended december 31 , 2011 , 2010 , and 2009 , respectively . by-product credits were $ 6.0 million , $ 6.4 million and $ 7.4 million for the years ended december 31 , 2011 , 2010 , and 2009 , respectively . 45 story_separator_special_tag style= '' line-height:120 % ; font-size:10pt ; '' > 46 product that we realize . we manage our sales and marketing operations centrally and we work to achieve the highest average net realized sales price we can by evaluating the product needs of our customers and then determining which of our production facilities can be utilized to fill these needs by considering which facility can produce and deliver the required product to the customer . the volume of product we sell is determined by demand for our products and by our production capabilities . we manage our production levels , as needed , in response to market demand with a view toward steady and reliable production levels to obtain the benefit of full production and being mindful of inventory levels in the near term , while ensuring that our balance sheet remains strong .
| operating highlights our average net realized sales price of potash increased to $ 472 per ton in the year ended december 31 , 2011 , as compared to $ 363 per ton in the year ended december 31 , 2010. this was the result of increases in our potash sales price for red granular product from $ 485 per ton at the beginning of 2011 , to $ 560 per ton , effective july 8 , 2011. we were able to realize the benefit from the price increases and we continue to focus on obtaining the best net realized sales prices by opportunistically layering in sales to new geographical locations where we can maximize our net realizable sales price . overall , we experienced similar potash sales volumes at higher average net realized sales prices and lower per unit cash cost of goods sold in 2011 as compared to 2010. the solid potash sales in 2011 were supported by favorable farmer economics due to improved commodity markets . in late 2011 , farmers reduced fertilizer purchasing activity , which we believe was and continues to be a reaction to global economic instability and volatility in fertilizer input pricing . drought conditions in texas also impacted our traditional shipping patterns ; however , we were successful in expanding our geographical reach and marketing these displaced potash volumes into other markets less affected by weather . our average potash gross margin as a percentage of net sales increased to 50 percent in 2011 , as compared to 36 percent in 2010 , and was largely attributable to the increased average net realized sales price . in 2011 , our cash operating cost of goods sold , which we define as total cost of goods sold excluding depreciation , depletion , amortization and royalties , net of by-product credits , for potash decreased to $ 173 per ton .
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as of december 31 , 2018 , the company has uncertain tax positions related to federal and state income credits for its research and development activities . the total amount of unrecognized tax benefits was $ 0.1 million as of december 31 , 2018 and 2017. the company will recognize interest and penalties , if any , related to uncertain tax positions in income tax expense . as of december 31 , 2018 , the company had story_separator_special_tag story_separator_special_tag style= '' border-collapse : collapse ; width:100 % ; '' > seek to discover and develop additional product candidates ; ultimately establish a commercialization infrastructure and scale up external manufacturing and distribution capabilities to commercialize any product candidates for which we may obtain regulatory approval , including vp-102 and vp-103 ; seek to in-license or acquire additional product candidates for other dermatological conditions ; adapt our regulatory compliance efforts to incorporate requirements applicable to marketed products ; maintain , expand and protect our intellectual property portfolio ; hire additional clinical , manufacturing and scientific personnel ; add operational , financial and management information systems and personnel , including personnel to support our product development and planned future commercialization efforts ; and incur additional legal , accounting and other expenses in operating as a newly public company . services agreement with pbm capital group , llc in december 2015 , we entered into a services agreement , or sa , with pbm capital group , llc , or pbm , an affiliate of pbm capital investments , llc , to engage pbm for certain business development , operations , technical , contract , accounting and back office support services . we agreed to pay pbm a fee of $ 2,500 per month for these services . the sa had an initial term of 12 months and automatically renewed monthly thereafter . in march 2018 , we entered into an amendment to the sa with pbm effective as of april 1 , 2018 , which extended the term of the sa until march 31 , 2019 and increased the management fee we are obligated to pay to pbm to $ 50,000 per month . the sa as amended , provides for termination by us with 30 days advance notice or a mutually agreed upon effective date for transition as individual services are cancelled with a corresponding reduction in the monthly management fee . on january 1 , 2019 , the sa was amended to reduce the monthly management fee to $ 26,333 as a result of a reduction in services provided by pbm . critical accounting policies and significant judgments and estimates the preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements , as well as the reported revenues and expenses during the reported periods . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . 70 a summary of our significant accounting policies appears in the notes to our audited financial statements for the year ended december 31 , 2018 included in this a nnual r eport on form 10-k. however , we believe that the following accounting policies are important to understanding and evaluating our reported financial results , and we h ave accordingly included them in this discussion . research and development costs our research and development expenses consist primarily of costs associated with our clinical trials , salaries , payroll taxes , employee benefits , and equity-based compensation charges for those individuals involved in ongoing research and development efforts . research and development costs are expensed as incurred . advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made . stock-based compensation we account for stock-based compensation awards in accordance with asc 718 , compensation –stock compensation . we use the black-scholes option-pricing model to value our stock option awards . for stock-based awards granted to employees and to members of the board of directors for their services , we estimate the grant date fair value of each option award and recognizes employee compensation expense on a straight-line basis over the vesting period of the award . see change in accounting principle – stock-based compensation . non-employee options are remeasured to fair value each period and we recognize compensation expense on a straight-line basis over the vesting period of each separate vesting tranche of the award . the use of the black‑scholes option-pricing model requires us to make assumptions with respect to the expected term of the option , the expected volatility of the common stock consistent with the expected life of the option , risk‑free interest rates , and , for grants prior to our initial public offering , the value of the common stock . the expected life of stock options was estimated using the “ simplified method , ” as we have limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock options grants . the simplified method is based on the average of the vesting tranches and the contractual life of each grant . we have historically been a private company and lack company-specific historical and implied volatility information . therefore , we estimate expected stock volatility based on the historical volatility of a publicly traded set of peer companies . the risk-free interest rate is based on u.s. treasury notes with a term approximating the expected life of the option . story_separator_special_tag this uncertainty is due to the numerous risks and uncertainties associated with the duration and cost of clinical trials , wh ich vary significantly over the life of a project as a result of many factors , including : the number of clinical sites included in the trials ; the length of time required to enroll suitable patients ; the number of patients that ultimately participate in the trials ; the number of doses patients receive ; the duration of patient follow-up ; and the results of our clinical trials . our expenditures are subject to additional uncertainties , including the manufacturing process for our product candidates , the terms and timing of regulatory approvals , and the expense of filing , prosecuting , defending and enforcing any patent claims or other intellectual property rights . we may never succeed in achieving regulatory approval for our product candidates . we may obtain unexpected results from our clinical trials . we may elect to discontinue , delay or modify clinical trials of our product candidates . a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the fda or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . product commercialization will take several years and millions of dollars in development costs . general and administrative expenses general and administrative expenses consist principally of salaries and related costs for personnel in executive and administrative functions , including stock-based compensation , travel expenses and recruiting expenses . other general and administrative expenses include market research costs , professional fees for legal , accounting and tax-related services , insurance costs , as well as payments made under our services agreement with pbm capital group , llc . we anticipate that our general and administrative expenses will increase as a result of increased payroll , expanded infrastructure and higher consulting , legal and tax-related services associated with maintaining compliance with stock exchange listing and sec requirements , accounting and investor relations costs , and director and officer insurance premiums associated with being a public company . in addition , we expect to incur , at an increased rate compared to prior periods , significantly higher expenses associated with building a sales and marketing team in connection with the potential regulatory filing and approval of vp-102 for the treatment of molluscum . as a result , we expect to report significantly higher general and administrative expenses in 2019. income taxes since our inception in 2013 , we have not recorded any u.s. federal or state income tax benefits for the net losses we have incurred in each year due to our uncertainty of realizing a benefit from those items . as of december 31 , 2018 , we had federal and state net operating loss carryforwards of approximately $ 24.1 million and $ 24.1 million , respectively . the federal and state net operating loss carryforwards included in the foregoing totals that were generated prior to 2018 will begin to expire , if not utilized , by 2033. these net operating loss carryforwards could expire unused and be unavailable to offset future income tax liabilities . under the 2017 federal income tax law changes , federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely , but the deductibility of such federal net operating losses is limited . utilization of the net operating loss carryforwards may be subject to an annual limitation according to section 382 of the internal revenue code of 1986 , as amended , and similar provisions . 73 results of operations for the years ended december 31 , 2018 and 2017 the following table summarizes our results of operations for the years ended december 31 , 2018 and 2017 ( in thousands ) : replace_table_token_0_th research and development expenses research and development expenses were $ 12.8 million for the year ended december 31 , 2018 , compared to $ 3.7 million for the year ended december 31 , 2017. the increase of $ 9.1 million was primarily attributable to costs associated with phase 2 and phase 3 clinical activities for vp-102 , an increase in c osts associated with increased headcount and associated salary , bonus and stock-based compensation expense , and a charge related to a consulting agreement with our former chief scientific officer . general and administrative expenses general and administrative expenses were $ 9.1 million for the year ended december 31 , 2018 , compared to $ 0.7 million for the year ended december 31 , 2017. the increase of $ 8.3 million was primarily a result of increased headcount and associated salary , bonus and stock-based compensation expenses , and increased insurance , professional fees and other operating costs as a result of becoming a public company . other income ( expense ) other income for the year ended december 31 , 2018 consisted of interest earned on our cash , cash equivalents and marketable securities . other expense for the year ended december 31 , 2017 was insignificant . liquidity and capital resources since our inception , we have not generated any revenue and have incurred net losses and negative cash flows from our operations . we have financed our operations since inception through sales of our convertible preferred stock and the sale of our common stock in our ipo , receiving aggregate gross proceeds of $ 123.2 million . as of december 31 , 2018 , we had cash , cash equivalents and marketable securities of $ 89.8 million .
| financial condition and results of operations you should read the following discussion and analysis of our financial condition and results of operations in conjunction with the financial statements and the related notes to those statements included later in this annual report . in addition to historical financial information , the following discussion contains forward‑looking statements that reflect our plans , estimates , beliefs and expectations that involve risks and uncertainties . our actual results and the timing of events could differ materially from those discussed in these forward‑looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report , particularly in item 1a . “ risk factors ” and “ special note regarding forward‑looking statements. ” overview we are a medical dermatology company committed to the development and commercialization of novel treatments that provide meaningful benefit for people living with skin diseases . our lead product candidate , vp-102 , is a proprietary drug-device combination of our novel topical solution of cantharidin , a widely recognized , naturally sourced agent to treat topical dermatological conditions , administered through our single-use precision applicator . we are initially developing vp-102 for the treatment of molluscum contagiosum , or molluscum , a highly contagious and primarily pediatric viral skin disease , and common warts . there are currently no products approved by the u.s. food and drug administration , or fda , nor is there an established standard of care for either of these disease s , resulting in significant undertreated populations in two of the largest unmet needs in dermatology . in addition to patent protection we are seeking , vp-102 has the potential to be the first fda-approved product for molluscum and for its active pharmaceutical ingredien t , or api , to be characterized as a new chemical entity , or nce , with the five years of non-patent regulatory exclusivity associated with that designation .
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risk factors , of this annual report on form 10-k. overview unless otherwise indicated , references to `` xeris , '' the `` company , '' `` we , '' `` our '' and `` us '' in this annual report on form 10-k refer to xeris pharmaceuticals , inc. we are a specialty pharmaceutical company delivering innovative solutions to simplify the experience of administering important therapies that people rely on every day around the world . with novel technology platforms , xerisol and xeriject , that enable ready-to-use , room-temperature stable formulations of injectable and infusible therapies , we are advancing a portfolio of solutions in various therapeutic categories . our first product , gvoke® , delivers ready-to-use glucagon via a pre-filled syringe ( `` gvoke pfs '' ) or auto-injector ( `` gvoke hypopen® '' ) for the treatment of severe hypoglycemia , a potentially life-threatening condition , in people with diabetes . gvoke was approved in september 2019 by the u.s. food & drug administration ( `` fda '' ) for the treatment of severe hypoglycemia in pediatric and adult patients with diabetes ages two years and older . we began the field launch of gvoke pfs and gvoke hypopen in january 2020 and july 2020 , respectively , and each is available in two doses : a 0.5 mg/0.1 ml dose for pediatric patients and a 1 mg/0.2 ml dose for adolescent and adult patients . on february 11 , 2021 the european commission ( `` ec '' ) granted a marketing authorization for ogluo® ( glucagon ) for the treatment of severe hypoglycemia in adults , adolescents , and children aged two years and over with diabetes mellitus . we currently plan to commercially launch ogluo in select european countries beginning in the fourth quarter of 2021. we are also continuing to evaluate additional applications of our ready-to-use glucagon formulation to address needs in hypoglycemia and related conditions . in addition , we are applying our technology platforms to other commercially available drugs to enable more convenient and patient-friendly subcutaneous ( `` sc '' ) and intramuscular ( `` im '' ) routes of administration , including the development of products to address unmet needs in both diabetes and epilepsy . we own the rights to our proprietary formulation technology platforms , gvoke , and our product candidates domestically and internationally , with 117 patents issued globally , including a composition of matter patent covering our ready-to-use glucagon formulation that expires in 2036. our formulation technologies have broad applicability across many therapeutic areas . there is increasing interest in our technology platforms by other drug development companies that seek higher drug concentrations and drug combinations in subcutaneous forms . in addition to use of these technologies for development of our own product candidates , we are currently conducting three technology platform collaboration projects with top tier pharmaceutical companies . additional projects are under discussion with both large pharmaceutical and specialized biotech companies . our key priority is continuing the successful commercialization of our first product , gvoke , for the treatment of severe hypoglycemia , while increasing the adoption and penetration of emergency glucagon therapy , by offering a glucagon product that better meets the needs of patients and caregivers . we have built a commercial organization , including hiring individuals in commercial operations and sales and marketing , to support the commercialization of gvoke in the united states . outside the united states we may commercialize ogluo with internal resources and or pursue a commercialization partner in order to broaden the availability of ogluo to more european countries . we currently contract with third parties for the manufacture , assembly , testing , packaging , storage and distribution of our products . since our inception in 2005 , we have devoted substantially all of our resources to research and development initiatives , undertaking preclinical studies of our product candidates , conducting clinical trials of our most advanced product candidates , organizing and staffing our company , raising capital and commercializing our first product , gvoke . we have funded our operations to date primarily with proceeds from the sale of our preferred and common stock and debt financing . we have received gross proceeds of $ 226.0 million from public equity offerings of our common stock ( including our june 2018 initial public offering ( `` ipo '' ) and our february 2019 , february 2020 and june 2020 offerings ) , $ 104.9 million from sales of our preferred stock , $ 86.3 million from our june 2020 convertible notes offering and $ 60.0 million from the amended and restated loan and security agreement ( as amended , the `` amended loan agreement '' ) , of which $ 20 million was repaid in june 2020. in august 2019 , we filed a shelf registration statement on form s-3 with the u.s. securities and exchange commission ( `` sec '' ) , which covers the offering , issuance and sale by us of up to an aggregate of $ 250.0 million of our common stock , preferred stock , debt securities , warrants and or units , which we refer to as the `` shelf '' . we simultaneously entered into a sales agreement with jefferies llc , as sales agent , to provide for the offering , issuance and sale by us of up to $ 50.0 million of our common stock from time to time in at-the-market offerings under the shelf . 90 in february 2020 , we completed an equity offering and sold 10,299,769 shares of common stock , including 1,299,769 shares pursuant to the underwriters ' option to purchase additional shares of common stock . net proceeds from the offering were $ 39.9 million . story_separator_special_tag we have incurred operating losses since inception , and we have an accumulated deficit of $ 337.4 million at december 31 , 2020. although we believe that our cash , cash equivalents , investments , and expected revenue from sales of gvoke will enable us to fund our operating and capital expenditure requirements for at least the next 12 months , we can not predict the impact of the covid-19 91 pandemic on our future results of operations and financial condition due to a variety of factors , including the health of our employees , the ability of suppliers to continue to operate and deliver , the ability of xeris and our customers to maintain operations , continued access to transportation resources , the changing needs and priorities of customers , any further government and or public actions taken in response to the pandemic and ultimately the length of the pandemic . as further detailed in `` liquidity and capital resources '' below , we have relied on equity and debt financing for our funding to date and completed concurrent convertible debt and equity offerings in june/july 2020 under which we raised gross proceeds of $ 109.4 million . given the impact of covid-19 on the u.s. and global financial markets , we may be unable to access further equity or debt financing if and when needed . in addition , in order to conserve cash , we implemented measures to reduce spending , we delayed or suspended projects , and we adopted a deferred compensation plan under which a select group of management and our non-employee directors may defer receiving all or a portion of their cash compensation . our chief executive officer , paul edick , deferred approximately 85 % of his cash compensation for the majority of 2020 to reduce cash burn , and other members of our executive team and board of directors also deferred a significant portion of their compensation . in addition , in april 2020 , we entered into the u.s. small business administration ( the “ sba ” ) paycheck protection program ( the “ ppp ” ) note ( the “ note ” ) with silicon valley bank ( the “ lender ” ) for a loan in the amount of $ 5.1 million ( the “ ppp loan ” ) , enabled by the coronavirus aid , relief and economic security act of 2020 ( the “ cares act ” ) to retain employees , maintain payroll and make lease and utility payments in accordance with the relevant terms and conditions of the cares act . in may 2020 , we repaid $ 0.9 million of the ppp loan , and in june 2020 we repaid the remaining $ 4.2 million outstanding under the ppp loan out of proceeds from our concurrent convertible debt and equity offerings . we are closely monitoring the impact of the covid-19 pandemic on all aspects of our business , including the impact on our operations and the operations of our customers , suppliers , vendors and business partners . we may take further precautionary and preemptive actions as may be required by federal , state or local authorities . in addition , we have taken and continue to take steps to try and minimize the current environment 's impact on our business , including devising contingency plans and backup resources . we do not yet know the full extent of potential delays or impacts on our business , our clinical trials , our research programs , healthcare systems or the global economy , and we can not presently predict the scope and severity of any potential business shutdowns or disruptions . the full extent to which the covid-19 pandemic will directly or indirectly impact our business , results of operations and financial condition , including sales , expenses , reserves and allowances , manufacturing , clinical trials , research and development costs and employee-related amounts , will depend on future developments that are highly uncertain , including as a result of new information that may emerge concerning covid-19 and the actions taken to contain or treat it , as well as the economic impact on local , regional , national and international markets . if we , or any of the third parties with whom we engage , were to experience shutdowns or other business disruptions , our ability to conduct our business in the manner and on the timelines presently planned could be materially or negatively affected , which could have a material adverse impact on our business , results of operations and financial condition . components of our results of operations net sales net sales represent gross product sales less estimated allowances for patient copay assistance programs , prompt payment discounts , payor rebates , chargebacks , service fees , and product returns , all of which are recorded at the time of sale to the pharmaceutical wholesaler or other customer . we apply significant judgments and estimates in determining some of these allowances . if actual results differ from our estimates , we will be required to make adjustments to these allowances in the future . see `` critical accounting policies and use of estimates and assumptions '' for further information regarding the significant judgments and estimates involved in the determination of net sales . cost of goods sold cost of goods sold includes primarily product costs , which include all costs directly related to the purchase of raw materials , charges from our contract manufacturing organizations , and manufacturing overhead costs , as well as shipping and distribution charges . cost of goods sold also includes losses from excess , slow-moving or obsolete inventory and inventory purchase commitments , if any . manufacturing costs incurred for gvoke pfs and gvoke hypopen prior to approval and initial commercialization were expensed as research and development expenses . research and development expenses research and development expenses consist of expenses incurred in connection with the discovery and development of our product candidates . we recognize research and development expenses as incurred .
| results of operations the following table summarizes our results of operations for the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_1_th net sales we commercially launched gvoke pfs and gvoke hypopen for the treatment of severe hypoglycemia in people with diabetes in november 2019 and july 2020 , respectively . total net sales of gvoke were $ 20.2 million and $ 1.6 million for the years ended december 31 , 2020 and 2019 , respectively . net sales represent gross product sales less estimated allowances for patient copay assistance programs , prompt payment and other discounts , payor rebates , chargebacks , service fees , and product returns , all of which are recorded at the time of sale to the pharmaceutical wholesaler or other customer . we apply significant judgments and estimates in determining some of these allowances . if actual results differ from our estimates , we will be required to make adjustments to these allowances in the future . grant and other income grant and other income decreased by $ 0.8 million for the year ended december 31 , 2020 when compared to the year ended december 31 , 2019 , primarily due to the completion of grant programs in the first quarter of 2020. cost of goods sold cost of goods sold was $ 9.3 million for the year ended december 31 , 2020 , which included $ 2.3 million related to excess and obsolete inventory and under-absorbed overhead costs of $ 1.5 million . cost of goods sold was $ 1.6 million for the year ended december 31 , 2019 , which included under-absorbed overhead costs of $ 0.6 million . manufacturing costs for gvoke incurred prior to approval and initial commercialization were expensed as incurred as research and development expenses .
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