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our diverse customer base utilizes lng and hydrogen solutions as a fuel source in a variety of applications in the aerospace , industrial , utilities and pipelines , mining , energy , remote clean power and high horsepower transportation markets . our customers use lng as a partner fuel for renewable energy and as an alternative to traditional fuel sources , such as diesel , fuel oil , and propane , to reduce harmful environmental emissions and to lower fuel costs . our customers also use lng as a “ virtual pipeline ” solution when natural gas pipelines are not available or are curtailed . stabilis seeks to provide our customers with safe , reliable and cost-effective lng and hydrogen fueling solutions and power delivery equipment and services . we provide multiple products and services to our customers , including : lng and hydrogen production and sales —stabilis builds and operates cryogenic natural gas processing facilities , called “ liquefiers ” , which convert natural gas into lng through a multiple stage cooling process . we currently own and operate a liquefier that can produce up to 100,000 lng gallons ( 379 cubic meters ) per day . we also purchase lng from third-party production sources which allows us to support customers in markets where we do not own liquefiers . transportation and logistics services —stabilis offers our customers a “ virtual natural gas pipeline ” by providing them with turnkey lng transportation and logistics services in north america . we deliver lng to our customers ' work sites from both our own production facility and our network of 25 third-party production sources located throughout north america . we own a fleet 38 of lng fueled trucks and cryogenic trailers to transport and deliver lng . we also outsource similar equipment and transportation services for both lng and hydrogen from qualified third-party providers as required to support our customer base . cryogenic equipment rental —stabilis owns and operates a rental fleet of approximately 150 mobile lng storage and vaporization assets , including : transportation trailers , electric and gas-fired vaporizers , ambient vaporizers , storage tanks , and mobile vehicle fuelers . we also own several stationary storage and regasification assets . we believe this is one of the largest fleets of small-scale lng equipment in north america . our fleet consists primarily of trailer-mounted mobile assets , making delivery to and between customer locations more efficient . we deploy these assets on job sites to provide our customers with the equipment required to transport , store , and consume lng in their fueling operations . engineering and field support services —stabilis has experience in the safe , cost effective , and reliable use of lng and hydrogen in multiple customer applications . we have also developed many processes and procedures that we believe improve our customers ' use of lng and hydrogen in their operations . our engineers help our customers design and integrate lng and hydrogen into their fueling operations and our field service technicians help our customers mobilize , commission and reliably operate on the job site . stabilis generates revenue by selling and delivering lng and hydrogen to our customers . we also generate revenue by renting cryogenic equipment and providing engineering and field support services . we sell our products and services separately or as a bundle depending on the customer 's needs . lng pricing depends on market pricing for natural gas and competing fuel sources ( such as diesel , fuel oil , and propane among others ) , as well as the customer 's purchased volume , contract duration and credit profile . stabilis ' customers use lng and hydrogen in their operations for multiple reasons , including lower and more stable fuel costs , reduced environmental emissions , and improved operating performance . we believe that lng and hydrogen consumption will continue to increase in the future . power delivery solutions —as a result of the business combination with american electric , stabilis provides power delivery equipment and services for the oil and gas , marine , power generation and broad industrial market segments in brazil , and builds electrical systems for sale in china through our 40 % interest in bomay . key operating data in evaluating our operating performance , our management focuses primarily on gallons delivered and plant utilization . stabilis supplies our customers with lng produced at our own liquefaction facility as well as lng produced at third-party facilities . we make the determination of lng supply sources based on the cost of lng , the transportation cost to deliver to regional customer locations , and the reliability of the supply source . the following table summarizes the volume of lng gallons delivered to our customers . replace_table_token_1_th utilization is an important measure used by management to assess operational output at our george west liquefier . utilization is calculated as actual gallons produced at the facility divided by capacity . for the year ended december 31 , 2020 , utilization was 54.5 % , compared to 69.6 % for the year ended december 31 , 2019. the decrease was primarily the result of reduced customer activity during the 2nd and 3rd quarters of 2020 due to the ongoing covid-19 pandemic . background on july 26 , 2019 , the share exchange transaction with american electric and its subsidiaries was completed . the share exchange and its related proposals , which included a company name change and a reverse stock split , were approved by american electric stockholders at a special meeting of stockholders on july 17 , 2019. on july 29 , 2019 , the company began 39 operating under the name stabilis energy , inc. and our common stock began trading under the ticker symbol “ slng ” . story_separator_special_tag the reduction in net cash used was driven by the acquisitions of diversenergy during the third quarter 2019 and $ 1.4 million less of equipment purchases during the twelve months ended december 31 , 2020. financing activities net cash used in financing activities totaled $ 3.2 million for the twelve months ended december 31 , 2020 compared to $ 1.9 million net cash provided by financing activities for 2019. the net change compared to the prior year was primarily attributable to : $ 1.4 million of additional payments on short-term notes payable , long-term borrowings , and long-term borrowings from related parties in the current year ; net proceeds of $ 5.0 million from related party long-term borrowings in the prior year , partially offset by net proceeds of $ 1.1 million received as a loan pursuant to the paycheck protection program under the coronavirus aid , relief , and economic security act in 2020 ( “ the ppp loan ” ) , and net proceeds from long-term notes borrowings of $ 0.1 million in the current year , sources of liquidity and capital resources our principal sources of liquidity have consisted of cash on hand , cash provided by our operations , and distributions from our bomay joint venture . in addition , the company obtained equipment financing from mg finance , a related party , and received the ppp loan of $ 1.1 million . the company is evaluating additional financing alternatives , however , there is no guarantee that additional financing will be available or available at terms that would be beneficial to shareholders . 45 future cash requirements uses of liquidity and capital resources we require cash to fund our operating expenses and working capital requirements , including costs associated with fuel sales , capital expenditures , debt repayments and repurchases , equipment purchases , maintenance of lng production facilities , mergers and acquisitions ( if any ) , pursuing market expansion , supporting sales and marketing activities , support of legislative and regulatory initiatives , and other general corporate purposes . while we believe we have sufficient liquidity and capital resources to fund our operations and repay our debt , we may elect to pursue additional financing activities such as refinancing existing debt , or debt or equity offerings to provide flexibility with our cash management . certain of these alternatives may require the consent of current lenders or stockholders , and there is no assurance that we will be able to execute any of these alternatives on acceptable terms or at all . capital expenditures our business plan calls for approximately $ 3.0 million to $ 4.0 million in capital expenditures in 2021. these capital expenditures primarily relate to expansion plans in mexico and the addition of rolling stock . debt level and debt compliance we had total indebtedness of $ 7.9 million in principal as of december 31 , 2020 with the expected maturities as follows ( in thousands ) . replace_table_token_6_th we expect our total interest payment obligations relating to our indebtedness to be approximately $ 0.6 million for the year ending december 31 , 2021. certain of the agreements governing our outstanding debt , which are discussed in note 10—debt to our consolidated financial statements , have certain covenants with which we must comply . as of december 31 , 2020 , we were in compliance with all of these covenants . 46 contractual obligations we are committed to make cash payments in the future pursuant to certain of our contracts . the following table summarizes certain contractual obligations in place as of december 31 , 2020 : replace_table_token_7_th _ ( 1 ) debt relates to the construction of a lng liquefaction plant in texas . principal and accrued interest at libor + 3 % are due annually . ( 2 ) obligation to related party is equipment leased from a subsidiary of the modern group , ltd. ( 3 ) operating lease obligations primarily relate to office lease space in colorado , texas and washington . colorado lease began in 2014 and expired without renewal in 2021 , washington lease renewed in 2018 for an additional 4 year term and texas office lease begin in 2019 with expiration on january 31 , 2025. obligations can be found in note 11—leases to our notes to consolidated financial statements . contingencies in the normal course of our business , we become involved in various litigation matters . in addition , from time to time , we are involved in tax and other disputes with various government agencies . management has used estimates in determining our potential exposure to these matters and has recorded reserves in our financial statements related thereto as appropriate . it is possible that a change in estimate related to these exposures could occur , but we do not expect such changes in the estimated costs would have a material effect on our business , consolidated financial position or results of operations . see note 13—commitments and contingencies to our notes to consolidated financial statements . off-balance sheet arrangements as of december 31 , 2020 , we had no transactions that met the definition of off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , cash requirements or capital resources . new accounting standards see note 1—basis of presentation and summary of significant accounting policies to our notes to consolidated financial statements included elsewhere in this report for information on new accounting standards . critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with u.s. gaap .
| results of operations the following table reflects line items from the accompanying consolidated statements of operations for the year ended december 31 , 2020 ( the “ current year ” ) as compared to the year ended december 31 , 2019 ( the “ prior year ” ) : stabilis solutions , inc. consolidated statements of operations ( in thousands , excluding percentages ) replace_table_token_2_th 41 segment results the company 's revenues are derived from two operating segments : lng and power delivery . the company evaluates the performance of its segments based primarily on segment operating income . lng segment our lng segment supplies lng to multiple end markets in north america and provides turnkey fuel solutions to help users of propane , diesel and other crude-based fuel products convert to lng . replace_table_token_3_th power delivery segment our power delivery segment provides power delivery equipment and services to the global energy industry through our subsidiary in brazil and our joint venture in china . replace_table_token_4_th 42 current year compared to prior year revenue lng product revenue . during the current year lng product revenues decreased $ 6.9 million or 20.2 % versus the prior year primarily due to reduced activity with mining , oilfield , and other customers as a result of the covid-19 pandemic and the related impact on overall economic activity , particularly oil and gas exploration and production activity . rental , service , and other revenue . rental , service and other revenues decreased by $ 0.5 million or 4.8 % in the current year compared to prior year primarily due to a cancellation fee received in the prior year . power delivery . power delivery revenue increased $ 1.8 million or 53.8 % in the current year due to the mid-year completion of the share exchange in the prior year .
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this test identifies both the existence of and the amount of goodwill impairment by comparing the fair value of a reporting unit to its carrying amount , including goodwill . if the fair value of a reporting unit exceeds its carrying amount goodwill is not impaired . if the carrying amount of a reporting unit exceeds its fair value an impairment loss is recognized in amount equal to that excess , limited to the amount of goodwill allocated to that reporting unit . the process of evaluating goodwill for impairment involves the determination of the fair value of story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with the selected financial data and the consolidated financial statements and related notes contained in item 6. selected financial data and item 8. financial statements and supplementary data of this annual report on form 10-k , respectively . see “ risk factors ” contained in item 1a . risk factors of this annual report on form 10-k and “ cautionary statement ” contained in item 1. business of this annual report on form 10-k for a discussion of the uncertainties , risks and assumptions associated with these statements . overview we are a leading supplier and manufacturer of building materials , manufactured components and construction services to professional contractors , sub-contractors and consumers . following the bmc merger , the company operates approximately 550 locations in 40 states across the united states . given the span and depth of our geographical reach , prior to the bmc merger our locations were organized into nine geographical regions ( regions 1 through 9 ) , which were also our operating segments , and these were further aggregated into four reportable segments : northeast , southeast , south and west . following the bmc merger , we will re-evaluate our operating and reportable segments for future reporting periods . all of our segments have similar customers , products and services , and distribution methods . our financial statements contain additional information regarding segment performance which is discussed in note 15 to the consolidated financial statements included in item 8 of this annual report on form 10-k. we offer an integrated solution to our customers providing manufacturing , supply and installation of a full range of structural and related building products . our manufactured products include our factory-built roof and floor trusses , wall panels and stairs , vinyl windows , custom millwork and trim , as well as engineered wood that we design , cut , and assemble for each home . we also assemble interior and exterior doors into pre-hung units . additionally , we supply our customers with a broad offering of professional grade building products not manufactured by us , such as dimensional lumber and lumber sheet goods and various window , door and millwork lines . our full range of construction-related services includes professional installation , turn-key framing and shell construction , and spans all our product categories . we group our building products into six product categories : lumber & lumber sheet goods . lumber & lumber sheet goods include dimensional lumber , plywood , and osb products used in on-site house framing . manufactured products . manufactured products consist of wood floor and roof trusses , steel roof trusses , wall panels , stairs , and engineered wood . windows , door & millwork . windows & doors are comprised of the manufacturing , assembly , and distribution of windows and the assembly and distribution of interior and exterior door units . millwork includes interior trim and custom features that we manufacture under the synboard ® brand name . gypsum , roofing & insulation . gypsum , roofing , & insulation include wallboard , ceilings , joint treatment and finishes . siding , metal , and concrete . siding , metal , and concrete includes vinyl , composite , and wood siding , exterior trim , other exteriors , metal studs and cement . other building products & services . other building products & services are comprised of products such as cabinets and hardware as well as services such as turn-key framing , shell construction , design assistance , and professional installation spanning the majority of our product categories . our operating results are dependent on the following trends , strategies , events and uncertainties , some of which are beyond our control : homebuilding industry and market competition . our business is driven primarily by the residential new construction market and the residential repair and remodel market , which are in turn dependent upon a number of factors , including demographic trends , interest rates , consumer confidence , employment rates , housing affordability , household formation , land development costs , the availability of skilled construction labor , and the health of the economy and mortgage markets . according to the u.s. census bureau , annual u.s. total and single-family housing starts were 1.4 million and 1.0 million , respectively , in 2020. due to increased competition for homebuilder business and cyclical fluctuations in commodity prices , we may experience pressure on our gross margins . in addition to these factors , there has been a trend of consolidation within the building products supply industry . however , our industry remains highly fragmented and competitive and we will continue to face significant competition from local and regional suppliers . we believe there are several meaningful trends that indicate u.s. housing demand will continue to grow , including historically low interest rates , the aging of housing stock , and normal population growth due to immigration and birthrate exceeding death rate . building upon the current rate of market growth , industry forecasters , including the national association of homebuilders ( “ nahb ” ) , expect to see continued increases in housing demand over the next year . 27 effect of covid-19 pandemic . in march of 2020 , the u.s. economy began to see significant disruption , uncertainty and record high levels of unemployment as a result of the covid-19 pandemic . story_separator_special_tag as such , we may enter into various debt or equity transactions in order to appropriately manage and optimize our capital structure and liquidity needs . recent developments general on january 1 , 2021 , we completed our previously announced all stock merger transaction with bmc . the bmc merger will be accounted for using the acquisition method of accounting , and builders firstsource , inc. will be treated as the accounting acquirer . the operating results of bmc will be reported as part of the company beginning on the closing date of the bmc merger and as such , the historical financial condition , results of operations and cash flows of the company presented in this annual report do not include bmc . covid-19 pandemic the covid-19 pandemic resulted in significant disruption to the u.s. economy in 2020 and impacted our operations and those of our customers . despite experiencing disruptions to our operations and implementing a number of health and safety precautions as a result of the pandemic , our financial results and financial condition were not materially adversely affected by the pandemic . in most of the states in which we operate , construction was deemed an essential activity and , as a result , our operations faced limited temporary closures early on in the pandemic . furthermore , housing starts and repair and remodeling activity generally increased throughout our markets in 2020 despite the pandemic . despite the limited impact of the covid-19 pandemic on our 2020 financial results , the extent to which the pandemic may impact our results in future periods is uncertain and will depend upon , among other things , the duration and severity of the outbreak or subsequent outbreaks , related government responses , such as required physical distancing or restrictions on business operations and travel , the pace of recovery of economic activity and the impact to consumers , the effectiveness of available vaccines , and any potential supply disruptions , all of which are uncertain and difficult to predict in light of the rapidly evolving landscape . refer to part i , item 1a . risk factors for a full discussion of the risks associated with the covid-19 pandemic . business combinations on january 9 , 2020 , we acquired certain assets and operations of bianchi & company , inc. ( “ bianchi ” ) for $ 15.9 million in cash . located in charlotte , north carolina , bianchi is a supplier and installer of interior and exterior millwork . on november 2 , 2020 we acquired certain assets and operations of kansas building supply company , inc. ( “ kbs ” ) for $ 16.8 million in cash . located in overland park , kansas , kbs is a supplier for interior and exterior doors , windows , millwork cabinetry , and hardware . these acquisitions are described in note 5 to the consolidated financial statements included in item 8 of this annual report on form 10-k. debt transactions during the year ended december 31 , 2020 , the company executed several debt transactions , including the redemption of $ 503.9 million in outstanding aggregate principal amount of 5.625 % senior secured notes due 2024 ( “ 2024 notes ” ) , the redemption of $ 47.5 million in aggregate principal amount of 6.75 % senior secured notes due 2027 ( “ 2027 notes ” ) , and repayment of $ 52.0 million of our senior secured term loan facility due 2024 ( “ 2024 term loan ” ) . the repayments of our 2024 notes and 2027 notes were funded with the proceeds of the issuance of $ 550.0 million in aggregate principal amount of 5.00 % unsecured senior notes due 2030 ( “ 2030 notes ” ) and borrowings on our $ 900.0 million revolving credit facility ( “ 2023 facility ” ) . the repayment of our 2024 term loan was funded with cash on hand . the company also issued an additional $ 350.0 million in aggregate principal amount of our 2027 notes . on january 29 , 2021 , the company amended the 2023 facility to , among other things , increase the total commitments by an aggregate amount of $ 500.0 million resulting in a new $ 1.4 billion amended credit facility , and extended the maturity date from november 2023 to january 2026 . 29 on february 16 , 2021 , pursuant to the optional call feature in the 2027 indenture , the company gave notice that on march 3 , 2021 , $ 82.5 million of 2027 notes will be redeemed at a redemption price equal to 1 03 % of the principal amount of the notes , plus accrued and unpaid interest . these transactions are described in notes 9 and 18 to the consolidated financial statements included in item 8 of this annual report on form 10-k. collectively , these transactions have extended our debt maturity . from time to time , based on market conditions and other factors and subject to compliance with applicable laws and regulations , the company may repurchase or call our notes , repay debt , repurchase shares of our common stock or otherwise enter into transactions regarding its capital structure . retirement of president and chief executive officer in january 2020 , mr. chad crow notified our board of his decision to retire as president and chief executive officer of the company during 2020 after assisting the board in hiring his replacement . mr. crow will continue to serve as the company 's chief executive officer for a transition period of 90 days after the bmc merger , following which bmc 's former chief executive officer , and the recently appointed president of the company , mr. dave flitman , will succeed mr. crow as chief executive officer of the company .
| results of operations a discussion regarding our financial condition and results of operations for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 is presented below . a discussion regarding our financial condition and results of operations for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 can be found under item 7 of part ii of our annual report on form 10-k for the fiscal year ended december 31 , 2019 , filed with the sec on february 21 , 2020 . 30 20 20 compared with 201 9 the following table sets forth the percentage relationship to net sales of certain costs , expenses and income items for the years ended december 31 : replace_table_token_3_th net sales . net sales for the year ended december 31 , 2020 were $ 8,558.9 million , a 17.6 % increase from net sales of $ 7,280.4 million for 2019. core organic growth increased net sales by 5.6 % , commodity price inflation accounted for another 9.0 % of the change , while acquisitions and one additional selling day accounted for 2.5 % and 0.5 % , respectively , of the increase . core organic growth came primarily from increased sales volume within our single-family end market . the following table shows net sales classified by major product category for the years ended december 31 , ( dollars in millions ) : replace_table_token_4_th we achieved increased net sales in all our product categories , except in the gypsum , roofing & insulation category , in part due to higher sales volumes in our single-family end market and as a result of our continued efforts to focus on higher margin opportunities through both acquisition targets and core organic growth , as well as the impact of commodity price inflation , primarily on the lumber & lumber sheet goods category , in the period . gross margin .
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core deposits represent the identifiable intangible value assigned to core deposit bases arising from purchase story_separator_special_tag the historical consolidated financial data discussed below reflects our historical results of operations and financial condition and should be read in conjunction with our financial statements and related notes thereto presented elsewhere in this annual report on form 10-k. in addition to historical financial data , this discussion includes certain forward-looking statements regarding events and trends that may affect our future results . such statements are subject to risks and uncertainties that could cause our actual results to differ materially . see “ cautionary note regarding forward-looking statements. ” for a more complete discussion of the factors that could affect our future results , see “ item 1a . risk factors. ” any discrepancies included in this filing between totals and the sums of percentages and dollar amounts presented , or between rounded dollar amounts , are due to rounding . story_separator_special_tag “ item 6. selected financial data. ” until our initial public offering , which occurred in october 2014 , we were a wholly owned subsidiary of nab , and our results have been part of nab 's consolidated business operations since nab acquired us in 2008. nab is a large financial institution incorporated in australia and listed on the australian securities exchange with operations in australia , new zealand , the united kingdom , the united states and parts of asia . historically , nab and its affiliates have provided financial and administrative support to us . in connection with our initial public offering , we and nab entered into certain agreements that provide a framework for our ongoing relationship , including a stockholder agreement governing nab 's rights as a controlling stockholder and a transitional services agreement pursuant to which nab has agreed to continue to provide us with certain services for a transition period . we do not expect our costs associated with these services to be significant . key factors affecting our business and financial statements formation transactions on october 17 , 2014 , great western bancorp , inc. completed the formation transactions , which were a series of internal reorganization transactions comprised of : the cash contribution by national americas holdings llc to great western bancorp , inc. in an amount equal to the total stockholder 's equity of great western bancorporation , inc. ; - 73 - the sale by national americas investment , inc. of all outstanding capital stock of great western bancorporation , inc. to great western bancorp , inc. for an amount in cash equal to the total stockholder 's equity of great western bancorporation , inc. ; and the merger of great western bancorporation , inc. with and into great western bancorp , inc. , with great western bancorp , inc. continuing as the surviving corporation and succeeding to all the assets , liabilities and business of great western bancorporation , inc. as a result of these transactions , great western bancorp , inc. succeeded to the business of great western bancorporation , inc. the formation transactions did not result in a change in our business or our management team , however . following the completion of the formation transactions , and in connection with the completion of our initial public offering , we entered into the stockholder agreement , the transitional services agreement and the registration rights agreement with nab , as our controlling stockholder . economic conditions our loan portfolio can be affected in several ways by changes in economic conditions in our local markets and across the country . for example , declining local economic prospects can reduce borrowers ' willingness to take out new loans or our expectations of their ability to repay existing loans , while declining national conditions can limit the markets for our commercial and agribusiness borrowers ' products . conversely , rising consumer and business confidence can increase demand for loans to fund consumption and investments , which can lead to opportunities for us to grant new loans and further develop our banking relationships with our customers . some elements of the business environment that affect our financial performance include short-term and long-term interest rates , inflation and price levels ( particularly for agricultural commodities ) , monetary policy , unemployment and the strength of the domestic economy and the local economy in the markets in which we operate . because commercial non-real estate and owner-occupied cre borrowers are particularly exposed to external economic conditions such as consumer sentiment , repayment of commercial non-real estate loans and owner-occupied cre loans may be more sensitive than other types of loans to adverse conditions in the real estate market or the general economy . these loans totaled approximately $ 2.72 billion , or 40 % , of our loan portfolio as of september 30 , 2014. in addition , agricultural loans , which comprised 25 % of our loan portfolio as of september 30 , 2014 , depend on the health of the agricultural industry broadly and in the location of the borrower in particular and on commodity prices . overall , our markets continue to experience moderate economic growth , although leading indicators point to some softening . farm income has seen recent declines as a result of lower crop prices and some drought conditions . the united states department of agriculture expects farm income to fall in 2014 but remain relatively high by historical standards . in line with the downturn in farm income , farmland prices are coming under pressure . declines in economic conditions in our local markets , or in farm incomes or farmland prices , could negatively impact our financial results . see “ item 1a . risk factors—risks related to our business—our business may be adversely affected by conditions in the financial markets and economic conditions generally and in our states in particular. ” interest rates net interest income is our largest source of income and is the difference between the interest income we receive from interest-earning assets ( e.g . story_separator_special_tag the most significant changes from the current risk-based capital guidelines applicable to us will be the revisions affecting the numerator in regulatory capital calculations and the increased risk weightings for higher-volatility cre loans , for revolving lines of credit of less than one year in duration and for past-due and impaired loans . see “ —capital ” for further information . interchange fees . we are currently subject to the interchange fee cap adopted under the durbin amendment to the dodd-frank act as a result of nab 's ownership of us . once nab no longer controls us for bank regulatory purposes , we may be able to qualify for the small issuer exemption from the interchange fee cap depending on our total assets at the time . the small issuer exemption applies to any debit card issuer that , together with its affiliates , has total assets of less than $ 10 billion as of the end of the previous calendar year . in the event we qualify for the small issuer exemption , we will once again become subject to the interchange fee cap beginning july 1 following the time when our total assets reach or exceed $ 10 billion . reliance on the small issuer exemption - 75 - would not exempt us from federal regulations prohibiting network exclusivity arrangements or from routing restrictions , however , and those regulations have negatively affected the interchange income we have received from our debit card network . heightened prudential requirements . we and our bank both currently have less than $ 10 billion in total consolidated assets . following the fourth consecutive quarter ( and any applicable phase-in period ) where we or our bank exceeds this threshold , as applicable , we or our bank , as applicable , will become subject to a number of additional requirements ( such as annual stress testing requirements implemented pursuant to the dodd-frank act and general oversight by the cfpb ) that will impose additional compliance costs on our business . see “ item 1. business —supervision and regulation—heightened requirements for bank holding companies with $ 10 billion or more in assets. ” while neither we nor our bank is currently subject to these requirements , we have begun analyzing these rules to ensure we are prepared to comply with the rules when and if they become applicable . for example , we have begun running periodic and selective stress tests on liquidity , interest rates and certain areas of our loan portfolio to prepare for compliance with fdic stress testing requirements . competition our profitability and growth are affected by the highly competitive nature of the financial services industry . we compete with commercial banks , savings banks , credit unions , non-bank financial services companies and other financial institutions operating within the areas we serve , particularly nationwide and regional banks and larger community banks that target the same customers we do . we also face competition for agribusiness loans from participants in the nationwide farm credit system and global banks . recently , we have seen increased competitive pressures on loan rates and terms for high-quality credits , driven in part by the prolonged low-interest rate environment . continued loan pricing pressure may continue to affect our financial results in the future . see “ item 1a . risk factors—risks related to our business—we operate in a highly competitive industry and market area. ” operational efficiency we believe that our focus on operational efficiency is critical to our profitability and future growth , and our management has adopted numerous processes to improve our level of operational efficiency . in contrast to some competitor banks , our business offers a focused range of profitable products . in addition , instead of using multiple information technology solutions , we have increased the efficiency of our operations by using a single integrated third party core processing system across all of our locations . we continue to optimize our branch network and have commenced reviews of additional internal processes and our vendor relationships , with a view to identifying opportunities to further improve efficiency and enhance earnings . we are also continuing our efforts to shift our deposit base to lower-cost customer deposits , a strategic initiative that has been primarily responsible for driving our cost of deposit funding down since september 30 , 2012. to foster a culture of operational efficiency , we have implemented the management principles of kaizen & lean across all of our front-office and back-office operations . we feel that appropriate use of these management principles both encourages efficiency and contributes to the efficient integration of acquired businesses . we incurred additional one-time and recurring expenses to support our operations as a standalone public company following the completion of our initial public offering in october 2014 , including expenses related to compliance with applicable legal and financial reporting standards and expansion of our investor relations and corporate communications functions . many of these expenses are not reflected in our results of operations for fiscal year 2014 and will adversely affect our future financial results . see “ item 1a . risk factors—risks related to our business—fulfilling our public company financial reporting and other regulatory obligations will be expensive and time consuming and may strain our resources. ” goodwill and amortization of other intangibles since 2006 , we have completed eight acquisitions . we accounted for these transactions using the acquisition method of accounting , under which the acquired company 's net assets are recorded at fair value at the date of acquisition and the difference between the purchase price and fair value of the net assets acquired is recorded as goodwill , if positive , and as bargain purchase gain , if negative . at september 30 , 2014 , we had $ 697.8 million of goodwill , the majority of which relates to the acquisition of us by nab in 2008 and was pushed down to our balance sheet , with the balance relating to subsequent acquisitions completed by us .
| overview we are a full-service regional bank holding company focused on relationship-based business and agribusiness banking . we serve our customers through 162 branches in attractive markets in seven states : south dakota , iowa , nebraska , colorado , arizona , kansas and missouri . we were established more than 70 years ago and have achieved strong market positions by developing and maintaining extensive local relationships in the communities we serve . by leveraging our business and agribusiness focus , presence in attractive markets , highly efficient operating model and robust approach to risk management , we have achieved significant and profitable growth—both organically and through disciplined acquisitions . we provide financial results based on a fiscal year ending september 30 and as a single reportable segment . growth in our loan portfolio , which totaled $ 6.82 billion at september 30 , 2014 , has driven growth in our total assets during fiscal years 2013 and 2014. from september 30 , 2009 to september 30 , 2014 , we have grown our total assets at a cagr of 12 % , our loan portfolio at a cagr of 15 % and our deposit base at a cagr of 13 % . this growth was primarily generated by our acquisition of tierone bank in 2010 , which represented approximately $ 2.5 billion of our $ 3.1 billion total asset growth in fiscal year 2010. from september 30 , 2013 to september 30 , 2014 , our total assets , loan portfolio and deposit base grew by 3 % , 7 % and 1 % , respectively , as our loan growth drove continued asset growth , despite being offset by a reduction in the size of our investment portfolio . we achieved this overall loan growth while adhering to our strategy of focusing growth in the commercial non-real estate and agriculture segments of our portfolio , along with certain sub-segments of commercial real estate loans .
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on may 1 , 2013 , the partnership distributed a 25.05 % interest in sesh to centerpoint energy , retaining a 24.95 % interest in sesh . for the period may 1 , 2013 through may 29 , 2014 , centerpoint energy indirectly owned a 25.05 % story_separator_special_tag the following discussion and analysis should be read in conjunction with our combined and consolidated financial statements and the related notes included herein . the following discussion contains forward-looking statements that reflect our future plans , estimates , beliefs and expected performance . the forward-looking statements are dependent upon events , risks and uncertainties that may be outside our control . our actual results could differ materially from those discussed in these forward-looking statements . please read “ forward-looking statements. ” in light of these risks , uncertainties and assumptions , the forward-looking events discussed may not occur . 57 overview we are a large-scale , growth-oriented publicly traded delaware limited partnership formed to own , operate and develop strategically located natural gas and crude oil infrastructure assets . we serve current and emerging production areas in the united states , including several unconventional shale resource plays and local and regional end-user markets in the united states . our assets and operations are organized into two reportable segments : ( i ) gathering and processing , which primarily provides natural gas gathering , processing and fractionation services and crude oil gathering for our producer customers , and ( ii ) transportation and storage , which provides interstate and intrastate natural gas pipeline transportation and storage service primarily to natural gas producers , utilities and industrial customers . our natural gas gathering and processing assets are located in four states and serve natural gas production from shale developments in the anadarko , arkoma and ark-la-tex basins . we also own a crude oil gathering business in the bakken shale formation of the williston basin that commenced initial operations in november 2013. our natural gas transportation and storage assets extend from western oklahoma and the texas panhandle to alabama and from louisiana to illinois . we were formed in may 2013 as a limited partnership among centerpoint energy , oge energy and arclight . as of december 31 , 2014 , our portfolio of energy infrastructure assets included approximately 11,900 miles of gathering pipelines , 12 major processing plants with approximately 2.1 bcf/d of processing capacity , approximately 7,900 miles of interstate pipelines ( including sesh ) , approximately 2,300 miles of intrastate pipelines and eight storage facilities providing approximately 87.5 bcf of storage capacity . our operations our gathering and processing assets include approximately 11,900 miles of natural gas gathering pipelines in the anadarko , arkoma and ark-la-tex basins with approximately 853,000 horsepower of compression and 12 natural gas processing plants with approximately 2.1 bcf/d of processing capacity and 2.1 bcf/d of treating capacity as of december 31 , 2014 . we provide gathering , compression , treating , dehydration , processing and ngl fractionation for producers who are active in the areas in which we operate . for the year ended december 31 , 2014 , our assets gathered an average of approximately 3.34 tbtu/d of natural gas . for the year ended december 31 , 2014 , we processed approximately 1.56 tbtu/d of natural gas and produced approximately 66.74 mbbl/d of ngls . we also have a crude oil gathering business in the bakken shale formation , principally located in the williston basin , that commenced initial operations in november 2013. we provide fee-based interstate and intrastate transportation and storage services across nine states . we own and operate approximately 7,900 miles ( including sesh ) of interstate transportation pipelines with average firm contracted capacity of 7.73 bcf/d ( excluding sesh ) , for the year ended december 31 , 2014 . in addition , we own and operate approximately 2,300 miles of intrastate transportation pipelines with average aggregate throughput of 1.61 tbtu/d for the year ended december 31 , 2014 . we also own and operate eight natural gas storage facilities with approximately 87.5 bcf of aggregate capacity and approximately 1.9 bcf/d of aggregate daily deliverability as of december 31 , 2014 . for the year ended december 31 , 2014 , approximately 72 % of our gross margin was generated from contracts that are fee-based , and approximately 50 % of our gross margin was attributable to fees associated with firm contracts or contracts with minimum volume commitment features . the following table shows the components of our gross margin for the year ended december 31 , 2014 . replace_table_token_8_th 58 how we evaluate our operations we use a variety of financial and operational metrics to analyze our performance . we view these metrics as important factors in evaluating our profitability and review these measurements on at least a monthly basis for consistency and trend analysis . these metrics are significant factors in assessing our operating results and profitability and include : ( i ) throughput volumes ; ( ii ) gross margin ; ( iii ) operation and maintenance expenses ; ( iv ) adjusted ebitda and ( v ) distributable cash flow . throughput volumes the volume of natural gas that we gather , process , transport and store depends significantly on the level of production from natural gas wells connected to our systems . aggregate production volumes are impacted by the overall amount of drilling and completion activity , as production must be maintained or increased by new drilling or other activity , because the production rate of a natural gas well declines over time . producers ' willingness to engage in new drilling is determined by a number of factors , the most important of which are the prevailing and projected prices of natural gas , ngls , and crude oil , the cost to drill and operate a well , the availability and cost of capital and environmental and government regulations . we generally expect the level of drilling to positively correlate with long-term trends in commodity prices . story_separator_special_tag these services include accounting , finance , legal , risk management , information technology and human resources . we are required to reimburse centerpoint energy and oge energy for their direct expenses or , where the direct expenses can not reasonably be determined , an allocated cost as set forth in the agreements . our reimbursement obligations are capped at amounts set forth in our annual budget . the initial term of the services agreements ends in may 2016 , after which date they continue on a year-to-year basis unless terminated by us upon 90 days ' notice . historically , our general and administrative expenses included direct monthly charges for the management and operation of our logistics assets and certain expenses allocated by our sponsors for general corporate services , such as treasury , accounting and legal services . these expenses were charged or allocated to us based on conventions accepted by the regulators of centerpoint energy 's and oge energy 's regulated utility assets . for additional information , please see note 13 to the combined and consolidated financial statements for the years ended december 31 , 2014 , 2013 and 2012 . income tax expenses . prior to may 1 , 2013 , our assets were included in centerpoint energy 's consolidated federal income tax returns , which were taxed at the entity level as a c corporation . following our formation , we are treated as a partnership for federal income tax purposes , with each partner being separately taxed on its share of taxable income ; therefore , there is no income tax expense in our financial statements subsequent to may 1 , 2013 ( other than texas state margin taxes and taxes associated with the partnership 's corporate subsidiary ) . as a result of the conversion to a limited partnership , we recorded a one-time income tax benefit of $ 1.24 billion in the year ended december 31 , 2013. financing . upon our formation , we entered into our $ 1.05 billion three-year term loan facility , the proceeds of which were used to repay $ 1.05 billion of intercompany indebtedness owed to centerpoint energy . in addition , upon our formation , we entered into a $ 1.4 billion five-year revolving credit facility . initial advances under the revolving credit facility were used for general partnership purposes and to refinance the enogex revolving credit facility , which was terminated in connection with our formation , 60 and existing indebtedness owing by enogex to oge energy as of may 1 , 2013. in january 2014 , we initiated our $ 1.4 billion commercial paper program . this program is used for general corporate purposes . commercial paper issuances effectively reduce our borrowing capacity under our revolving credit facility . in april 2014 , the partnership completed the offering of 25,000,000 units and received net proceeds of $ 464 million . the partnership retained the net proceeds of the offering for general partnership purposes , including the funding of expansion capital expenditures , and to pre-fund demand fees expected to be incurred over the next three years relating to certain expiring transportation and storage contracts . on may 27 , 2014 , the partnership completed the private offering of 2019 notes , 2024 notes and 2044 notes , with registration rights . the partnership received aggregate proceeds of $ 1.63 billion . certain of the proceeds were used to repay the term loan facility , and certain of the proceeds were used to repay the enable oklahoma $ 250 million variable rate term loan and the enable oklahoma $ 200 million 6.875 % senior notes due july 15 , 2014 , and for general corporate purposes . see note 10 for discussion of the repayment of the enable oklahoma $ 200 million 6.875 % senior notes . a wholly owned subsidiary of centerpoint energy has guaranteed collection of the partnership 's obligations under the 2019 notes and 2024 notes , on an unsecured subordinated basis , subject to automatic release on may 1 , 2016. please read `` —liquidity and capital resources '' . cash distributions . our partnership agreement requires that we distribute to our unitholders quarterly all of our available cash . as a result , we expect to fund future capital expenditures primarily from external sources , including borrowings under our revolving credit facility , issuances of commercial paper and future issuances of equity and debt securities . general trends and outlook we expect our business to continue to be affected by the key trends discussed below . 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 . commodity price volatility prices of natural gas , crude oil and ngls have historically experienced periods of significant volatility . commodity price changes impact the commodity-based portion of our gross margin , our producer customers ' decisions to drill and complete wells and our transportation and storage customers ' decisions to contract capacity on our systems . our results are also impacted by the price differentials between receipt and delivery points on our systems . we have attempted to mitigate the impact of commodity prices on our business by entering into hedges , focusing on contracting fee-based business , and converting existing commodity-based contracts to fee-based contracts . recently , the prices of crude oil , ngls and natural gas have declined significantly . should lower commodity prices persist , our future volumes and cash flows may be negatively impacted . for additional information regarding our commodity price risk , see item 7a . `` quantitative and qualitative disclosures about market risk - commodity price risk. ” growth in production of u.s. shale plays over the past several years , there has been a fundamental shift in u.s. natural gas and crude oil production towards tight gas formations and shale plays .
| results of operations the historical financial information included below reflects the combined assets , liabilities and operations of the entities comprising centerpoint energy 's reportable segments for periods ending prior to may 1 , 2013 and the consolidated assets , liabilities and operations of these reportable segments and enogex for periods ending on or after may 1 , 2013. with respect to periods ending prior to may 1 , 2013 , we refer to centerpoint energy 's interstate pipelines segment as our transportation and storage segment and centerpoint energy 's field services segment as our gathering and processing segment . replace_table_token_9_th 62 replace_table_token_10_th replace_table_token_11_th replace_table_token_12_th _ ( 1 ) 2013 daily averages are computed utilizing a 365 day convention , and are not computed using a weighted average convention for the acquisition of enogex . ( 2 ) excludes condensate . ( 3 ) initial operation of our crude oil gathering system began on november 1 , 2013 . ( 4 ) ngls sold includes volumes of ngls withdrawn from inventory or purchased for system balancing purposes . 63 gathering and processing 2014 compared to 2013 . our gathering and processing segment reported operating income of $ 349 million in the year ended december 31 , 2014 compared to $ 294 million in the year ended december 31 , 2013 . operating income increase d $ 55 million primarily from increase d gross margin of $ 174 million and a decrease in impairments of $ 4 million , partially offset by an increase in operation and maintenance expenses of $ 75 million , an increase in depreciation and amortization of $ 43 million , and an increase in taxes other than income tax of $ 5 million , during the year ended december 31 , 2014 .
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comparable store sales percentages below are calculated excluding the 53 rd week . all references to store counts , including data for new store openings , are reported net of related store closures , unless otherwise noted . financial highlights total net revenues increased 11 % to $ 21.3 billion in fiscal 2016 compared to $ 19.2 billion in fiscal 2015 . global comparable store sales grew 5 % driven by a 4 % increase in average ticket and a 1 % increase in the number of transactions . consolidated operating income increased to $ 4.2 billion in fiscal 2016 compared to operating income of $ 3.6 billion in fiscal 2015 . fiscal 2016 operating margin was 19.6 % compared to 18.8 % in fiscal 2015 . operating margin expansion in fiscal 2016 was primarily driven by sales leverage and lower commodity costs , partially offset by investments in partners ( employees ) and digital platforms . earnings per share ( `` eps '' ) for fiscal 2016 increased to $ 1.90 and included $ 0.06 per share for the extra week in fiscal 2016. fiscal 2015 eps was $ 1.82 and included $ 0.26 per share from the gain on the fair value adjustment of our preexisting equity interest in starbucks japan upon acquisition . cash flows from operations were $ 4.6 billion in fiscal 2016 compared to $ 3.7 billion in fiscal 2015 . the change was primarily due to increased earnings , the lapping of the non-cash acquisition related gain for starbucks japan and the timing of our cash payments for income taxes . capital expenditures were $ 1.4 billion in fiscal 2016 compared to $ 1.3 billion in fiscal 2015 . we returned $ 3.2 billion to our shareholders in fiscal 2016 through share repurchases and dividends compared to $ 2.4 billion in fiscal 2015. overview starbucks results for fiscal 2016 continued to demonstrate the strength of our global business model , and our ability to successfully make disciplined investments in our business and our partners ( employees ) . our net revenues grew 11 % over fiscal 2015 , and consolidated operating margin expanded 80 basis points from 18.8 % in fiscal 2015 to 19.6 % in fiscal 2016 , largely driven by sales leverage and lower commodity costs , partially offset by investments in our partners and digital platforms . the americas segment continued to perform well in fiscal 2016 , with revenues growing 11 % to $ 14.8 billion , primarily driven by comparable store sales growth of 6 % , comprised of a 5 % increase in average ticket and a 1 % increase in number of transactions , incremental revenues from 804 net new store openings over the last 12 months and the impact of the extra week in fiscal 2016. growth in our iced beverages , including coffee , tea and espresso , paired with beverage innovation and the success of our food offerings , drove the increase in comparable store sales . americas operating margin grew 110 basis points to 25.3 % in fiscal 2016 , primarily driven by sales leverage and lower commodity costs , partially offset by investments in our store partners and digital platforms . our fiscal 2016 china/asia pacific segment results reflected higher revenues from the opening of 981 net new stores over the past year , incremental revenues associated with the ownership change in starbucks japan , a 3 % increase in comparable store sales and the impact of the extra week in fiscal 2016. operating margin expanded 60 basis points to 21.5 % , driven by sales leverage , higher income from our joint venture operations and favorability from changes to certain business tax structures in china . this favorability was partially offset by unfavorable foreign currency translation and the impact of our ownership change in starbucks japan . we now operate 6,443 stores in 15 countries in our china/asia pacific segment with continued strong performance , reinforcing our confidence in the long-term growth potential of this market . as we continue to execute our strategy of achieving the appropriate balance between company-operated and licensed stores , our emea segment revenues declined 8 % to $ 1.1 billion in fiscal 2016 compared to a year ago . the decline in revenues was primarily driven by lower company-operated store revenues due to the shift to more licensed stores in the region and unfavorable foreign currency translation . partially offsetting lower company-operated store revenues were higher licensed store sales , primarily resulting from the opening of 294 net new licensed stores and the transfer of 200 company-operated stores to licensed stores over the past 12 months , and the impact of the extra week in fiscal 2016. compared to fiscal 2015 , emea operating margin declined 30 basis points to 13.5 % primarily due to sales deleverage at certain company-operated stores and 22 unfavorable foreign currency exchange , partially offset by sales leverage driven by the shift in the portfolio towards more licensed stores . the channel development segment revenues grew 12 % to $ 1.9 billion in fiscal 2016 , primarily due to higher sales of premium single-serve products , driven by sales of starbucks ® k-cup ® portion packs , the impact of the extra week in fiscal 2016 and increased foodservice and packaged coffee sales . operating margin increased 400 basis points to 41.8 % , primarily driven by strong performance from our north american coffee partnership joint venture , lower coffee costs and leverage on cost of sales . as seen through our channel development segment results for fiscal 2016 , we continue to expand customer occasions outside of our retail stores and through our developing international presence . story_separator_special_tag general and administrative expenses as a percentage of total net revenues increased 20 basis points , primarily driven by higher salaries and benefits ( approximately 30 basis points ) . income from equity investees as a percentage of total net revenues increased 20 basis points due to higher income from our joint venture operations , primarily from our north american coffee partnership and our joint ventures in china and south korea . the combination of these changes resulted in an overall increase in operating margin of 80 basis points over fiscal 2015 . other income and expenses replace_table_token_12_th during the first quarter of fiscal 2015 , we recorded a gain of $ 391 million as a result of remeasuring our preexisting 39.5 % ownership interest in starbucks japan to fair value upon acquisition . during the fourth quarter of fiscal 2015 , we recorded a loss of $ 61 million related to the redemption of our $ 550 million of 6.250 % senior notes ( the `` 2017 notes '' ) , which were originally scheduled to mature in august 2017. the loss primarily relates to the optional redemption premium outlined in the 2017 notes indenture , as well as the derecognition of the capitalized issuance costs and unamortized discount . interest income and other , net increased $ 65 million , primarily due to higher income recognized on unredeemed stored value card balances ( $ 21 million ) , net favorable foreign exchange fluctuations ( $ 11 million ) and gains on our trading securities portfolio ( $ 8 million ) . interest expense increased $ 11 million primarily due to interest on the long-term debt we issued in february and may 2016. our tax rate is affected by recurring items , such as tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions , as well as discrete items that may occur in any given year , but are not consistent from year to year . the effective tax rate for fiscal 2016 was 32.9 % compared to 29.3 % for fiscal 2015 . the increase in the rate for fiscal 2016 was primarily due to the 3.7 % impact of the gain in the prior year associated with the remeasurement of our preexisting 39.5 % ownership interest in starbucks japan upon acquisition , which was almost entirely non-taxable . 25 segment information story_separator_special_tag style= '' line-height:120 % ; padding-top:8px ; text-align : center ; font-size:10pt ; '' > replace_table_token_16_th revenues channel development total net revenues for fiscal 2016 increased $ 202 million , or 12 % , over the prior year , primarily driven by higher sales of premium single-serve products ( $ 101 million ) . the impact of the extra week in fiscal 2016 ( $ 40 million ) , increased foodservice sales ( $ 33 million ) and u.s. packaged coffee sales ( $ 28 million ) also contributed . operating expenses cost of sales as a percentage of total net revenues decreased 230 basis points , primarily due to lower coffee costs ( approximately 140 basis points ) and leverage on cost of sales ( approximately 100 basis points ) . other operating expenses as a percentage of total net revenues decreased 40 basis points , primarily driven by sales leverage on marketing expenses and salaries and benefits ( approximately 30 basis points ) . income from equity investees as a percentage of total revenues increased 130 basis points , driven by higher income from our north american coffee partnership joint venture , primarily due to increased sales volume of starbucks doubleshot ® and bottled frappuccino ® beverages and new product launches , partially offset by increased marketing costs ( approximately 150 basis points ) . the combination of these changes contributed to an overall increase in operating margin of 400 basis points over fiscal 2015 . 29 all other segments replace_table_token_17_th all other segments primarily includes teavana , seattle 's best coffee and evolution fresh , as well as certain developing businesses such as the starbucks reserve ® roastery & tasting rooms . results of operations — fiscal 2015 compared to fiscal 2014 consolidated results of operations ( in millions ) : revenues replace_table_token_18_th total net revenues increased $ 2.7 billion , or 17 % , over fiscal 2014 , primarily due to increased revenues from company-operated stores ( contributing $ 2.2 billion ) . the growth in company-operated store revenues was primarily driven by incremental revenues from the acquisition of starbucks japan ( $ 1.1 billion ) , an increase in comparable store sales ( 7 % growth , or $ 852 million ) and incremental revenues from 550 net new starbucks ® company-operated store openings over the past 12 months ( $ 590 million ) . partially offsetting these increases was the impact of unfavorable foreign currency translation ( $ 252 million ) . licensed store revenue growth also contributed $ 273 million to the increase in total net revenues , primarily resulting from the opening of 1,075 net new starbucks ® licensed stores over the past 12 months and improved comparable store sales as well as increased la boulange food sales to our licensees in the americas segment . partially offsetting these increases was a decrease in licensed store revenues resulting from the impact of our ownership change in starbucks japan ( $ 45 million ) . cpg , foodservice and other revenues increased $ 222 million , primarily due to increased sales of premium single-serve products ( $ 116 million ) , u.s. packaged coffee ( $ 55 million ) and foodservice sales ( $ 40 million ) . 30 operating expenses replace_table_token_19_th cost of sales including occupancy costs as a percentage of total net revenues decreased 110 basis points , primarily driven by sales and operating leverage on cost of sales ( approximately 60 basis points ) , driven by strong sales and initiatives in our supply chain , such as improvements in sourcing , as well as sales leverage on occupancy costs ( approximately 40 basis points ) .
| results of operations by segment ( in millions ) : americas replace_table_token_13_th revenues americas total net revenues for fiscal 2016 increased $ 1.5 billion , or 11 % , primarily due to increased revenues from company-operated stores ( contributing $ 1.3 billion ) and licensed stores ( contributing $ 184 million ) . the increase in company-operated store revenues was driven by a 6 % increase in comparable store sales ( $ 730 million ) , incremental revenues from 348 net new starbucks ® company-operated store openings over the past 12 months ( $ 481 million ) and the impact of the extra week in fiscal 2016 ( $ 258 million ) . partially offsetting these increases was unfavorable foreign currency translation ( $ 91 million ) , primarily driven by the strengthening of the u.s. dollar against the canadian dollar . the increase in licensed store revenues was primarily due to higher product sales to and royalty revenues from our licensees ( $ 150 million ) , resulting from the opening of 456 net new licensed stores over the past 12 months and improved comparable store sales , as well as the impact of the extra week in fiscal 2016 ( $ 31 million ) . operating expenses cost of sales including occupancy costs as a percentage of total net revenues decreased 80 basis points , primarily driven by leverage on cost of sales and occupancy costs ( approximately 50 basis points ) and lower commodity costs ( approximately 40 basis points ) . store operating expenses as a percentage of total net revenues increased 20 basis points . as a percentage of company-operated store revenues , store operating expenses increased 30 basis points , primarily driven by increased investments in store partners and digital platforms ( approximately 100 basis points ) , partially offset by sales leverage on salaries and benefits ( approximately 80 basis points ) . other operating expenses as a percentage of total net revenues decreased 30 basis points .
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this annual report on form 10-k , including management 's discussion and analysis of financial condition and results of operations , contains these types of statements , which are forward-looking within the meaning of the private securities litigation reform act of 1995. words such as anticipate , estimate , expect , project , intend , may , plan , predict , believe , should and similar words or expressions are intended to identify forward-looking statements . investors should not place undue reliance on forward-looking statements , and the company undertakes no obligation to publicly update or revise any forward-looking statements . all forward-looking statements reflect the present expectation of future events of our management as of the date of this annual report on form 10-k and are subject to a number of important factors , risks , uncertainties and assumptions that could cause actual results to differ materially from those described in any forward-looking statements . these factors , risks , assumptions and uncertainties include , but are not limited to , general economic conditions including downturns in the business cycle ; the creditworthiness of our customers and their ability to pay for services ; loss of a key customer ; failure to achieve acquisition synergies ; competitive initiatives and pricing pressures , including in connection with fuel surcharge ; the company 's need for capital and 21 uncertainty of the current credit markets ; the possibility of defaults under the company 's debt agreements ( including violation of financial covenants ) ; possible issuance of equity which would dilute stock ownership ; integration risks ; the effect of litigation including class action lawsuits ; cost and availability of qualified drivers , fuel , purchased transportation , real property , revenue equipment and other assets ; governmental regulations , including but not limited to hours of service , engine emissions , the compliance , safety , accountability ( csa ) initiative , compliance with legislation requiring companies to evaluate their internal control over financial reporting , homeland security , environmental regulations and the fda ; changes in interpretation of accounting principles ; dependence on key employees ; inclement weather ; labor relations , including the adverse impact should a portion of the company 's workforce become unionized ; effectiveness of company-specific performance improvement initiatives ; terrorism risks ; self-insurance claims and other expense volatility ; increased costs as a result of recently-enacted healthcare reform legislation ; social media risk ; cyber security risk and other financial , operational and legal risks and uncertainties detailed from time to time in the company 's sec filings . these factors and risks are described in part ii , item 1a . risk factors of this annual report on form 10-k. as a result of these and other factors , no assurance can be given as to our future results and achievements . accordingly , a forward-looking statement is neither a prediction nor a guarantee of future events or circumstances and those future events or circumstances may not occur . you should not place undue reliance on the forward-looking statements , which speak only as of the date of this form 10-k. we are under no obligation , and we expressly disclaim any obligation , to update or alter any forward-looking statements , whether as a result of new information , future events or otherwise . executive overview the company 's business is highly correlated to non-service sectors of the general economy . the company 's strategy is to improve profitability by increasing yield while also increasing volumes to build density in existing geography . the company 's business is labor intensive , capital intensive and service sensitive . the company looks for opportunities to improve cost effectiveness , safety and asset utilization ( primarily tractors and trailers ) . the pricing initiatives that were implemented in 2010 and continued since then have had a positive impact on yield and profitability . the company continues to execute targeted sales and marketing programs along with initiatives to align costs with volumes and improve customer satisfaction . technology continues to be an important investment that is facilitating operational efficiencies and improving company image . the company 's operating revenue increased by 11.7 percent in 2014 over 2013. the increase resulted primarily from improved yield from pricing actions . consolidated operating income was $ 85.7 million for 2014 compared to consolidated operating income of $ 74.4 million in 2013. the 2014 operating income increase resulted primarily from improved yield from pricing and business mix actions along with savings in expenses realized from company initiatives . the company generated $ 102.2 million in cash provided by operating activities in 2014 versus $ 101.3 million in 2013. the company used $ 94.8 million of net cash in investing activities during 2014 compared to $ 122.0 million during 2013. on november 30 , 2011 , the company entered into a fourth amended and restated credit agreement with its banking group . the november 2011 amendment provides for a libor rate margin from 200 basis points to 300 basis points , base rate margin from zero to 75 basis points , letter of credit fees from 212.5 basis points to 312.5 basis points and unused portion fees from 25 basis points to 35 basis points . the facility increases the revolving credit facility to $ 150 million in availability , subject to a borrowing base and extends the term to november 2016. on june 28 , 2013 , the company entered into a first amendment to fourth amended and restated credit agreement with its banking group and a third amendment to amended and restated master shelf agreement with its long-term note holders . the june 2013 amendment increases the revolving credit 22 facility to $ 200 million expiring in june 2018. the facility also has an accordion feature that allows for an additional $ 40 million availability , subject to lender approval . story_separator_special_tag cash flows from operating activities were $ 101.3 million for 2013 versus $ 100.7 million for 2012. for 2013 , cash used in investing activities was $ 122.0 million versus $ 90.4 million in the prior year primarily due to higher revenue equipment purchases . cash provided by financing activities was $ 20.5 million in 2013 versus $ 11.2 million for the prior year due to cash needed to fund the increased level of capital expenditures . outlook our business remains highly correlated to the general economy and competitive pricing pressures , as well as the success of company-specific improvement initiatives . while improved through 2013 and 2014 , there remains 26 uncertainty as to the timing and strength of economic recovery . we are continuing initiatives to increase yield , to reduce costs and improve productivity . we focus on providing top quality service and improving safety performance . if significant competitors were to cease operations and their capacity leave the market , current industry capacity conditions would likely improve . however , there can be no assurance that any industry consolidation will indeed happen or if such consolidation occurs that it will materially improve the excess industry capacity . the company continues to pursue revenue and cost initiatives to improve profitability . planned revenue initiatives include , but are not limited to , building density in our current geography , targeted marketing initiatives to grow revenue in more profitable segments , as well as pricing and yield management . on january 5 , 2015 , saia implemented a 4.9 percent general rate increase impacting customers comprising approximately 25 percent of saia 's operating revenue . saia revised its fuel surcharge program effective february 2 , 2015. the extent of success of these revenue initiatives is impacted by what proves to be the underlying economic trends , competitor initiatives and other factors discussed under forward-looking statements and part ii , item 1a . risk factors. effective july 1 , 2014 , the company implemented a salary and wage increase for all of its employees . the impact of the july 2014 compensation increase of approximately three percent is expected to be approximately $ 14 million annually . the company anticipates the impact of the july 2014 compensation increase to be partially offset by further productivity and efficiency gains . the company also anticipates market competitive wage increases in 2015. if the company builds market share , there are numerous operating leverage cost benefits . conversely , should the economy soften from present levels , the company plans to attempt to match resources and capacity to shifting volume levels to lessen unfavorable operating leverage . the success of cost improvement initiatives is also impacted by the cost and availability of drivers and purchased transportation , fuel , insurance claims , regulatory changes , successful implementation of profit improvement initiatives and other factors discussed under forward-looking statements and part ii , item 1a . risk factors. see forward-looking statements and part ii , item 1a . risk factors for a more complete discussion of potential risks and uncertainties that could materially affect our future performance . new accounting pronouncements on may 28 , 2014 , the fasb issued asu no . 2014-09 , revenue from contracts with customers , which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services . the asu will replace most existing revenue recognition guidance in u.s. generally accepted accounting principles when it becomes effective . the new standard is effective for us on january 1 , 2017. early application is not permitted . the standard permits the use of either the retrospective or cumulative effect transition method . the company is evaluating the effect that asu 2014-09 will have on its consolidated financial statements and related disclosures . the company has not yet selected a transition method nor has it completed its evaluation of the effect of the standard on its ongoing financial reporting . financial condition the company 's liquidity needs arise primarily from capital investment in new equipment , land and structures , information technology and letters of credit required under insurance programs , as well as funding working capital requirements . the company is party to a revolving credit agreement ( the restated credit agreement ) with a group of banks to fund capital investments , letters of credit and working capital needs . the facility provides up to $ 200 million in availability , subject to a borrowing base and expires in june 2018. the company is also a party to a long-term note agreement ( the restated master shelf agreement ) . the company has pledged certain real estate and facilities , tractors and trailers , accounts receivable and other assets to secure indebtedness under both agreements . 27 restated credit agreement the restated credit agreement is a revolving credit facility for up to $ 200 million expiring in june 2018. the restated credit agreement also has an accordion feature that allows for an additional $ 40 million availability , subject to lender approval . the restated credit agreement provides for a libor rate margin range from 125 basis points to 250 basis points , base rate margins from minus 12.5 to plus 50 basis points , letter of credit fee range from 137.5 basis points to 262.5 basis points and an unused portion fee from 20 basis points to 32.5 basis points in each case based on the company 's leverage ratio . under the restated credit agreement , the company must maintain certain financial covenants including a minimum fixed charge coverage ratio , a maximum leverage ratio and a minimum tangible net worth , among others . the restated credit agreement also provides for a pledge by the company of certain land and structures , certain tractors , trailers and other personal property and accounts receivable , as defined in the restated credit agreement . total bank commitments under the restated credit agreement are $ 200 million .
| results of operations saia , inc. and subsidiaries selected results of continuing operations and operating statistics for the years ended december 31 , 2014 , 2013 and 2012 ( in thousands , except ratios and revenue per hundredweight ) replace_table_token_4_th continuing operations year ended december 31 , 2014 as compared to year ended december 31 , 2013 revenue and volume consolidated revenue increased 11.7 percent to $ 1.3 billion as a result of increased yield due to measured pricing and mix management actions and increased tonnage . improvements in the economic environment over the last couple of years permitted the company to implement measured pricing actions to improve yield . saia 's ltl revenue per hundredweight ( a measure of yield ) increased 4.4 percent to $ 14.96 per hundredweight for 2014 primarily as a result of increased rates . saia 's ltl tonnage increased 6.3 percent to 3.9 million tons and ltl shipments increased 6.2 percent to 6.6 million shipments . for 2014 , approximately 75 percent of saia 's operating revenue was subject to specific customer price adjustment negotiations that occur throughout the year . the remaining 25 percent of operating revenue was subject to a general rate increase which is based on market conditions . for customers subject to an annual general rate increase , on april 1 , 2014 , saia implemented a 4.5 percent general rate increase . on july 1 , 2013 , saia implemented a 5.9 percent general rate increase . competitive factors , customer turnover and mix changes , among other things , impact the extent to which customer rate increases are retained over time . operating revenue includes fuel surcharge revenue from the company 's fuel surcharge program . that program is designed to reduce the company 's exposure to fluctuations in fuel prices by adjusting total freight charges to account for changes in the price of fuel .
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risk factors of this annual report on form 10-k and cautionary statement contained in item 1. business of this annual report on form 10-k for a discussion of the uncertainties , risks and assumptions associated with these statements . overview we are a leading supplier and manufacturer of structural and related building products for residential new construction in the u.s. we offer an integrated solution to our customers providing manufacturing , supply and installation of a full range of structural and related building products . our manufactured products include our factory-built roof and floor trusses , wall panels and stairs , aluminum and vinyl windows , custom millwork and trim , as well as engineered wood that we design and cut for each home . we also assemble interior and exterior doors into pre-hung units . additionally , we supply our customers with a broad offering of professional grade building products not manufactured by us , such as dimensional lumber and lumber sheet goods , various window , door and millwork lines , as well as cabinets , roofing and gypsum wallboard . our full range of construction-related services includes professional installation , turn-key framing and shell construction , and spans all our product categories . we group our building products into five product categories : prefabricated components . our prefabricated components consist of wood floor and roof trusses , steel roof trusses , wall panels , stairs , and engineered wood . windows & doors . our windows & doors category is comprised of the manufacturing , assembly , and distribution of windows and the assembly and distribution of interior and exterior door units . lumber & lumber sheet goods . lumber & lumber sheet goods include dimensional lumber , plywood , and osb products used in on-site house framing . millwork . millwork includes interior trim , exterior trim , columns and posts that we distribute , as well as custom exterior features that we manufacture under the synboard ® brand name . other building products & services . other building products & services are comprised of products such as cabinets , gypsum , roofing and insulation and services such as turn-key framing , shell construction , design assistance , and professional installation spanning all of our product categories . our operating results are dependent on the following trends , events and uncertainties , some of which are beyond our control : homebuilding industry . our business is driven primarily by the residential new construction market , which is in turn dependent upon a number of factors , including demographic trends , interest rates , consumer confidence , employment rates , foreclosure rates , and the health of the economy and mortgage markets . since the downturn began in 2006 many homebuilders significantly decreased their starts because of lower demand and an excess of home inventory . however , u.s. single-family housing starts increased to 534,600 in 2012 , which is the highest level achieved since 2008. despite this increase , single-family housing starts remain well below the historical average of 1.1 million per year . due to the lower levels in housing starts and increased competition for homebuilder business , we have and will continue to experience pressure on our gross margins . we still believe there are several meaningful trends that indicate u.s. housing demand will likely recover in the long term and that the recent downturn in the housing industry is likely a trough in the cyclical nature of the residential construction industry . these trends include relatively low interest rates , the aging of housing stock , and normal population growth due to immigration and birthrate exceeding death rate . industry forecasters expect to see continued improvement in housing demand over the next few years . targeting large production homebuilders . over the past ten years , the homebuilding industry has undergone consolidation , and the larger homebuilders have increased their market share . we expect that trend to continue as larger homebuilders have better liquidity and land positions relative to the smaller , less capitalized homebuilders . our focus is on maintaining relationships and market share with these customers while balancing the competitive pressures we are facing in our markets 24 with certain profitability expectations . our sales to the builder 100 , the country 's largest 100 homebuilders , increased 38.0 % during 2012 , compared to a 24.2 % increase in actual u.s. single-family housing starts for the year . we expect that our ability to maintain strong relationships with the largest builders will be vital to our ability to expand into new markets as well as grow our market share . additionally , we have been successful in expanding our custom homebuilder base while maintaining acceptable credit standards . use of prefabricated components . prior to the housing downturn , homebuilders were increasingly using prefabricated components in order to realize increased efficiency and improved quality . shortening cycle time from start to completion was a key imperative of the homebuilders during periods of strong consumer demand . during the housing downturn , that trend decelerated as cycle time had less relevance . customers who traditionally used prefabricated components , for the most part , still do . however , the conversion of customers to this product offering has slowed . we expect this trend to reverse as the residential new construction market continues to strengthen . economic conditions . economic changes both nationally and locally in our markets impact our financial performance . the building products supply industry is highly dependent upon new home construction and subject to cyclical market changes . our operations are subject to fluctuations arising from changes in supply and demand , national and local economic conditions , labor costs , competition , government regulation , trade policies and other factors that affect the homebuilding industry such as demographic trends , interest rates , single-family housing starts , employment levels , consumer confidence , and the availability of credit to homebuilders , contractors , and homeowners . story_separator_special_tag our fourth quarter 2012 financial results do not reflect the typical seasonality of our business due to improving housing demand , commodity lumber inflation and , to a lesser extent , favorable weather conditions in our markets . in addition , quarterly results historically have reflected , and are expected to continue to reflect , fluctuations from period to period arising from the following : the volatility of lumber prices ; the cyclical nature of the homebuilding industry ; general economic conditions in the markets in which we compete ; the pricing policies of our competitors ; the production schedules of our customers ; and the effects of weather . the composition and level of working capital typically change during periods of increasing sales as we carry more inventory and receivables . working capital levels typically increase in the second and third quarters of the year due to higher sales during the peak residential construction season . these increases have in the past resulted in negative operating cash flows during this peak season , which historically have been financed through available cash . collection of receivables and reduction in inventory levels following the peak building and construction season have in the past positively impacted cash flow . in the past , we have also utilized our borrowing availability under credit facilities to cover working capital needs . however , we do not have a revolving credit facility at this time . 26 story_separator_special_tag our recapitalization transaction in 2010 , and the write-off of $ 0.6 million in debt issuance costs related to the capacity reduction of our revolving credit facility in 2010. in addition , interest expense related to our interest rate swaps , which expired during 2011 , decreased $ 4.3 million from 2010. these decreases were partially offset by $ 1.5 million of interest expense on our term loan agreement entered into in december 2011 and $ 0.7 million of fair value adjustments on the warrants issued as part of the term loan . 28 income tax expense ( benefit ) . we recorded income tax expense of $ 2.2 million during 2011 compared to income tax benefit of $ 1.1 million during 2010. we recorded an after-tax , non-cash valuation allowance of $ 26.1 million and $ 35.4 million related to our net deferred tax assets for 2011 and 2010 , respectively . absent this valuation allowance , our effective tax rate would have been 38.3 % for both 2011 and 2010. liquidity and capital resources our primary capital requirements are to fund working capital needs and operating expenses , meet required interest and principal payments , and fund capital expenditures . in the past , our capital resources have primarily consisted of cash flows from operations and , more so in recent years , borrowings under our various credit facilities . in december of 2012 , we amended our $ 160.0 million first-lien term loan to enhance our liquidity position to support both current and anticipated increases in sales volume . terms of the amendment included increasing the principal amount by $ 65.0 million , reducing the minimum cash requirement from $ 35.0 million to $ 15.0 million , adding a new $ 15.0 million letter of credit sub-facility , and increasing the minimum specified collateral value to $ 225.0 million , contingent upon maintaining certain levels of qualified cash . the additional $ 65.0 million principal amount , which was issued at 95.5 % , provided $ 60.9 million of net proceeds after paying fees and expenses related to the transaction . in january 2013 , we finalized our letter of credit sub-facility and at the same time , transferred the $ 12.4 million of outstanding letters of credit from our $ 20.0 million stand-alone letter of credit facility over to the new sub-facility . as such , we were able to eliminate the cash collateral requirement for our outstanding letters of credit , thus increasing our liquidity by $ 13.0 million of restricted cash that was collateralizing our outstanding letters of credit . we also amended the stand-alone facility from $ 20.0 million to $ 10.0 million . for more information on our capital resources , see note 8 to the consolidated financial statements included in item 8 of this annual report on form 10-k . the homebuilding industry , and therefore our business , experienced a significant downturn that started in 2006. however , activity in the current year improved as 2012 saw the first meaningful increase in housing starts since the downturn began . we are expecting increased stability and continued improvement in the housing industry in 2013. beyond 2013 , it is difficult for us to predict what will happen as our industry is dependent on a number of factors , including national economic conditions , employment levels , the availability of credit for homebuilders and potential home buyers , the level of foreclosures , existing home inventory , and interest rates . due to the lingering effects of the significant housing industry downturn , our operations are no longer providing positive cash flows , and we are not expecting our cash flows from operations to be positive in 2013 . 29 our term loan contains financial covenants which include maintaining a minimum amount of qualified cash and specified collateral value . qualified cash is defined as the amount of unrestricted cash and cash equivalents held in deposit or securities accounts which are subject to control agreements in favor of our lenders . qualified cash must be at least $ 15.0 million at all times . specified collateral value is defined as the amount of qualified cash at such time , plus accounts receivable and inventory which meet specified criteria within the term loan agreement . the minimum specified collateral value must equal at least $ 225.0 million , contingent upon maintaining certain levels of qualified cash .
| results of operations the following table sets forth the percentage relationship to sales of certain costs , expenses and income items for the years ended december 31 : replace_table_token_4_th 2012 compared with 2011 sales . sales for the year ended december 31 , 2012 were $ 1,070.7 million , a 37.4 % increase from sales of $ 779.1 million for 2011. actual u.s. single-family housing starts increased 24.2 % in 2012 as compared to 2011. in the south region , actual single-family starts increased 23.1 % compared to 2011 , however the number of single-family units under construction increased only 7.7 % over this same time period . we achieved this increase in sales as we continued to expand our customer base while increasing sales to current customers . we estimate our sales volume increased approximately 32.2 % , while commodity price inflation resulted in an additional 5.2 % increase in sales during 2012 compared to 2011. the following table shows sales classified by major product category ( dollars in millions ) : replace_table_token_5_th increased sales volume was achieved across all product categories . commodity prices for lumber and lumber sheet goods were on average 23.0 % higher in 2012 compared to 2011. prices have risen to levels not seen on a consistent basis since 2005 and 2006. this commodity price inflation has resulted in sales growth for lumber & lumber sheet goods and prefabricated components exceeding that of our other product categories . gross margin . gross margin increased $ 56.6 million to $ 214.6 million . our gross margin percentage decreased from 20.3 % in 2011 to 20.0 % in 2012 , a 0.3 % decrease . our gross margin decreased 1.1 % due to commodity lumber price inflation in 2012 relative to customer pricing commitments . however , this decrease was partially offset by a 0.8 % gross margin improvement due to increased sales volume and our ability to leverage fixed costs within cost of goods sold . selling , general and administrative expenses .
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unless otherwise specified , any reference to a “ year ” is to our fiscal year ended june 30. additionally , when used in this annual report , unless the context requires otherwise , the terms “ we , ” “ our ” and “ us ” refer to kennametal inc. and its subsidiaries . overview kennametal inc. was founded based on a tungsten carbide technology breakthrough in 1938. the company was incorporated in pennsylvania in 1943 as a manufacturer of tungsten carbide metal cutting tooling , and was listed on the new york stock exchange ( nyse ) in 1967. with more than 80 years of materials expertise , the company is a global industrial technology leader , helping customers across the aerospace , earthworks , energy , general engineering and transportation industries manufacture with precision and efficiency . this expertise includes the development and application of tungsten carbides , ceramics , super-hard materials and solutions used in metal cutting and extreme wear applications to keep customers up and running longer against conditions such as corrosion and high temperatures . our standard and custom product offering spans metal cutting and wear applications including turning , milling , hole making , tooling systems and services , as well as specialized wear components and metallurgical powders . end users of the company 's metal cutting products include manufacturers engaged in a diverse array of industries including : the manufacturers of transportation vehicles and components , machine tools and light and heavy machinery ; airframe and aerospace components ; and energy-related components for the oil and gas industry , as well as power generation . the company 's wear and metallurgical powders are used by producers and suppliers in equipment-intensive operations such as road construction , mining , quarrying , oil and gas exploration , refining , production and supply . throughout the md & a , we refer to measures used by management to evaluate performance . we also refer to a number of financial measures that are not defined under accounting principles generally accepted in the united states of america ( u.s. gaap ) , including organic sales growth ( decline ) , constant currency regional sales growth ( decline ) and constant currency end market sales growth ( decline ) . the explanation at the end of the md & a provides the definition of these non-gaap financial measures as well as details on their use and a reconciliation to the most directly comparable gaap financial measures . our sales of $ 1,885.3 million for the year ended june 30 , 2020 decreased 21 percent year-over-year , reflecting 18 percent organic sales decline , a 2 percent unfavorable currency exchange effect and a 1 percent decline from divestiture . the decline reflects a global manufacturing slow down and deteriorating end markets which accelerated in the second half of the fiscal year due to the emergence of the covid-19 pandemic . despite the challenging macro-economic environment , the company continued to have success by introducing new and innovative products such as the award-winning harvi tm 1 te end mill designed primarily for the general engineering end market . operating income was $ 22.3 million compared to $ 328.9 million in the prior year . the decrease in operating income was primarily due to an organic sales decline , unfavorable labor and fixed cost absorption due to lower volumes and simplification/modernization efforts in progress , higher restructuring and related charges of $ 66.0 million and $ 30.2 million of goodwill and other intangible asset impairment charges , partially offset by approximately $ 48 million of incremental simplification/modernization benefits , lower raw material costs and lower variable compensation expense . operating margin was 1.2 percent compared to 13.8 percent in the prior year . the industrial and infrastructure segments had operating margins of 3.5 percent and 3.3 percent , respectively , while the widia segment had operating loss margin of 21.3 percent . covid-19 emerged in china at the end of calendar year 2019 bringing significant uncertainty in our end markets and operations . national , regional and local governments have taken steps to limit the spread of the virus through stay-at-home , social distancing , and various other orders and guidelines . the imposition of these measures has created potentially significant operating constraints on our business . recognizing the potential for covid-19 to significantly disrupt operations , we began to deploy safety protocols and processes globally during the march quarter of fiscal 2020 to keep our employees safe while continuing to serve our customers . covid-19 affected all regions and end markets during the latter half of fiscal 2020. as an essential business , kennametal facilities continued to operate throughout the march and june quarters , with the notable exceptions of kennametal india ltd. and our bolivian operation which were closed for approximately six weeks due to government mandated lockdowns . in fiscal 2020 we did not experience a material disruption in our supply chain as a result of these facility closures or elsewhere in our supply chain . we expect covid-19 will continue to have a negative effect on customer demand in fiscal 2021 as a result of the disruption and uncertainty it is causing most acutely in the energy , aerospace and transportation end markets . the extent to which the covid-19 pandemic may affect our business , operating results , financial condition , or liquidity in the future will depend on future developments , including the duration of the outbreak , travel restrictions , business and workforce disruptions , and the effectiveness of actions taken to contain and treat the disease . 17 the fy20 restructuring actions , which are substantially complete , resulted in annualized savings of $ 33 million and pre-tax charges of $ 54 million . story_separator_special_tag on a regional basis , the sales decrease in emea was due to declines in all end markets and was driven by the negative effects of covid-19 and the associated effect on manufacturing production in the transportation , aerospace and general engineering end markets . the americas also experienced sales declines in all end markets as manufacturing activity levels were significantly curtailed , especially in the fourth quarter . additionally , the decline in oil and gas activity also affected the americas energy end market sales as oil and gas drilling slowed . the sales decrease in asia pacific was driven by declines in all end markets except energy . the declines were largely due to slowing end market demand primarily driven by the negative effects of covid-19 ; however , we continue to see positive sales growth related to renewable energy in china . in 2020 , industrial operating income was $ 35.7 million , a $ 185.0 million decrease from 2019 . the decrease was primarily driven by organic sales decline , greater restructuring and related charges of $ 57.3 million and unfavorable labor and fixed cost absorption due to lower volumes , partially offset by incremental simplification/modernization benefits , lower variable compensation expense and other cost-control actions , widia replace_table_token_8_th ( in percentages ) 2020 organic sales decline ( 16 ) % foreign currency exchange effect ( 1 ) sales decline ( 17 ) % 21 2020 ( in percentages ) as reported constant currency regional sales decline : asia pacific ( 28 ) % ( 26 ) % emea ( 15 ) ( 12 ) america ( 13 ) ( 12 ) in 2020 , widia sales of $ 163.0 million decreased by $ 34.5 million , or 17 percent , from 2019 . the sales decrease in asia pacific was driven primarily by the overall weak market conditions , most notably in india and china . sales in emea decreased primarily due to the increasingly difficult market environment which was significantly affected by the negative effects of covid-19 , partially offset by growth in products focused on aerospace applications , while the decrease in the americas was primarily due to a slower u.s. manufacturing environment , partially offset by strength in latin america . widia operating loss was $ 34.7 million in 2020 compared to operating income of $ 2.9 million in 2019 . the change was primarily driven by $ 30.2 million of goodwill and other intangible asset impairment charges , organic sales decline and unfavorable labor and fixed cost absorption due to lower volumes , partially offset by incremental simplification/modernization benefits , lower variable compensation expense and other cost-control actions . infrastructure replace_table_token_9_th ( in percentages ) 2020 organic sales decline ( 18 ) % foreign currency exchange effect ( 1 ) divestiture effect ( 3 ) sales decline ( 22 ) % replace_table_token_10_th in 2020 , infrastructure sales of $ 707.3 million decreased by $ 196.0 million , or 22 percent , from 2019 . sales declined in all regions and end markets , partly due to the effect of covid-19 . the u.s. oil and gas market drove the decline in the energy market as drilling activity declined due to falling commodity prices . in general engineering the lower level of manufacturing activity drove the decline in the americas and asia pacific , partially offset by increased defense related activity in emea . earthworks end market sales were down due to softness in mining in all regions and construction in asia pacific and emea , partially offset by growth in the americas construction . on a regional basis , the sales decrease in the americas was driven by declines in the energy and general engineering end markets , and to a lesser extent , a decline in the earthworks end market . the decrease in asia pacific was driven primarily by lower levels of manufacturing activity in the general engineering end market . the sales decrease in emea was driven primarily by declines in both the energy and earthworks end markets , partially offset by growth in general engineering . 22 in 2020 , infrastructure operating income was $ 23.1 million , a $ 85.4 million decrease from 2019 . the primary drivers for the decrease were organic sales decline , unfavorable labor and fixed cost absorption due to lower volumes and simplification/modernization efforts in progress , unfavorable mix , greater restructuring and related charges of $ 8.5 million and a loss on divestiture of $ 6.5 million , partially offset by incremental simplification/modernization benefits and lower variable compensation expense . corporate ( in thousands ) 2020 2019 corporate expense $ ( 1,846 ) $ ( 3,208 ) in 2020 , corporate expense decreased $ 1.4 million from 2019 . liquidity and capital resources cash flow from operations is the primary source of funding for our capital expenditures . during the year ended june 30 , 2020 , cash flow provided by operating activities was $ 223.7 million . our five-year , multi-currency , revolving credit facility , as amended and restated in june 2018 ( credit agreement ) , is used to augment cash from operations and as an additional source of funds . the credit agreement provides for revolving credit loans of up to $ 700.0 million for working capital , capital expenditures and general corporate purposes . the credit agreement allows for borrowings in u.s. dollars , euros , canadian dollars , pounds sterling and japanese yen . interest payable under the credit agreement is based upon the type of borrowing under the facility and may be ( 1 ) libor plus an applicable margin , ( 2 ) the greater of the prime rate or the federal funds effective rate plus an applicable margin or ( 3 ) fixed as negotiated by us . the credit agreement matures in june 2023. the credit agreement requires us to comply with various restrictive and affirmative covenants , including two financial covenants : 1 . )
| results of continuing operations sales sales in 2020 were $ 1,885.3 million , a 21 percent decrease from $ 2,375.2 million in 2019 . the decrease was primarily due to organic sales decline of 18 percent , unfavorable currency exchange effect of 2 percent and unfavorable divestiture effect of 1 percent . replace_table_token_4_th 18 gross profit gross profit decreased $ 302.0 million to $ 529.5 million in 2020 from $ 831.5 million in 2019 . this decrease was primarily due to an organic sales decline , unfavorable labor and fixed cost absorption due to lower volumes and simplification/modernization efforts in progress , greater restructuring and related charges of $ 12 million and unfavorable foreign currency exchange effect of approximately $ 11 million , partially offset by incremental simplification/modernization benefits . the gross profit margin for 2020 was 28.1 percent compared to 35.0 percent in 2019 . operating expense operating expense in 2020 was $ 388.4 million , a decrease of $ 85.7 million , or 18.1 percent , from $ 474.2 million in 2019 . the decrease was primarily due to lower incentive compensation expense , incremental restructuring simplification benefits and favorable currency exchange effect of approximately $ 6 million . we invested further in technology and innovation to continue delivering high quality products to our customers . research and development expenses included in operating expense totaled $ 38.7 million and 39.0 million for 2020 and 2019 , respectively . restructuring and related charges and asset impairment charges fy20 restructuring actions in the june quarter of fiscal 2019 , we implemented , and in the current year substantially completed , the fy20 restructuring actions associated with our simplification/modernization initiative to reduce structural costs , improve operational efficiency and position us for long-term profitable growth .
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) ● acquisition-related sales ( +1 % ) as a result of the covid-19 pandemic and reduced global economic activity , lower sales volumes and unfavorable foreign currency translation reduced net sales in most regions and in both reportable business segments . higher selling prices and acquisition-related sales partially offset this downturn . foreign currency translation decreased net sales by approximately $ 150 million as the u.s. dollar strengthened against several foreign currencies versus the prior year , most notably the mexican peso . for specific business results , see the segment results section within item 7 of this form 10-k. cost of sales , exclusive of depreciation and amortization replace_table_token_5_th 2020 ppg annual report and 10-k 16 cost of sales , exclusive of depreciation and amortization , decreased $ 876 million due to the following : ● lower sales volumes ● foreign currency translation ● restructuring and other cost savings partially offset by : ● cost of sales attributable to acquired businesses ● general cost inflation selling , general and administrative expenses replace_table_token_6_th selling , general and administrative expenses decreased $ 215 million primarily due to : ● cost savings initiatives , including restructuring actions partially offset by : ● wage and other cost inflation ● charge for potential uncollectible accounts related to covid-19 incurred in the first quarter of 2020 ● selling , general and administrative expenses from acquired businesses other charges and other income replace_table_token_7_th interest expense , net of interest income interest expense , net of interest income increased $ 15 million in 2020 versus 2019 primarily due to the $ 1.5 billion 364-day term loan credit agreement entered into in april 2020. as of december 31 , 2020 , $ 400 million remains outstanding under this agreement . impairment charges in 2020 , impairment charges were recorded for the write-down of certain assets and liabilities related to the planned sale of certain entities and the carrying value of an indefinite-lived trademark . refer to note 3 , ” acquisitions and divestitures ” and note 7 , “ goodwill and other identifiable intangible assets ” in item 8 of this form 10-k for additional information . business restructuring , net pretax restructuring charges of $ 203 million were recorded in 2020 , offset by certain changes in estimates to complete previously recorded programs of $ 29 million . pretax restructuring charges of $ 194 million were recorded in 2019 , offset by certain changes in estimates to complete previously recorded programs of $ 18 million . refer to note 8 , `` business restructuring '' in item 8 of this form 10-k for additional information . other charges other charges consist primarily of environmental remediation charges . these charges were principally for environmental remediation at a former chromium manufacturing plant and associated sites in new jersey . refer to note 15 , `` commitments and contingent liabilities '' in item 8 of this form 10-k for additional information . other income other income was lower in 2020 than prior year primarily due to slightly lower equity earnings and royalty income . 2020 ppg annual report and form 10-k 17 effective tax rate and earnings per diluted share , continuing operations % change ( $ in millions , except percentages ) 2020 2019 2020 vs. 2019 income tax expense $ 291 $ 392 ( 25.8 ) % effective tax rate 21.4 % 23.6 % ( 2.2 ) % adjusted effective tax rate , continuing operations * 22.4 % 23.7 % ( 1.3 ) % earnings per diluted share , continuing operations $ 4.44 $ 5.22 ( 14.9 ) % adjusted earnings per diluted share , continuing operations * $ 5.70 $ 6.22 ( 8.4 ) % * see the regulation g reconciliations - results of operations the effective tax rate for the year-ended december 31 , 2020 was 21.4 % , a decrease of 2.2 % from the prior year . the lower effective income tax rate included higher net benefits for changes in valuation allowance reserves and for u.s. research and development credits . the company expects that its full year 2021 effective tax rate will be between 22 % and 24 % . as reported earnings per diluted share from continuing operations for the year ended december 31 , 2020 decreased year-over-year due to the economic downturn caused by the covid-19 pandemic and certain impairment charges . refer to the regulation g reconciliations - results from operations for additional information . regulation g reconciliations - results from operations ppg believes investor 's understanding of the company 's performance is enhanced by the disclosure of net income from continuing operations , earnings per diluted share from continuing operations and ppg 's effective tax rate from continuing operations adjusted for certain items . ppg 's management considers this information useful in providing insight into the company 's ongoing performance because it excludes the impact of items that can not reasonably be expected to recur on a quarterly basis or that are not attributable to our primary operations . net income from continuing operations , earnings per diluted share from continuing operations and the effective tax rate from continuing operations adjusted for these items are not recognized financial measures determined in accordance with u.s. generally accepted accounting principles ( “ u.s . gaap ” ) and should not be considered a substitute for net income , earnings per diluted share , the effective tax rate or other financial measures as computed in accordance with u.s. gaap . in addition , adjusted net income , adjusted earnings per diluted share from continuing operations and the adjusted effective tax rate from continuing operations may not be comparable to similarly titled measures as reported by other companies . story_separator_special_tag finally , foreign currency translation is expected to have a favorable impact on segment net sales and earnings of about $ 80 million and $ 10 million , respectively , in the first quarter 2021 based on current exchange rates . industrial coatings replace_table_token_11_th industrial coatings segment net sales decreased due to the following : ● lower sales volumes ( -13 % ) ● unfavorable foreign currency translation ( -1 % ) partially offset by : ● acquisition-related sales ( +1 % ) automotive oem coatings sales volumes decreased by approximately 15 % year-over-year , driven by the significant curtailment in global automotive industry production rates due to the covid-19 pandemic . although sales volumes decreased year-over-year , strong sales volumes in china and the company 's strong technology and service capabilities led ppg to outpace the global industry build rate . for the industrial coatings business , net sales decreased by about 10 % compared to prior year . acquisition-related sales from whitford and modest increases in selling prices were more than offset by lower demand stemming from reduced industrial production in most regions due to customer shutdowns . global industrial production improved during the second half of the year compared to the start of the pandemic . packaging coatings organic sales were slightly higher year-over-year as sales volume growth in the u.s. and latin america offset softer demand in the asia pacific region . in the u.s. and latin america , sales volume growth was driven by strong demand in the canned food and beverage segment . specialty coatings and materials net sales were lower by approximately 20 % versus the prior year , driven by lower sales volumes in the u.s. and europe . additionally , in the second half of 2020 , a company facility in louisiana was damaged by both hurricanes laura and delta , causing an estimated $ 10 million in lost revenues due to production interruptions . segment income decreased $ 112 million year-over-year , including unfavorable foreign currency translation impacts of about $ 10 million . segment income was impacted by lower sales volumes driven by customer shutdowns related to the pandemic , partially offset by cost-mitigation actions , restructuring cost savings , and modestly higher selling prices . looking ahead looking ahead , sales volumes for the industrial coatings reportable business segment in the first quarter 2021 are expected to be higher than the prior-year first quarter by a mid-to-high-single-digit percentage , including the benefit of an 2020 ppg annual report and 10-k 20 easier comparison due to the lower industrial activity in china during the first quarter of 2020 due to the pandemic . it is expected that raw material , logistics , and certain other costs will be inflationary in early 2021. the company is planning or has instituted selling price increases to help mitigate these cost pressures , along with continued execution of the previously announced restructuring initiatives . finally , foreign currency translation is expected to have a favorable impact on segment sales and earnings of about $ 40 million and $ 5 million , respectively , in the first quarter 2021 based on current exchange rates . story_separator_special_tag style= '' color : # 000000 ; font-family : 'arial ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > we expect industry demand trends in 2021 in europe to improve from those experienced in 2020 with continuing improvement in profitability due to margin improvement . regional growth is expected to remain mixed by sub-region and country . favorable end-use trends are expected to continue in automotive oem and general industrial coatings . overall demand is expected to be higher but be mixed by country in the architectural coatings business . we continue to monitor the economic environment in the u.k. , as its exit from the european union progresses and impacts consumer sentiment and coatings demand . demand for aerospace and automotive refinish coatings is expected to remain soft . in asia pacific , we expect continued improvement in industrial production growth in china , southeast asia and india as the year progresses . in china , we foresee continued above global average growth with heightened risk as the chinese economy continues to shift and rely more on domestic consumption . industrial production in india is expected to be sharply higher in 2021 from a very low level in 2020 due to the pandemic . the recovery in marine coatings new-build demand is expected to remain subdued . in latin america , we anticipate slightly better economic conditions in mexico , most of central america and south america compared to 2020. we expect continued strong demand for the ppg-comex architectural coatings business . significant other factors in june 2020 , ppg initiated a $ 176 million pretax global restructuring program . the program addresses weakened global economic conditions stemming from the covid-19 pandemic and related pace of recovery in a few end-use markets along with further opportunities to optimize supply chain and functional costs . the plan includes a voluntary separation program that was offered in the u.s. and canada . ppg recognized approximately $ 45 million of savings from this program in 2020. the majority of these restructuring actions are expected to be completed by the end of 2021. we made significant progress on the global restructuring programs that were announced in may 2018 and june 2019. the company achieved approximately $ 70 million of savings in 2020 relating to these programs . the majority of these restructuring actions are expected to be completed by the end of the first quarter 2021 with the remainder of the actions expected to be completed by 2022. aggregate restructuring savings related to the 2020 , 2019 and 2018 programs was approximately $ 115 million in 2020. we will continue to aggressively manage the company 's cost structure to ensure alignment with the overall demand environment and will make adjustments as required to remain cost competitive in the marketplace .
| review and outlook during 2020 , the covid-19 pandemic significantly impacted global economic conditions.the impact in the first quarter was concentrated in china and broadened to most of the rest of the world in the second quarter . coatings end-use markets related to mobility were more negatively impacted , such as the aerospace and automotive refinish coatings businesses . some end-use markets benefited from the government mandated restrictions , including architectural coatings diy and the packaged food segment . ppg 's net sales , excluding foreign currency translation impact , decreased approximately 8 % versus the prior year . acquisition-related sales contributed 1 % to net sales growth compared to prior year . foreign currency translation was unfavorable throughout the year and impacted net sales by about 1 % . raw material costs moderated during the first half of the year and then increased sequentially throughout the second half of 2020 and are expected to continue to be inflationary into the first quarter of 2021. some other key costs continued to increase in 2020 such as logistics , employee wage and benefit costs . u.s. and canada during 2020 , economic activity was impacted by the covid-19 pandemic with overall economic activity sharply falling in the first half of the year and then continuously improving in the second half of the year . for the full year , u.s. gdp fell by about 5 % . automotive oem industry builds were down about 20 % compared to 2019 with minimal production in the second quarter and improving trends in the second-half of the year . demand in the residential and commercial construction markets were mixed in 2020 compared to 2019. new home starts advanced approximately 5 % in 2020 versus approximately 2 % in 2019. residential remodeling was up 2 % in 2020 versus 2019 supported by stay-at-home mandates .
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variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted for on a prospective basis . metal and other inventory inventories include concentrate , doré , and operating materials and supplies . the classification of inventory is determined by the stage at which the ore is in the production process . all inventories are stated at the lower of cost or market , with cost being determined using a weighted average cost method . concentrate and doré inventory includes product at the mine site and story_separator_special_tag the following discussion provides information that management believes is relevant to an assessment and understanding of the consolidated financial condition and results of operations of coeur mining and its subsidiaries ( collectively , `` coeur '' , `` the company '' , `` our '' , and `` we '' ) . we use certain non-gaap financial performance measures in our md & a . for a detailed description of each of the non-gaap measures , please see `` non-gaap financial performance measures '' at the end of this item . overview the company is a large primary silver producer with significant gold production and mines located in the united states , mexico , and bolivia ; development projects in mexico and argentina ; and streaming and royalty interests in australia , mexico , ecuador , and chile . the palmarejo , san bartolomé , kensington , and rochester mines , each of which is operated by the company , and coeur capital , primarily comprised of the endeavor silver stream and other precious metal royalties , constitute the company 's principal sources of revenues . 31 the company 's business strategy is to discover , acquire , develop and operate low-cost silver and gold operations and streaming and royalty interests that will produce long-term cash flow , provide opportunities for growth through continued exploration , and generate superior and sustainable returns for stockholders . the company 's management focuses on maximizing net cash flow through identifying and implementing revenue enhancement opportunities at existing operations , reducing operating and non-operating costs , consistent capital discipline , and efficient management of working capital . as part of this strategy , in late 2013 , the company formed coeur capital to hold its streaming and royalty interests , along with its portfolio of strategic equity investments . 2013 highlights metal sales of $ 746 million silver production of 17.0 million ounces and record gold production of 262,217 ounces cash operating costs were $ 9.84 per silver ounce and $ 950 per gold ounce ( see `` non-gaap financial performance measures '' ) all-in sustaining costs were $ 18.94 per silver equivalent ounce ( see `` non-gaap financial performance measures ) adjusted net income of $ ( 76.2 ) million or $ ( 0.78 ) per share ( see `` non-gaap financial performance measures ) net cash provided by operating activities of $ 113.5 million the company spent $ 100.8 million in capital expenditures in 2013 , a 12.8 % decrease from 2012 consolidated performance the company produced 17.0 million ounces of silver and a record 262,217 ounces of gold in 2013 , compared to 18.0 million ounces of silver and 226,486 ounces of gold in 2012 . silver production decreased in 2013 compared to 2012 due to lower silver grade at palmarejo and the cessation of mining activities at martha in 2012 . gold production increased in 2013 compared to 2012 due to higher throughput at kensington and higher gold grade at palmarejo , partially offset by lower gold grade at rochester . cash operating costs were $ 9.84 per silver ounce and $ 950 per gold ounce in 2013 , compared to $ 7.57 per silver ounce and $ 1,358 per gold ounce in 2012 due to lower silver production and higher mining and milling costs , partially offset by higher gold production . for a complete discussion on production and operating costs , see `` results of operations '' and `` non-gaap financial performance measures '' section below . sales of metal decreased 16.7 % in 2013 to $ 746 million due to lower average realized prices for silver and gold and lower silver ounces sold , partially offset by higher gold ounces sold . the average realized silver price declined 25 % to $ 23.14 and the average realized gold price declined 17 % to $ 1,387 per ounce in 2013 . gold ounces sold in 2013 increased due to record gold production at kensington , which increased 40 % to approximately 114,800 ounces in 2013 . replace_table_token_16_th ( 1 ) see `` non-gaap financial performance measures . '' looking forward we will continue to focus on operational excellence in 2014 to deliver on our plans and advance the la preciosa development project , resulting in the following expectations for 2014 : silver production of approximately 17.0 to 18.2 million ounces gold production of 220,000 to 238,000 ounces 32 production costs applicable to sales of $ 500 to $ 530 million capital expenditures of $ 65 to $ 80 million , 80 % related to sustaining capital exploration expense of $ 13 to $ 18 million general and administrative expenses of $ 43 to $ 48 million amortization of approximately $ 150 million critical accounting policies and accounting developments listed below are the accounting policies that we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates and assumptions involved and the magnitude of the asset , liability , revenue , and expense being reported . for a discussion of recent accounting pronouncements , see note 2 -- summary of significant accounting policies in the notes to the consolidated financial statements . revenue recognition revenue includes sales value received for the company 's principal products , silver , and gold . revenue is recognized when title to silver and gold passes to the buyer and when collectability is reasonably assured . story_separator_special_tag the historical cost of the metal that is expected to be extracted within twelve months is classified as current . ore on leach pad is valued based on actual production costs incurred to produce and place ore on the leach pads , less costs allocated to minerals recovered through the leach process . the estimate of both the ultimate recovery expected over time and the quantity of metal that may be extracted relative to the time the leach process occurs requires the use of estimates which are inherently inaccurate since they rely upon laboratory testwork . testwork consists of 60 day leach columns from which the company projects metal recoveries up to five years in the future . the quantities of metal contained in the ore are estimated based upon actual weights and assay analysis . the rate at which the leach process extracts gold and silver from the crushed ore is based upon laboratory column tests and actual experience occurring over more than twenty years of leach pad operations at the rochester mine . the assumptions used by the company to measure metal content during each stage of the inventory conversion process includes estimated recovery rates based on laboratory testing and assaying . the company periodically reviews its estimates compared to actual experience and revises its estimates when appropriate . the ultimate recovery will not be known until leaching operations cease . historically , our operating results have not been materially impacted by variations between the estimated and actual recoverable quantities of silver and gold on our leach pads . reclamation and remediation costs the company recognizes obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs . the fair value of a liability for an asset retirement obligation will be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made . the fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset . an accretion cost , representing the increase over time in the present value of the liability , is recorded each period in depreciation , depletion and amortization expense . as reclamation work is performed or liabilities are otherwise settled , the recorded amount of the liability is reduced . future remediation costs for inactive mines are accrued based on management 's best estimate at the end of each period of the undiscounted costs expected to be incurred at the site . such cost estimates include , where applicable , ongoing care and maintenance and monitoring costs . changes in estimates are reflected in earnings in the period an estimate is revised . derivatives accounting the company recognizes all derivatives as either assets or liabilities on the balance sheet and measures those instruments at fair value . changes in the value of derivative instruments are recorded each period in fair value adjustments , net . management applies judgment in estimating the fair value of instruments that are highly sensitive to assumptions regarding commodity prices , market volatilities , and foreign currency exchange rates . income taxes the company computes income taxes using an asset and liability approach which results in the recognition of deferred tax liabilities and assets for the expected future tax consequences or benefits of temporary differences between the financial reporting bases and the tax bases of assets and liabilities , as well as operating loss and tax credit carryforwards , using enacted tax rates in effect in the years in which the differences are expected to reverse . 34 in assessing the realizability of deferred tax assets , management considers whether it is more likely than not that some portion or all of its deferred tax assets will not be realized . management considers the scheduled reversal of deferred tax liabilities , projected future taxable income and tax planning strategies in making this assessment . a valuation allowance has been provided for the portion of the company 's net deferred tax assets for which it is more likely than not that they will not be realized . the company and its subsidiaries are subject to u.s. federal income tax as well as income tax of multiple state and foreign jurisdictions . the company 's practice is to recognize interest and or penalties related to income tax matters in income tax expense . story_separator_special_tag impact of changing gold prices on the palmarejo gold production royalty obligation . interest income and other increased by $ 21.0 million to $ 14.4 million , compared with net expense of $ 6.6 million due to higher foreign currency gains and a $ 2.5 million business interruption insurance recovery at san bartolomé . interest expense , net of capitalized interest , decreased to $ 26.2 million from $ 34.8 million , primarily due to lower outstanding debt and capital lease obligations . income taxes the company reported an income tax provision of approximately $ 70.8 million compared to an income tax provision of $ 114.7 million . the following table summarizes the components of the company 's income tax provision . replace_table_token_18_th in 2012 , the company recognized a current provision in the u.s. and certain foreign jurisdictions primarily related to inflationary adjustments on non-monetary assets and the company being subject to the mexico ietu tax , which is a form of alternative minimum tax . further , the company accrued foreign withholding taxes of approximately $ 0.7 million on inter-company transactions between the u.s. parent and the argentina , mexico and australia subsidiaries .
| consolidated financial results 2013 compared to 2012 sales of metal sales of metal decreased by $ 149.5 million , or 16.7 % , due to lower silver production at palmarejo and lower average realized silver and gold prices , partially offset by higher gold production at kensington and palmarejo . the company sold 17.2 million ounces of silver and 264,493 ounces of gold , compared to sales of 18.0 million ounces of silver and 213,185 ounces of gold . the company realized average silver and gold prices of $ 23.14 per ounce and $ 1,387 per ounce , respectively , compared with realized average prices of $ 30.92 per ounce and $ 1,665 per ounce , respectively . silver contributed 53 % of sales and gold contributed 47 % , compared to 61 % of sales from silver and 39 % from gold . production costs applicable to sales production costs applicable to sales increased by $ 9.1 million , or 2.0 % , to $ 463.7 million . the increase in production costs applicable to sales is primarily due to higher production at kensington and higher mining and milling costs , partially offset by lower consumption of materials , supplies , and other consumables . amortization amortization increased by $ 14.0 million , or 6.4 % , primarily the result of increased gold production at kensington , partially offset by lower silver production at palmarejo . costs and expenses general and administrative expenses increased $ 22.4 million or 67.8 % , primarily due to higher business development expenses and related legal costs , and one-time expenditures associated with the corporate office relocation . exploration expenses decreased by $ 3.9 million or 14.9 % primarily as a result of lower exploration activity near the company 's existing properties . litigation settlement of $ 32.0 million relates to the settlement of the rochester claims dispute in 2013 .
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at december 31 , 2011. the company evaluated the securities for other-than-temporary impairments based on quantitative and qualitative factors , noting none . there were 7 debt securities that had been in an unrealized loss position for less than 12 months at december 31 , 2011. the aggregate unrealized loss on these securities was $ 7 and the fair value was $ 8,015 . the company considered the decline in market value for these securities to be primarily attributable to current economic conditions . as it is not more likely than not that the company story_separator_special_tag you should read the following discussions in conjunction with our consolidated financial statements and related notes included in this report . this discussion includes forward-looking statements that involve risk and uncertainties . as a result of many factors , such as those set forth under `` risk factors , '' actual results may differ materially from those anticipated in these forward-looking statements . overview we are a biopharmaceutical company focused on developing new therapeutics for the treatment of osteoporosis and other women 's health conditions . we have three product candidates in development , the most advanced of which is ba058 . we have begun dosing subjects in a pivotal phase 3 clinical study of ba058 injection for the prevention of fractures in women suffering from osteoporosis . we are also developing ba058 microneedle patch , a short wear time , transdermal form of ba058 that is based on a microneedle technology from 3m . we believe that ba058 microneedle patch may eliminate the need for injections and lead to better treatment compliance for patients . our second clinical-stage product candidate is rad1901 , which has completed an initial phase 2a clinical study for the treatment of vasomotor symptoms , commonly known as hot flashes , in women entering menopause . our third product candidate , rad140 , is in preclinical development and is a potential treatment for age-related muscle loss , frailty , weight loss associated with cancer cachexia and osteoporosis . ba058 is a novel synthetic peptide analog of hpthrp we are developing as a bone anabolic treatment for osteoporosis . hpthrp is a critical cytokine for the regulation of bone formation , able to rebuild bone with low associated risk of inducing hypercalcemia as a side effect . in august 2009 , we announced positive phase 2 data that showed ba058 injection produced faster and greater bmd increases at the spine and the hip after six months and 12 months of treatment than did forteo , which was a comparator in our study . key findings were that the highest dose of ba058 tested of 80 µg increased mean lumbar spine bmd at six months and 12 months by 6.7 % and 12.9 % compared to the increases seen with forteo trial arms of 5.5 % and 8.6 % , respectively . ba058 also produced increases in mean femoral neck bmd at the hip at six months and 12 months of 3.1 % and 4.1 % compared to increases for forteo of 1.1 % and 2.2 % , respectively . we believe there is a strong correlation between an increased level of bmd and a reduction in the risk of fracture for patients with osteoporosis . ba058 was generally safe and well tolerated in this study , with adverse events similar between ba058 , placebo and forteo groups . in addition , the occurrence of hypercalcemia as a side effect for the 80 µg dose of ba058 was half that seen with forteo . in april 2011 , we began the dosing of subjects in a pivotal phase 3 clinical study managed by nordic and expect to report top-line data from this study in the first half of 2014. we designed this phase 3 study to enroll a total of 2,400 patients to be randomized equally to receive daily doses of one of the following : 80 micrograms ( µg ) of ba058 , a matching placebo , or the approved dose of 20 µg of forteo for 18 months . the study is powered to show that ba058 is superior to placebo for prevention of vertebral fracture . the study is also powered to show that ba058 is superior to forteo for greater bmd improvement at major skeletal sites and for a lower occurrence of hypercalcemia , a condition in which the calcium level in a patient 's blood is above normal . on may 17 , 2011 , the former operating company merged with a subsidiary of ours and the surviving corporation of such merger was merged into us . our efforts and resources are focused primarily on developing ba058 and our other pharmaceutical product candidates , raising capital and recruiting personnel . we have no product sales to date and we will not receive any revenue from product sales unless and until we receive approval for ba058 injection from the fda , or equivalent foreign regulatory bodies . however , developing pharmaceutical products is a lengthy and very expensive process . assuming we do not encounter any unforeseen delays during the course of developing ba058 , we do not expect to complete development and file the nda submission for ba058 injection until 64 approximately late 2014 and or ba058 microneedle patch until approximately late 2016. accordingly , our success depends not only on the safety and efficacy of ba058 , but also on our ability to finance the development of these products , which will require substantial additional funding to complete development and file for marketing approval . our ability to raise this additional financing will depend on our ability to execute on the ba058 development plan , complete patient enrollment in clinical studies in a timely fashion , manage and coordinate on a cost-effective basis all the required components of the nda submission for ba058 injection and scale-up ba058 injection and ba058 microneedle patch manufacturing capacity , as well as overall capital market conditions for companies with limited operating histories . story_separator_special_tag our ability to further develop these product candidates will be dependent upon our ability to secure third-party collaborators , and it is not possible to project the future development costs for rad1901 and rad140 or possible marketing approval timeline at this time . the successful development of ba058 injection and ba058 microneedle patch is subject to numerous risks and uncertainties associated with developing drugs , including the variables listed below . a change in the outcome of any of these variables with respect to the development of any of our product candidates could mean a significant change in the costs and timing associated with the development of that product candidate . ba058 injection is our only product candidate in late stage development , and our business currently depends heavily on its successful development , regulatory approval and commercialization . we have no drug products for sale currently and may never be able to develop marketable drug products . we have not submitted an nda to the fda or comparable applications to other regulatory authorities . obtaining approval of an nda is an extensive , lengthy , expensive and uncertain process , and any approval of ba058 injection may be delayed , limited or denied for many reasons , including : we may experience delays in the enrollment of patients in our ongoing phase 3 clinical trial ; 66 we may not be able to demonstrate that ba058 is safe and effective as a treatment for osteoporosis to the satisfaction of the fda ; the results of our clinical studies may not meet the level of statistical or clinical significance required by the fda for marketing approval ; the fda may disagree with the number , design , size , conduct or implementation of our clinical studies ; the cro that we retain to conduct clinical studies may take actions outside of our control that materially adversely impact our clinical studies ; the fda may not find the data from preclinical studies and clinical studies sufficient to demonstrate that ba058 's clinical and other benefits outweigh its safety risks ; the fda may disagree with our interpretation of data from our preclinical studies and clinical studies or may require that we conduct additional studies ; the fda may not accept data generated at our clinical study sites ; if our nda is reviewed by an advisory committee , the fda may have difficulties scheduling an advisory committee meeting in a timely manner or the advisory committee may recommend against approval of our application or may recommend that the fda require , as a condition of approval , additional preclinical studies or clinical studies , limitations on approved labeling or distribution and use restrictions ; the fda may require development of a rems as a condition of approval ; the fda may identify deficiencies in the manufacturing processes or facilities of our third-party manufacturers ; or the fda may change its approval policies or adopt new regulations . we are unable to determine the duration and costs to be incurred by us to continue development of rad1901 and rad140 until such time as we are able to secure a third party to collaborate on the further development and commercialization of these product candidates . we anticipate that we will make determinations as to which additional programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical data of each product candidate , progress on securing third-party collaborators , as well as ongoing assessments of such product candidate 's commercial potential and our ability to fund such product development . if we are unable to continue to fund the development of rad1901 and or rad140 and are unable to secure third-party collaborators for these product candidates , our business will be adversely affected and we will depend solely on the successful development , regulatory approval and commercialization of ba058 injection and ba058 microneedle patch . general and administrative expenses general and administrative expenses consist primarily of salaries and related expense for executive , finance and other administrative personnel , professional fees , business insurance , rent , general legal activities , including costs of maintaining our intellectual property portfolio and other corporate expenses . we expect our general and administrative expenses to increase as a result of higher costs associated with being a public company and any listing of our securities on a national securities exchange . 67 our results include non-cash compensation expense as a result of the issuance of stock and stock option grants . compensation expense for options granted to employees and directors ( excluding directors who are also scientific advisory board members or consultants ) represent the difference between the fair value of our common stock and the exercise price of the options at the date of grant . compensation for options granted to consultants has been determined based upon the fair value of the equity instruments issued and the unvested portion of such option grants is remeasured at each reporting period . the stock-based compensation expense is included in the respective categories of expense in the statement of operations ( research and development and general and administrative expenses ) . we expect to record additional non-cash compensation expense in the future , which may be significant . interest income and interest expense interest income reflects interest earned on our cash , cash equivalents and marketable securities . interest expense reflects interest due under a previous credit facility under which we made the final payment in 2009 , and interest due under our current credit facility , which we entered into on may 23 , 2011 and pursuant to which we borrowed an aggregate of $ 12.5 million during the year ended december 31 , 2011. see `` financings . ''
| results of operations the discussion under `` results of operations '' discusses results for the year ended december 31 , 2011 in comparison with the years ended december 31 , 2010 and 2009. the results for the years ended december 31 , 2010 and 2009 are the results of the former operating company . the results for the year ended december 31 , 2011 include our pre- and post-merger results . replace_table_token_6_th years ended december 31 , 2011 and 2010 replace_table_token_7_th revenue : there was no revenue for the years ended december 31 , 2011 or 2010 . 73 research and development expenses : for the year ended december 31 , 2011 , research and development expense was $ 36.2 million compared to $ 11.7 million for the year ended december 31 , 2010 , an increase of $ 24.5 million or 209 % . for the year ended december 31 , 2011 , we incurred professional contract services associated with the development of ba058 injection of $ 27.0 million compared to $ 4.7 million for the year ended december 31 , 2010. the increase was primarily the result of expenses incurred in connection with the initiation of our phase 3 study of ba058 injection , which began with the dosing of patients in april 2011. we expect this higher level of ba058 injection expenses to be maintained or increase over the course of the phase 3 study , which we expect to complete in the first half of 2014. however , there will be variability from year to year driven primarily by the rate of patient enrollment , the euro/dollar exchange rate and fluctuations in the value of our stock issued to nordic under the stock issuance agreement .
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with the acquisition of pilgrim 's pride ltd. ( “ ppl ” ) and moy park in 2019 and 2017 , respectively , we solidified ourselves as a leading european food company while diversifying our product mix with introduction into the pork market . with the acquisition of gnp in 2017 , we further solidified ourselves as a leading poultry company within the u.s. see “ note 2. business acquisitions ” of our consolidated financial statements included in this annual report for additional information relating to these acquisitions . we reported net income attributable to pilgrim 's pride corporation of $ 94.8 million , or $ 0.39 per diluted common share , and profit before tax totaling $ 161.8 million , for 2020. these operating results included gross profit of $ 838.2 million and generated $ 724.2 million of cash from operations . we generated operating margins of 2.0 % with operating margins of 0.9 % , 3.1 % and 5.5 % in our u.s. , u.k. and europe , and mexico reportable segments , respectively . during 2020 , we generated ebitda and adjusted ebitda of $ 617.7 million and $ 788.1 million , respectively . a reconciliation of net income to ebitda and adjusted ebitda is included in “ item 6. selected financial data ” in this annual report . as discussed in “ note 20. commitments and contingencies ” , on october 13 , 2020 , we announced that we have entered into the plea agreement with the doj . as a result of the plea agreement , we recognized a fine of $ 110,524,140 as expense during the third quarter of fiscal 2020. on january 11 , 2021 , we announced that we have entered an agreement to settle all claims made by the putative direct purchaser plaintiff class in the in re broiler chicken antitrust litigation . as a result of the settlement , we recognized a fine of $ 75.0 million as expense during the fourth quarter of fiscal 2020. the plea agreement and direct purchaser plaintiff class settlement are included in selling , general and administrative expense in the consolidated statements of income for the year ended december 27 , 2020. in addition , as discussed below under “ hometown strong initiative ” , we launched an initiative during 2020 to support the communities in which we operate with unexpected challenges , such as the novel coronavirus ( “ covid-19 ” ) pandemic , and as a result , we recorded $ 15.0 million in incremental donation expense related to this initiative during the third quarter of fiscal 2020. adjusted net income for the year ended december 27 , 2020 , which excludes the doj antitrust fine , the direct purchaser plaintiff class settlement , increase in donation expense and other items shown in the “ reconciliation of adjusted net income ” , was $ 250.4 million . see “ item 6. selected financial data ” section for a reconciliation of net income attributable to pilgrim 's to adjusted net income attributable to pilgrim 's . we operate on the basis of a 52/53-week fiscal year that ends on the sunday falling on or before december 31. any reference we make to a particular year applies to our fiscal year and not the calendar year . fiscal 2019 and 2018 were 52-week accounting cycles . impact of covid-19 the extensive impact of the pandemic caused by covid-19 has resulted and will likely continue to result in significant disruptions to the global economy , as well as businesses and capital markets around the world . in an effort to halt the outbreak of covid-19 , a number of countries , states , counties and other jurisdictions have imposed various measures , including but not limited to , voluntary and mandatory quarantines , stay-at-home orders , travel restrictions , limitations on gatherings of people , reduced operations and extended closures of businesses . on april 28 , 2020 , an executive order designated meat and poultry processing plants as critical infrastructure . as the global spread of the virus began to accelerate late in march of 2020 , we began to experience adverse impacts to our business and financial results . the impact of the covid-19 pandemic included disruptions in supply chain , an increase in both broiler and chick costs and an increase in payroll and benefits costs . during the second quarter of 2020 , the impact of the covid-19 pandemic on our financial results generally decreased because of increased demand for our products at retail grocery stores and quick service restaurants and our ability to meet this demand through our transitioned business operations , as further discussed below . we believe that we will continue to experience disruptions and other changes to our business due to the covid-19 pandemic into 2021. the impact of covid-19 and measures to prevent its spread have affected and continue to affect our business in a number of ways . 24 our workforce . employee health and safety is our priority . as an essential business in a critical infrastructure industry , we continue to produce chicken and pork products , while coordinating with and implementing guidance from the u.s. centers for disease control and prevention , the national institute of occupational safety and health , and local and regional departments of health in an effort to keep our employees safe and healthy . measures we have implemented include , but are not limited to : increasing physical distancing of our employees , where possible , by staggering start and shift breaks , placing on-site tents to create more space for employees at break and at meal times , and installing physical barriers to distance employees while working on production lines ; adding temperature and symptom screening stations for employees prior to entering our facilities ; increasing personal hygiene practices and providing our employees additional personal protective equipment and sanitation stations ; and increasing sanitation of our facilities . story_separator_special_tag with the implementation of the eu-u.k trade and cooperation agreement , there is uncertainty regarding the processing of imports and administration costs that will follow . this could lead to potential new tariffs and regulations from both the european union and the u.k. we are unable to give any assurance as to the scope , duration , or impact of any changes in trade policies or tariffs , how successful any mitigation efforts will be , or the extent to which mitigation will be necessary , and accordingly , changes in trade policies and increased tariffs could have a material adverse effect on our business and results of operations . reportable segments we operate in three reportable segments : the u.s. , the u.k. and europe , and mexico . we measure segment profit as operating income . corporate expenses are allocated to mexico and u.k. and europe reportable segments based upon various apportionment methods for specific expenditures incurred related thereto with the remaining amounts allocated to the u.s. for additional information , see “ note 19. reportable segments ” of our consolidated financial statements included in this annual report . story_separator_special_tag href= '' https : //www.sec.gov/archives/edgar/data/0000802481/000080248121000015/ # i7986e3ecb1bd457a81e8d84619aba3f1_7 '' style= '' color : # 0000ff ; font-family : 'times new roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % ; text-decoration : underline '' > $ 29.9 million , respectively . these decreases in cost of sales were partially offset by the $ 7.3 million unfavorable impact of foreign currency translation . the decrease in cost per pound sold is due to the adjusted product mix from foodservice to retail due to the covid-19 pandemic . other factors affecting cost of sales were individually immaterial . mexico reportable segment . cost of sales incurred by the mexico operations during 2020 decreased $ 21.0 million , or 1.7 % , from cost of sales incurred by the mexico operations during 2019 primarily because of the favorable impact of foreign currency remeasurement and decreased poultry sales volume of $ 141.0 million , or 11.5 percentage points , and $ 19.4 million , or 1.6 percentage points , respectively . partially offsetting these decreases in cost of sales was an increase of $ 139.4 million , or 11.4 percentage points in cost per pound sold . included in the decreased poultry sales volume and increased cost per pound sold was a $ 73.7 million increase in poultry input costs due to increased grain and ingredient costs . other factors affecting cost of sales were individually immaterial . operating income . operating income decreased $ 445.1 million , or 64.5 % , from $ 690.6 million generated for 2019 to $ 245.5 million generated for 2020. the following tables provide operating income information : replace_table_token_11_th replace_table_token_12_th replace_table_token_13_th u.s. reportable segment . selling , general and administrative ( “ sg & a ” ) expense incurred by the u.s. operations during 2020 increased $ 184.8 million , or 75.0 % , from sg & a expense incurred by the u.s. operations during 2019 primarily from the $ 110.5 million doj agreement , the $ 75.0 million direct purchaser plaintiff class settlement , $ 15.0 million in incremental donations expense related to the hometown strong initiative and a $ 25.6 million increase in professional fees mainly due to increased legal representation services . these increases in sg & a expense were partially offset by a $ 20.0 million decrease in payroll and benefit costs due to decreased incentive and stock-based compensation . other factors affecting sg & a expense were individually immaterial . u.k. and europe reportable segment . sg & a expense incurred by the u.k. and europe operations during 2020 increased $ 22.9 million , or 24.7 % , from sg & a expense incurred by the u.k. and europe operations during 2019 primarily because of expenses incurred by the acquired ppl operations of $ 25.7 million , partially offset by a decrease in sg & a expense incurred from our existing u.k. and europe operations of $ 2.8 million . the decrease in sg & a expense in our existing u.k. and europe was mainly due to a $ 2.1 million decrease in travel and entertainment expense due to the covid-19 pandemic and a $ 2.0 million decrease in legal and other professional fees expense . other factors affecting sg & a expense were individually immaterial . 28 mexico reportable segment . sg & a expense incurred by the mexico operations during 2020 increased $ 5.0 million , or 12.2 % , from sg & a expense incurred by the mexico operations during 2019 primarily because of a $ 2.4 million increase in employee relations expenses and a $ 1.5 million increase in professional fees expense . other factors affecting sg & a expense were individually immaterial . interest expense . consolidated interest expense decreased 4.9 % to $ 126.1 million in 2020 from $ 132.6 million in 2019 , primarily because of a decrease in weighted average interest rates to 4.7 % in 2020 from 5.3 % in 2019. as a percent of net sales , interest expense in 2020 and 2019 was 1.0 % and 1.2 % , respectively . income taxes . our consolidated income tax expense in 2020 was $ 66.8 million , compared to income tax expense of $ 161.0 million in 2019. the decrease in income tax expense in 2020 resulted from a decrease in pre-tax income during 2020 . 2019 compared to 2018 net sales . net sales for 2019 increased $ 471.4 million , or 4.3 % , from $ 10.9 billion generated in 2018 to $ 11.4 billion generated in 2019. the following table provides additional information regarding net sales : replace_table_token_14_th u.s. reportable segment . u.s. net sales generated in 2019 increased $ 211.1 million , or 2.8 % , from u.s. net sales generated in 2018 primarily because of an increase in sales volume and an increase in net sales per pound .
| results of operations 2020 compared to 2019 net sales . net sales for 2020 increased $ 682.7 million , or 6.0 % , from $ 11.4 billion generated in 2019 to $ 12.1 billion generated in 2020. the following table provides additional information regarding net sales : replace_table_token_7_th u.s. reportable segment . u.s. net sales generated in 2020 decreased $ 140.7 million , or 1.8 % , from u.s. net sales generated in 2019 primarily because of a decrease in net sales per pound , contributing $ 188.2 million , or 2.4 percentage points , to the decrease in net sales . this decrease in net sales per pound was partially offset by $ 47.5 million , or 0.6 percentage points , due to an increase in sales volume . u.k. and europe reportable segment . u.k. and europe sales generated in 2020 increased $ 890.5 million , or 37.4 % , from u.k. and europe sales generated in 2019 , primarily because of the recently acquired ppl operations , partially offset by a decrease in net sales by our existing u.k. and europe operations . the impact of the acquired business contributed $ 1.1 billion , or 44.3 percentage points , to the increase in net sales . the decrease in our existing u.k. and europe operations was driven by a decrease in sales volume and a decrease in net sales per pound , contributing $ 159.6 million , or 6.7 percentage points , and $ 14.5 million , or 0.6 percentage points , respectively , to the decrease in net sales . these decreases in sales volume and net sales 26 per pound were partially offset by $ 8.0 million , or 0.4 percentage points , due to the favorable impact of foreign currency translation . mexico reportable segment .
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this discussion and analysis covers the years ended december 31 , 2020 and 2019 and discusses year-to-year comparisons between such periods . the discussions of the year ended december 31 , 2018 and year-to-year comparisons between the years ended december 31 , 2019 and 2018 that are not included in this annual report on form 10-k can be found in “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of the company 's annual report on form 10-k for the fiscal year ended december 31 , 2019 filed on february 20 , 2020 , and such discussions are incorporated by reference into this report . reflected in this discussion and analysis is how management views the company 's current financial condition and results of operations along with key external variables and management 's actions that may impact the company . understanding significant external variables , such as market conditions , weather , and seasonal trends , among others , and management actions taken to manage the company , address external variables , among others , which will increase users ' understanding of the company , its financial condition and results of operations . this discussion may contain forward looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward looking statements . factors that could cause or contribute to such differences include , but are not limited to those discussed below and elsewhere in this report . strategy and goals mission and core values our mission is to be a top tier north american petroleum refining and nitrogen-based fertilizer company as measured by safe and reliable operations , superior performance and profitable growth . the foundation of how we operate is built on five core values : safety - we always put safety first . the protection of our employees , contractors and communities is paramount . we have an unwavering commitment to safety above all else . if it 's not safe , then we do n't do it . environment - we care for our environment . complying with all regulations and minimizing any environmental impact from our operations is essential . we understand our obligation to the environment and that it 's our duty to protect it . integrity - we require high business ethics . we comply with the law and practice sound corporate governance . we only conduct business one way—the right way with integrity . corporate citizenship - we are proud members of the communities where we operate . we are good neighbors and know that it 's a privilege we ca n't take for granted . we seek to make a positive economic and social impact through our financial donations and the contributions of time , knowledge and talent of our employees to the places where we live and work . continuous improvement - we believe in both individual and team success . we foster accountability under a performance-driven culture that supports creative thinking , teamwork , diversity and personal development so that employees can realize their maximum potential . we use defined work practices for consistency , efficiency and to create value across the organization . december 31 , 2020 | 37 our core values are driven by our people , inform the way we do business each and every day and enhance our ability to accomplish our mission and related strategic objectives . strategic objectives we have outlined the following strategic objectives to drive the accomplishment of our mission : safety - we aim to achieve continuous improvement in all environmental , health and safety areas through ensuring our people 's commitment to environmental , health and safety comes first , the refinement of existing policies , continuous training , and enhanced monitoring procedures . reliability - our goal is to achieve industry-leading utilization rates at our facilities through safe and reliable operations . we are focusing on improvements in day-to-day plant operations , identifying alternative sources for plant inputs to reduce lost time due to third-party operational constraints , and optimizing our commercial and marketing functions to maintain plant operations at their highest level . market capture - we continuously evaluate opportunities to improve the facilities ' realized pricing at the gate and reduce variable costs incurred in production to maximize our capture of market opportunities . financial discipline - we strive to be as efficient as possible by maintaining low operating costs and disciplined deployment of capital . achievements we successfully executed a number of achievements in support of our strategic objectives shown below through the date of this filing despite the challenges experienced by the industry during 2020 as a result of the covid-19 pandemic : safety reliability market capture financial discipline corporate : increased liquidity and extended debt maturity with the january issuance of $ 1.0 billion of senior unsecured notes due in 2025 and 2028 , and the redemption of $ 0.5 billion cvr refining senior notes due in 2022. ü operated our petroleum segment and nitrogen fertilizer segment facilities safely and reliably and maintained financial discipline amid covid-19 pandemic . ü ü ü reduced consolidated operating and sg & a expenses by over 12 % compared to 2019. ü reduced lost profit opportunities by $ 46 million compared to 2019. ü ü ü achieved over 19 % reduction in environmental events compared to 2019. ü reduced capital spending by over $ 21 million compared to initial spending plans . ü petroleum segment : safely completed the planned turnaround of the coffeyville refinery in april 2020 , limiting exposure to the volatile margin environment . ü ü ü ü received board approval to proceed with construction of the renewable diesel unit ( “ rdu ” ) project at the wynnewood refinery . ü ü announced agreement to acquire oklahoma crude oil pipeline business from blueknight energy . story_separator_special_tag in addition to current market conditions discussed above , we have experienced significant volatility during 2020 and expect continued volatility in 2021 due to compliance requirements under the rfs , proposed climate change laws and regulations , and increased mileage standards for vehicles . the petroleum business is subject to the rfs , which , each year , requires blending “ renewable fuels ” with transportation fuels or purchasing renewable identification numbers ( “ rins ” ) , in lieu of blending , or otherwise be subject to penalties . our cost to comply with the rfs is dependent upon a variety of factors , which include the availability of ethanol for blending at our refineries and downstream terminals or rins for purchase , the price at which rins can be purchased , transportation fuel production levels , and the mix of our products , all of which can vary significantly from period to period . additionally , our costs to comply with the rfs depend on the consistent and timely application of the program by the epa , such as timely establishment of annual renewable volume obligation ( “ rvo ” ) . due to recent uncertainty resulting from the ruling of the u.s. court of appeals for the 10th circuit , ( the “ 10th circuit ” ) in january 2020 relating to small refinery exemptions under the rfs , recent broad rejections of waiver requests by the epa , delays in establishing the 2021 rvo , and the recent change in administration , we have experienced significant volatility in the price of rins and as a result , our costs to comply with rfs have increased significantly compared to 2019. the u.s. supreme court is currently slated to review the 10th circuit 's decision in april 2021 , which could materially impact the price of rins and existing waiver applications we have submitted for 2019 and 2020 related to our wynnewood refinery . in december 2020 , our board of directors approved the renewable diesel project at our wynnewood refinery , which would convert the wynnewood refinery 's hydrocracker to a renewable diesel unit capable of producing 100 million gallons of renewable diesel per year ( the “ rdu ” ) and approximately 170 to 180 million rins annually . total estimated costs for the project are currently $ 110 million and completion of the rdu is expected in june 2021. as a result of conversion of the hydrocracker to rdu service , the crude oil capacity of the wynnewood refinery would be reduced by approximately 17,000 bpd to 57,500 bpd . the production of renewable diesel and reduction to our crude oil throughput is expected to significantly reduce our net exposure to the rfs . further , the rdu enables us to capture additional benefits associated with the existing blenders ' tax credit currently set to expire at the end of 2022 and low carbon fuel standard programs in states such as california . we have additional plans to add pretreating capabilities for the rdu at wynnewood and construction of a similar facility at our coffeyville refinery subject to board and other approvals . these collective renewable diesel efforts could effectively mitigate our rfs exposure . however , actions taken by the supreme court , resulting administration efforts under the rfs , such as denial of existing or previous waiver applications , and market conditions could significantly impact the amount by which our renewable diesel business mitigates our costs to comply with the rfs . as of december 31 , 2020 , with the unknown resolution of items discussed above , we have an open obligation under the rfs for 2020 of approximately 240 million rins , which was subsequently reduced to 221 million rins as of january 2021. under accounting rules , the open rfs obligation is marked-to-market each period and thus can result in significant volatility in our rfs expense from period to period . we recognized an expense of approximately $ 190 million , $ 43 million , and $ 60 million for the years ended december 31 , 2020 , 2019 , and 2018 , respectively , for the petroleum segment 's compliance with the rfs . the increase in 2020 was driven primarily by the significant increases in rins pricing , especially during the fourth quarter of 2020 , and our open position with respect to the 2020 obligation . based upon recent market prices of rins , current estimates related to other variable factors , including our anticipated blending and purchasing activities , and the impact of the open 2020 december 31 , 2020 | 40 obligation and resolution thereof , our estimated cost to comply with the rfs is $ 260 to $ 280 million for 2021 , net of the estimated rins credit generation from renewable diesel operations of $ 95 to $ 105 million . market indicators nymex wti crude oil is an industry wide benchmark that is utilized in the market pricing of a barrel of crude oil . the pricing differences between other crudes and wti , known as differentials , show how the market for other crude oils such as wcs , white cliffs ( “ condensate ” ) , brent crude ( “ brent ” ) , and midland wti ( “ midland ” ) are trending . due to the covid-19 pandemic , actions taken by governments and others in response thereto , refined product prices have experienced extreme volatility . as a result of the current environment , refining margins have been and could continue to be significantly reduced . as a performance benchmark and a comparison with other industry participants , we utilize nymex and group 3 crack spreads . these crack spreads are a measure of the difference between market prices for crude oil and refined products and are a commonly used proxy within the industry to estimate or identify trends in refining margins . crack spreads can fluctuate significantly over time as a result of market conditions and supply and demand balances .
| segment financial highlights and results of operations petroleum segment the petroleum segment utilizes certain inputs within its refining operations . these inputs include crude oil , butanes , natural gasoline , ethanol , and bio-diesel ( these are also known as “ throughputs ” ) . december 31 , 2020 | 46 refining throughput and production data by refinery replace_table_token_9_th replace_table_token_10_th replace_table_token_11_th ( 1 ) total gasoline and distillate divided by total regional crude , wti , wtl , midland wti , condensate , and heavy canadian throughput . ( 2 ) total gasoline , distillate , and other liquid products divided by total throughput . ( 3 ) total distillate divided by total regional crude , wti , wtl , midland wti , condensate , and heavy canadian throughput . december 31 , 2020 | 47 financial highlights overview - petroleum segment operating loss and net loss for the year ended december 31 , 2020 was $ 281 million and $ 271 million , respectively , compared to operating income and net income of $ 574 million and $ 559 million , respectively , for the year ended december 31 , 2019. the declines during both periods were primarily driven by lower sales volumes and unfavorable refining margins when compared to the prior periods . ( 1 ) see “ non-gaap reconciliations ” section below for reconciliations of the non-gaap measures shown above . net sales - for the year ended december 31 , 2020 , net sales for the petroleum segment decreased by $ 2.4 billion when compared to the year ended december 31 , 2019. this decline was primarily driven by lower sales volumes and prices as a result of reduced demand and excess supply caused by the covid-19 pandemic . further , during the second quarter of 2020 , the coffeyville refinery completed a full , planned turnaround , which began in the first quarter of 2020 and lasted 57 days .
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as used in this section , unless the context otherwise requires , “ we , ” “ us , ” “ our , ” and “ our company ” mean american assets trust , inc. , a maryland corporation and its consolidated subsidiaries , including american assets trust , l.p. this discussion may contain 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 “ item 1a . risk factors ” or elsewhere in this document . see “ item 1a . risk factors ” and “ forward-looking statements. ” overview our company we are a full service , vertically integrated and self-administered reit that owns , operates , acquires and develops high quality retail , office , multifamily and mixed-use properties in attractive , high-barrier-to-entry markets in southern california , northern california , oregon , washington , texas , and hawaii . as of december 31 , 2017 , our portfolio was comprised of twelve retail shopping centers ; seven office properties ; a mixed-use property consisting of a 369-room all-suite hotel and a retail shopping center ; and six multifamily properties . additionally , as of december 31 , 2017 , we owned land at four of our properties that we classified as held for development and construction in progress . our core markets include san diego , the san francisco bay area , portland , oregon , bellevue , washington and oahu , hawaii . our company , as the sole general partner of our operating partnership , has control of our operating partnership and owned 73.2 % of our operating partnership as of december 31 , 2017 . accordingly , we consolidate the assets , liabilities and results of operations of our operating partnership . taxable reit subsidiary on november 5 , 2010 , we formed american assets services , inc. , a delaware corporation that is wholly owned by our operating partnership and which we refer to as our services company . we have elected , together with our services company , to treat our services company as a taxable reit subsidiary for federal income tax purposes . a taxable reit subsidiary generally may provide non-customary and other services to our tenants and engage in activities that we may not engage in directly without adversely affecting our qualification as a reit , provided a taxable reit subsidiary may not operate or manage a lodging facility or provide rights to any brand name under which any lodging facility is operated . we may form additional taxable reit subsidiaries in the future , and our operating partnership may contribute some or all of its interests in certain wholly owned subsidiaries or their assets to our services company . any income earned by our taxable reit subsidiaries will not be included in our taxable income for purposes of the 75 % or 95 % gross income tests , except to the extent such income is distributed to us as a dividend , in which case such dividend income will qualify under the 95 % , but not the 75 % , gross income test . because a taxable reit subsidiary is subject to federal income tax , and state and local income tax ( where applicable ) as a regular corporation , the income earned by our taxable reit subsidiaries generally will be subject to an additional level of tax as compared to the income earned by our other subsidiaries . outlook we seek growth in earnings , funds from operations , and cash flows primarily through a combination of the following : growth in our same-store portfolio , growth in our portfolio from property development and redevelopments and expansion of our portfolio through property acquisitions . our properties are located in some of the nation 's most dynamic , high-barrier-to-entry markets primarily in southern california , northern california , oregon , washington and hawaii , which we believe allow us to take advantage of redevelopment opportunities that enhance our operating performance through renovation , expansion , reconfiguration , and or retenanting . we evaluate our properties on an ongoing basis to identify these types of opportunities . we intend to opportunistically pursue projects in our development pipeline including future phases of lloyd district portfolio , solana beach - highway 101 , as well as other redevelopments at solana beach corporate centre and lomas santa fe plaza . the commencement of these developments is based on , among other things , market conditions and our evaluation of whether such opportunities would generate appropriate risk adjusted financial returns . our redevelopment and development opportunities are subject to various factors , including market conditions and may not ultimately come to fruition . we continue to review acquisition opportunities in our primary markets that would complement our portfolio and provide long-term growth opportunities . some of our acquisitions do not initially contribute significantly to earnings growth ; however , we believe they provide long-term re-leasing growth , redevelopment opportunities and other strategic opportunities . any growth from acquisitions is contingent on our ability to find properties that meet our qualitative standards at prices that meet our financial hurdles . changes in interest rates may affect our success in achieving earnings growth through acquisitions by affecting both the price that must be paid to acquire a property , as well as our ability to economically finance a property acquisition . 39 generally , our acquisitions are initially financed by available cash , mortgage loans and or borrowings under our second amended and restated credit facility , which may be repaid later with funds raised through the issuance of new equity or new long-term debt . same-store we have provided certain information on a total portfolio , same-store and redevelopment same-store basis . story_separator_special_tag a full-service gross or modified gross lease has a base year expense stop , whereby the tenant pays a stated amount of certain expenses as part of the rent payment , while future increases in property operating expenses ( above the base year stop ) are billed to the tenant based on such tenant 's proportionate square footage of the property . the increased property operating expenses billed are reflected as operating expenses and amounts recovered from tenants are reflected as rental income in the statements of operations . during the year ended december 31 , 2017 , we signed 58 office leases for 367,802 square feet with an average rent of $ 48.81 per square foot during the initial year of the lease term . of the leases , 41 represent comparable leases where there was a prior tenant , with an increase of 16.4 % in cash basis rent and an increase of 23.7 % in straight-line rent compared to the prior leases . multifamily leases . our multifamily portfolio included six apartment properties , as well as an rv resort , with a total of 2,112 units ( including 122 rv spaces ) available for lease as of december 31 , 2017 . as of december 31 , 2017 , these properties were 91.8 % leased . for the year ended december 31 , 2017 , the multifamily segment contributed 13.8 % of our total revenue . our multifamily leases , other than at our rv resort , generally have lease terms ranging from 7 to 15 months , with a majority having 12-month lease terms . tenants normally pay a base rental amount , usually quoted in terms of a monthly rate for the respective unit . spaces at the rv resort can be rented at a daily , weekly , or monthly rate . the average monthly base rent per leased unit as of december 31 , 2017 was $ 1,965 , compared to $ 1,713 at december 31 , 2016 . mixed-use property revenue . our mixed-use property consists of approximately 97,000 rentable square feet of retail space and a 369-room all-suite hotel . revenue from the mixed-use property consists of revenue earned from retail leases , and revenue earned from the hotel , which consists of room revenue , food and beverage services , parking and other guest services . as of december 31 , 2017 , the retail portion of the property was 96.9 % leased , and for the year ended december 31 , 2017 , the hotel had an average occupancy of 92.5 % . for the year ended december 31 , 2017 , the mixed-use segment contributed 19.6 % , of our total revenue . we have leased the retail portion of such property to tenants primarily on a triple-net lease basis , and we expect to continue to do so in the future . as such , the base rent payment under such leases does not include any operating expenses , but rather all such expenses , to the extent they are paid by the landlord , are billed to the tenant . rooms at the hotel portion of our mixed-use property are rented on a nightly basis . 41 leasing our same-store growth is primarily driven by increases in rental rates on new leases and lease renewals and changes in portfolio occupancy . over the long-term , we believe that the infill nature and strong demographics of our properties provide us with a strategic advantage , allowing us to maintain relatively high occupancy and increase rental rates . we have continued to see signs of improvement for many of our tenants as well as increased interest from prospective tenants for our spaces . while there can be no assurance that these positive signs will continue , we remain cautiously optimistic regarding the improved trends we have seen over the past few years . we believe the locations of our properties and diverse tenant base mitigate the potentially negative impact of a poor economic environment . however , any reduction in our tenants ' abilities to pay base rent , percentage rent or other charges , may adversely affect our financial condition and results of operations . during the twelve months ended december 31 , 2017 , we signed 72 retail leases for a total of 332,641 square feet of retail space including 309,082 square feet of comparable space leases ( leases for which there was a prior tenant ) , an decrease of 3.0 % on a cash basis and an increase of 13.1 % on a straight-line basis . new retail leases for comparable spaces were signed for 31,763 square feet at an average rental rate decrease of 9.3 % on a cash basis and an average rental rate increase of 0.6 % on a straight-line basis . renewals for comparable retail spaces were signed for 277,319 square feet at an average rental rate decrease of 2.0 % on a cash basis and an increase of 15.3 % on a straight-line basis . tenant improvements and incentives were $ 38.18 per square foot of retail space for comparable new leases for the twelve months ended december 31 , 2017 . there were $ 6.98 per square foot of retail space of tenant improvement or incentives for comparable renewal leases for the twelve months ended december 31 , 2017 . during the twelve months ended december 31 , 2017 , we signed 58 office leases for a total of 367,802 square feet of office space including 269,873 square feet of comparable space leases , at an average rental rate increase of 16.4 % on a cash basis and an average rental increase of 23.7 % on a straight-line basis . new office leases for comparable spaces were signed for 101,686 square feet at an average rental rate increase of 11.3 % on a cash basis and an average rental rate increase of 15.7 % on a straight-line basis .
| results of operations for our discussion of results of operations , we have provided information on a total portfolio and same-store basis . comparison of the year ended december 31 , 2017 to the year ended december 31 , 2016 the following summarizes our consolidated results of operations for the year ended december 31 , 2017 compared to our consolidated results of operations for the year ended december 31 , 2016 . as of december 31 , 2017 , our operating portfolio was comprised of 26 retail , office , multifamily and mixed-use properties with an aggregate of approximately 6.0 million rentable square feet of retail and office space ( including mixed-use retail space ) , 2,112 residential units ( including 122 rv spaces ) and a 369-room hotel . additionally , as of december 31 , 2017 , we owned land at four of our properties that we classified as held for development and construction in progress . as of december 31 , 2016 , our operating portfolio was comprised of 24 retail , office , multifamily and mixed-use properties with an aggregate of approximately 5.9 million rentable square feet of retail and office space ( including mixed-use retail space ) , 1,579 residential units ( including 122 rv spaces ) and a 369-room hotel . additionally , as of december 31 , 2016 , we owned land at four of our properties that we classified as held for development and construction in progress . the following table sets forth selected data from our consolidated statements of income for the years ended december 31 , 2017 and 2016 ( dollars in thousands ) : replace_table_token_14_th 48 revenue total property revenues . total property revenue consists of rental revenue and other property income . total property revenue increased $ 19.9 million , or 7 % , to $ 315.0 million for the year ended december 31 , 2017 , compared to $ 295.1 million for the year ended december 31 , 2016 .
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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 . our acquisitions may increase the speed at which we can deliver innovative solutions to our customers . 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 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 , testing , applicable reserves and overhead . these hardware manufacturing costs make our cost of emulation and prototyping hardware products higher , as a percentage of revenue , than our cost of software and ip products . a summary of cost of product and maintenance for fiscal 2017 , 2016 and 2015 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 . the changes in product and maintenance-related costs were due to the following : replace_table_token_13_th costs of emulation and prototyping hardware decreased during fiscal 2017 , as compared to fiscal 2016 , primarily due to lower revenue for emulation and prototyping hardware . gross margins on our hardware products will fluctuate based on product life cycle , product competition , product mix and pricing strategies . 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 approached the end of the product life cycle of palladium xp , a previous generation of our palladium hardware platform . 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 increased during fiscal 2017 , as compared to fiscal 2016 , and decreased during fiscal 2016 , as compared to fiscal 2015 , primarily due to variation in the number of personnel dedicated to deliver and support our services and custom ip offerings . 32 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 . stock-based compensation included in our operating expenses increased during fiscal 2017 , as compared to fiscal 2016 , and during fiscal 2016 , as compared to fiscal 2015 , primarily because successive increases in the price of our common stock have resulted in higher grant-date fair values for the mix of stock awards expensed in each period . 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 . for an additional description of how changes in foreign exchange rates affect our consolidated financial statements , see the discussion in item 7a , “ quantitative and qualitative disclosures about market risk – foreign currency risk. ” our operating expenses for fiscal 2017 , 2016 and 2015 were as follows : replace_table_token_14_th our operating expenses , as a percentage of total revenue , for fiscal 2017 , 2016 and 2015 were as follows : replace_table_token_15_th marketing and sales the changes in marketing and sales expense were due to the following : replace_table_token_16_th costs included in marketing and sales increased during fiscal 2017 , as compared to fiscal 2016 , primarily due to additional headcount in fiscal 2017 and an increase in incentive compensation . costs included in marketing and sales decreased during fiscal 2016 , as compared to fiscal 2015 , primarily due to year-over-year headcount reductions within our sales organization . 33 research and development the changes in research and development expense were due to the following : replace_table_token_17_th we must invest significantly in product research and development to keep pace with the latest manufacturing technology . 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 . we currently expect that our fiscal 2018 effective tax rate will be approximately 13 % . we expect that our quarterly effective tax rates will vary from our fiscal 2018 effective tax rate as a result of recognizing the income tax effects of stock-based awards in the quarterly periods that the awards vest or are settled and other items that we can not anticipate . we may also revise our fiscal 2018 effective tax rate as a result of further analyzing the implications of the tax act and as we complete the accounting for the tax act . 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 6 in the notes to consolidated financial statements . 36 liquidity and capital resources replace_table_token_24_th cash , cash equivalents and short-term investments as of december 30 , 2017 , our principal sources of liquidity consisted of $ 692.5 million of cash , cash equivalents and short-term investments , as compared to $ 468.3 million as of december 31 , 2016 . our primary sources of cash , cash equivalents and short-term investments during fiscal 2017 were cash generated from operations , proceeds from borrowings under our revolving credit facility , 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 2017 were payments related to salaries and benefits , operating expenses , acquisitions , repurchases of our common stock , payments on our revolving credit facility , purchases of property , plant and equipment , and tax payments . approximately 80 % of our cash , cash equivalents and short-term investments were held by our foreign subsidiaries as of december 30 , 2017 . 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 increase in our net working capital as of december 30 , 2017 , as compared to december 31 , 2016 , is primarily due to a net increase in cash and cash equivalents . cash flows from operating activities cash flows from operating activities during fiscal 2017 , 2016 and 2015 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 2017 , as compared to fiscal 2016 , and fiscal 2016 , as compared to fiscal 2015 , was primarily due to the timing of cash receipts from customers and disbursements made to vendors and improved profitability . 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 . 37 cash flows from investing activities cash flows provided by ( used for ) investing activities during fiscal 2017 , 2016 and 2015 were as follows : replace_table_token_26_th the increase in cash used for investing activities during fiscal 2017 , as compared to fiscal 2016 , was primarily due to an increase in cash paid for business combinations and a decrease in net proceeds from our investment portfolio . 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 available-for-sale securities , partially offset by an increase in cash used for business combinations and asset acquisitions . 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 used for financing activities during fiscal 2017 , 2016 and 2015 were as follows : replace_table_token_27_th the decrease in cash used for financing activities during fiscal 2017 , as compared to fiscal 2016 , was primarily due to a decrease in payments made to repurchase shares of our common stock , partially offset by a net decrease in proceeds from borrowings . 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 . other factors affecting liquidity and capital resources tax act the tax act provides an election to pay the net tax liability for the transition tax in eight annual installments . we have currently estimated a provisional net tax liability of approximately $ 3 million for the transition tax . the provisional net tax liability is less than the provisional federal income tax expense for the transition tax primarily because we expect to utilize tax credit carryforwards to reduce our transition tax payable . the re-measurement of our deferred tax assets for the u.s.
| results of operations financial results for fiscal 2017 , as compared to fiscal 2016 and 2015 , reflect the following : increased product and maintenance revenue resulting from overall growth in our software and ip business , particularly in asia and europe ; continued investment in research and development activities focused on creating and enhancing our products to maintain the pace of innovation required by our customers ; and provisional tax effects from the enactment of the tax act . our fiscal years are 52- or 53-week periods ending on the saturday closest to december 31. fiscal 2017 , 2016 and 2015 were each 52-week fiscal years . 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 over multiple periods or up front , upon completion of delivery . our revenue may also be affected by our ability to bring to market newly developed or acquired technology . during fiscal 2017 , we acquired technology that is not expected to generate significant incremental revenue during fiscal 2018. for an additional description of our acquisitions , see note 7 in the notes to consolidated financial statements . approximately 90 % of our revenue is recognized over time , and the remainder of the resulting revenue is recognized up front , upon completion of delivery . revenue recognized over time 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 .
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see additional segment descriptions in part i , item 1 ( business ) and in note m to our consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. references to the company , including “ we , ” “ us , ” and “ our , ” in this annual report on form 10-k are primarily to the company and its subsidiaries on a consolidated basis . organization of information management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is provided to assist readers in understanding our financial performance during the periods presented and significant trends which may impact our future performance . this discussion should be read in conjunction with our consolidated financial statements and the related notes thereto included in part ii , item 8 of this annual report on form 10-k. md & a includes forward-looking statements that are subject to risks and uncertainties . actual results may differ materially from the statements made in this section due to a number of factors that are discussed in part i ( forward-looking statements ) and part i , item 1a ( risk factors ) of this annual report on form 10-k. md & a is comprised of the following : ● covid-19 discusses the impact of the novel coronavirus ( “ covid-19 ” ) pandemic on our business , our response to the pandemic , and changes in economic measures which may influence our operating results ; ● story_separator_special_tag and preserve financial flexibility in consideration of general economic and financial market uncertainty resulting from the covid-19 outbreak . due to improvement in our consolidated net cash position , stabilized customer account payment trends , and improved business levels , we repaid these borrowings during third quarter 2020. additionally , we repaid the remaining outstanding balance of $ 40.0 million under our accounts receivable securitization program in third quarter 2020. our consolidated cash , cash equivalents , and short-term investments totaled $ 369.4 million at december 31 , 2020. these amounts , n et of debt , increased to a $ 85.1 million net cash position at december 31 , 2020 , compared to a $ 5.0 million net debt position at december 31 , 2019 , primarily reflecting positive earnings . we lowered our planned capital expenditures for 2020 by approximately 30 % , including a reduction in revenue equipment purchases of $ 18.0 million . total net capital expenditures , including equipment financed , for 2020 was $ 91.7 million , including $ 63.1 million of revenue equipment . for 2021 , our total net capital expenditures , including amounts financed , are estimated to range from $ 150.0 million to $ 160.0 million , including revenue equipment of $ 100.0 million , primarily for our asset-based operations . in april 2020 , we implemented cost reduction actions which included a 15 % reduction in the salaries of officers and nonunion employees and similar compensation adjustments for hourly nonunion employees ; a 15 % reduction in fees paid to members and committee chairpersons of our board of directors ; implementation of a hiring freeze ; suspension of the employer match on our nonunion 401 ( k ) plan ; and reduction of advertising , training , travel , and other costs to better align with current business levels . the compensation reductions lowered consolidated operating expenses by approximately $ 15 million in second quarter 2020 , versus second quarter 2019. as a result of the positive sequential trends in our business levels through july 2020 , we reversed the compensation cost reductions beginning in the third quarter of 2020 , including officer and nonunion employee salaries , the employer match on our nonunion 401 ( k ) plan , and fees for our board of directors . we provided one-time discretionary payments in fourth quarter 2020 to nonunion exempt personnel for the previously discussed 15 % wage reduction incurred during the second quarter of 2020 and provided a bonus to nonunion hourly employees whose hours were reduced during the same time period . the expense related to these payments totaled approximately $ 11 million . throughout the second and third quarters of 2020 , we utilized real-time , technology-enabled data to make operational changes in our asset-based network , including workforce reductions to better align resources with business levels . we are continually evaluating these operational changes and adjusting to current and anticipated business levels . these operational changes contributed to our positive financial results for 2020. as tonnage levels have increased , certain operational resources have been added back to the asset-based network , and they will continue to be carefully managed to business levels . expenses for which we made cost reductions in 2020 , including advertising , training , and travel , as well as customer and personnel related events which were suspended during the year , are expected to return . we also expect 36 our nonunion healthcare costs to increase from 2020 expense levels , which were lower than the prior year due to a reduction in average costs per claim , reflecting the effect of the covid-19 pandemic on the timing and availability of medical care . our efforts to manage our operational costs may not directly correspond to significant changes in business levels and there can be no assurance that the impact of the covid-19 pandemic will not have an adverse effect on our operating results in future periods . accounting estimates in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) , we use projected financial information to determine certain accounting estimates and the values of certain assets included in our consolidated financial statements . as of december 31 , 2020 , we evaluated our goodwill , intangible assets , operating assets , and deferred tax assets for indicators of impairment and challenged our accounting estimates considering the current economic conditions . certain of these assessments are discussed in the paragraphs below . story_separator_special_tag the higher elimination of revenues reported in the “ other and eliminations ” line of consolidated revenues in 2020 , compared to 2019 , includes the impact of increased intersegment business levels among our operating segments , reflecting continued integration of our logistics services . 38 on a per-day basis , asset-based revenues decreased 3.0 % in 2020 , compared to 2019 , reflecting a 2.4 % decline in billed revenue per hundredweight , including fuel surcharges , and a 0.4 % decrease in tonnage per day . the decline in our asset-based tonnage per day for 2020 , compared to 2019 , reflects a decrease in shipment levels , partially offset by a higher weight per shipment . the number of workdays was greater by one and one-half days in 2020 , versus 2019. the increase in revenues of our asset-light operations for 2020 , compared to 2019 , was primarily due to an increase in revenue per shipment associated with higher market pricing in a tighter truckload capacity environment , partially offset by a decline in shipments per day ( excluding managed transportation shipments ) . the asset-light revenue increase in the arcbest segment was partially offset by decline in revenue for the fleetnet segment on lower service event volume . our asset-light operations , on a combined basis , generated 32 % and 31 % of total revenues before other revenues and intercompany eliminations for 2020 and 2019 , respectively . consolidated operating income increased $ 34.5 million in 2020 compared to 2019. the year-over-year changes in consolidated operating income , net income , and per share amounts for 2020 and 2019 reflect the operating results of our operating segments and the items described below which are meaningful to the analysis of our consolidated operating results . operating results for 2019 were impacted by a noncash impairment charge of $ 26.5 million ( pre-tax ) , or $ 19.8 million ( after-tax ) and $ 0.75 per diluted share , recognized in the fourth quarter of 2019 related to a portion of the goodwill , customer relationship intangible assets , and revenue equipment associated with the acquisition of truckload and dedicated businesses within the arcbest segment , as further discussed in the asset-light results section . innovative technology costs related to a freight handling pilot test program at abf freight impacted consolidated results by $ 22.6 million ( pre-tax ) , or $ 17.3 million ( after-tax ) and $ 0.66 per diluted share , for 2020 , compared to $ 15.7 million ( pre-tax ) , or $ 12.0 million ( after-tax ) and $ 0.45 per diluted share , for 2019. in 2019 , the asset-based segment also incurred conversion costs to comply with the electronic logging device ( “ eld ” ) mandate of $ 2.7 million ( pre-tax ) , or $ 2.0 million ( after-tax ) and $ 0.08 per diluted share , with no comparable costs recognized during 2020. these matters are further discussed in the asset-based segment results section . the year-over-year pre-tax comparisons of consolidated operating results were impacted by costs for certain nonunion performance-based incentive plans , including long-term incentive plans impacted by shareholder returns relative to peers , which increased $ 17.5 million in 2020 , compared to 2019. the increase in these fringe benefit costs were partially offset by lower nonunion healthcare costs , which decreased $ 5.5 million in 2020 , compared to 2019 , due to a reduction in average costs per claim , reflecting the effect of the covid-19 pandemic on the timing and availability of medical care . the loss reported in the “ other and eliminations ” line of consolidated operating income , which totaled $ 13.6 million for 2020 , compared to $ 22.9 million for 2019 , includes expenses related to investments to develop and design various technology and innovations , as well as expenses related to shared services for the delivery of comprehensive transportation and logistics services to our customers . the $ 9.3 million decrease in the loss reported in “ other and eliminations ” for 2020 , compared to 2019 , reflects lower technology costs and reduced travel , marketing , and customer event operating expenses primarily due to the covid-19 pandemic . we expect the loss reported in “ other and eliminations ” for first quarter and full-year 2021 to approximate $ 6 million and $ 24 million , respectively , which would be more consistent with 2019 levels . in addition to the above items , consolidated net income and earnings per share were impacted by income from changes in the cash surrender value of variable life insurance policies , which is reported below the operating income line in the consolidated statements of operations . a portion of our variable life insurance policies have investments , through separate accounts , in equity and fixed income securities and , therefore , are subject to market volatility . changes in the cash surrender value of life insurance policies contributed $ 2.3 million to consolidated net income and $ 0.09 to diluted earnings per share in 2020 , versus $ 3.7 million and $ 0.14 per diluted share in 2019 . consolidated after-tax pension expense , including settlement and termination expense , recognized for the nonunion defined benefit pension plan totaled $ 8.0 million , or $ 0.30 per diluted share , for 2019 , with no comparable expense for 2020 as termination of the plan was completed as of december 31 , 2019. these pension expenses for 2019 and termination of the nonunion defined benefit pension plan are detailed in note i to our consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. 39 consolidated net income and earnings per share were impacted by $ 2.1 million , or $ 0.08 per diluted share , in 2020 and $ 1.4 million , or $ 0.05 per diluted share , in 2019 for a research and development tax credit .
| results of operations includes : ● an overview of consolidated results with 2020 compared to 2019 , and a consolidated adjusted earnings before interest , taxes , depreciation , and amortization ( “ adjusted ebitda ” ) schedule ; ● a financial summary and analysis of our asset-based segment results of 2020 compared to 2019 , including a discussion of key actions and events that impacted the results ; ● a financial summary and analysis of the results of our asset-light operations for 2020 compared to 2019 , including a discussion of key actions and events that impacted the results ; and ● a discussion of other matters impacting operating results , including effects of inflation , current economic conditions , environmental and legal matters , and information technology and cybersecurity . ● liquidity and capital resources provides an analysis of key elements of the cash flow statements , borrowing capacity , and contractual cash obligations , including a discussion of financing arrangements and financial commitments . ● income taxes provides an analysis of the effective tax rates and deferred tax balances , including deferred tax asset valuation allowances . ● critical accounting policies discusses those accounting policies that are important to understanding certain material judgments and assumptions incorporated in the reported financial results . ● recent accounting pronouncements discusses accounting standards that are not yet effective for our financial statements but are expected to have a material effect on our future results of operations or financial condition . the consolidated results section of results of operations generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this form 10-k can be found in the consolidated results section within results of operations of md & a in part ii , item 7 of our annual report on form 10-k for the fiscal year ended december 31 , 2019 .
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for this reason , and in order to avoid use of multiple financial measures , which are not all from the same entity , the calculation of adjusted ebitda and other financial measures presented herein are measured on a consolidated basis , less the results of operations of our insurance subsidiaries in periods prior to their sale in the fourth quarter of 2014. under the credit facilities , covanta energy is required to satisfy certain financial covenants , including certain ratios of which adjusted ebitda is an important component . compliance with such financial covenants is expected to be the principal limiting factor that will affect our ability to engage in a broad range of activities in furtherance of our business , including making certain investments , acquiring businesses and incurring additional debt . covanta energy was in compliance with these covenants as of december 31 , 2015 . failure to comply with such financial covenants could result in a default under the credit facilities , which default would have a material adverse effect on our financial condition and liquidity . adjusted ebitda should not be considered as an alternative to net income or cash flow provided by operating activities as indicators of our performance or liquidity or any other measures of performance or liquidity derived in accordance with gaap . in order to provide a meaningful basis for comparison , we are providing information with respect to our adjusted ebitda for the years ended december 31 , 2015 , 2014 and 2013 , respectively , reconciled for each such period to net income from continuing operations and cash flow provided by operating activities from continuing operations , which are believed to be the most directly comparable measures under gaap . the following is a reconciliation of net income to adjusted ebitda ( in millions ) : 45 replace_table_token_27_th ( a ) for additional information , see adjusted eps above . ( b ) the year ended december 31 , 2015 includes $ 4 million of costs incurred in connection with separation agreements related to the departure of two executive officers . ( c ) adjustment for impact of adoption of fasb asc 853 - service concession arrangements in order to provide comparability to prior period results . these type of expenditures at our service fee operated facilities were historically capitalized prior to adoption of this new accounting standard effective january 1 , 2015 . ( d ) includes certain other items that are added back under the definition of adjusted ebitda in covanta energy llc 's credit agreement . 46 the following is a reconciliation of cash flow provided by operating activities to adjusted ebitda ( in millions ) : replace_table_token_28_th for additional discussion related to management 's use of non-gaap measures , see liquidity and capital resources — supplementary financial information — free cash flow ( non-gaap discussion ) below . business outlook in 2016 and beyond , we expect that our financial results will be affected by several factors , including : market prices , contract transitions , new contracts , organic growth and acquisitions , centralized metals processing and enhanced recovery , continuous improvement using lean six sigma concepts , and our ability to manage facility production and operating costs . in 2016 , the following specific factors are expected to impact our financial results as compared to 2015 : positive factors include : approximately $ 15 to $ 20 million impact from new business activities ; potential cost savings from our continuous improvement efforts ; approximately $ 10 million from favorable contract transitions ; and $ 25 million impact from the durham-york construction to commercial operations transition . negative factors include : $ 0 to $ 40 million lower anticipated market prices for electricity and recycled metals ; $ 30 to $ 35 million of increased incentive compensation expense ; and $ 20 to $ 25 million impact from our china asset swap due to the elimination of earnings contribution from the china investments . liquidity and capital resources our principal sources of liquidity are our cash and cash equivalents , cash flow generated from our ongoing operations , and available capacity under our revolving credit facility , which we believe will allow us to meet our liquidity needs . the following summarizes our key financing activities completed during the year ended december 31 , 2015 : in august 2015 , we issued two new series of fixed rate tax-exempt corporate bonds totaling $ 130 million . proceeds from the offerings were utilized to refinance $ 34 million of outstanding tax-exempt variable rate bonds related to project debt at our delaware valley facility and to fund certain capital improvements at our essex county facility . during 2015 , we fully utilized the 75 million dublin convertible preferred and subsequently the 50 million dublin junior term loan to fund construction costs of the dublin efw facility . during 2015 , we borrowed $ 15 million under equipment financing capital lease arrangements to purchase barges , rail cars , containers and intermodal equipment related to our contract with new york city . in april 2015 , our onondaga county client refinanced $ 42 million of outstanding project debt with $ 54 million of new tax-exempt bonds issued with a $ 5 million premium . the incremental proceeds were used to establish a $ 15 million restricted 47 cash fund to be used toward facility projects and to satisfy $ 2 million of transaction costs . the bonds bear interest from 1.75 % to 5.00 % and have scheduled annual payments with final maturity on may 1 , 2035. in april 2015 , we extended the termination date for a majority of our revolving credit facility to 2020 , reduced the applicable margin by 25 basis points , and reduced certain commitment fees payable on unused amounts . we also refinanced our previous $ 198 million term loan due 2019 with a new $ 200 million term loan story_separator_special_tag for this reason , and in order to avoid use of multiple financial measures , which are not all from the same entity , the calculation of adjusted ebitda and other financial measures presented herein are measured on a consolidated basis , less the results of operations of our insurance subsidiaries in periods prior to their sale in the fourth quarter of 2014. under the credit facilities , covanta energy is required to satisfy certain financial covenants , including certain ratios of which adjusted ebitda is an important component . compliance with such financial covenants is expected to be the principal limiting factor that will affect our ability to engage in a broad range of activities in furtherance of our business , including making certain investments , acquiring businesses and incurring additional debt . covanta energy was in compliance with these covenants as of december 31 , 2015 . failure to comply with such financial covenants could result in a default under the credit facilities , which default would have a material adverse effect on our financial condition and liquidity . adjusted ebitda should not be considered as an alternative to net income or cash flow provided by operating activities as indicators of our performance or liquidity or any other measures of performance or liquidity derived in accordance with gaap . in order to provide a meaningful basis for comparison , we are providing information with respect to our adjusted ebitda for the years ended december 31 , 2015 , 2014 and 2013 , respectively , reconciled for each such period to net income from continuing operations and cash flow provided by operating activities from continuing operations , which are believed to be the most directly comparable measures under gaap . the following is a reconciliation of net income to adjusted ebitda ( in millions ) : 45 replace_table_token_27_th ( a ) for additional information , see adjusted eps above . ( b ) the year ended december 31 , 2015 includes $ 4 million of costs incurred in connection with separation agreements related to the departure of two executive officers . ( c ) adjustment for impact of adoption of fasb asc 853 - service concession arrangements in order to provide comparability to prior period results . these type of expenditures at our service fee operated facilities were historically capitalized prior to adoption of this new accounting standard effective january 1 , 2015 . ( d ) includes certain other items that are added back under the definition of adjusted ebitda in covanta energy llc 's credit agreement . 46 the following is a reconciliation of cash flow provided by operating activities to adjusted ebitda ( in millions ) : replace_table_token_28_th for additional discussion related to management 's use of non-gaap measures , see liquidity and capital resources — supplementary financial information — free cash flow ( non-gaap discussion ) below . business outlook in 2016 and beyond , we expect that our financial results will be affected by several factors , including : market prices , contract transitions , new contracts , organic growth and acquisitions , centralized metals processing and enhanced recovery , continuous improvement using lean six sigma concepts , and our ability to manage facility production and operating costs . in 2016 , the following specific factors are expected to impact our financial results as compared to 2015 : positive factors include : approximately $ 15 to $ 20 million impact from new business activities ; potential cost savings from our continuous improvement efforts ; approximately $ 10 million from favorable contract transitions ; and $ 25 million impact from the durham-york construction to commercial operations transition . negative factors include : $ 0 to $ 40 million lower anticipated market prices for electricity and recycled metals ; $ 30 to $ 35 million of increased incentive compensation expense ; and $ 20 to $ 25 million impact from our china asset swap due to the elimination of earnings contribution from the china investments . liquidity and capital resources our principal sources of liquidity are our cash and cash equivalents , cash flow generated from our ongoing operations , and available capacity under our revolving credit facility , which we believe will allow us to meet our liquidity needs . the following summarizes our key financing activities completed during the year ended december 31 , 2015 : in august 2015 , we issued two new series of fixed rate tax-exempt corporate bonds totaling $ 130 million . proceeds from the offerings were utilized to refinance $ 34 million of outstanding tax-exempt variable rate bonds related to project debt at our delaware valley facility and to fund certain capital improvements at our essex county facility . during 2015 , we fully utilized the 75 million dublin convertible preferred and subsequently the 50 million dublin junior term loan to fund construction costs of the dublin efw facility . during 2015 , we borrowed $ 15 million under equipment financing capital lease arrangements to purchase barges , rail cars , containers and intermodal equipment related to our contract with new york city . in april 2015 , our onondaga county client refinanced $ 42 million of outstanding project debt with $ 54 million of new tax-exempt bonds issued with a $ 5 million premium . the incremental proceeds were used to establish a $ 15 million restricted 47 cash fund to be used toward facility projects and to satisfy $ 2 million of transaction costs . the bonds bear interest from 1.75 % to 5.00 % and have scheduled annual payments with final maturity on may 1 , 2035. in april 2015 , we extended the termination date for a majority of our revolving credit facility to 2020 , reduced the applicable margin by 25 basis points , and reduced certain commitment fees payable on unused amounts . we also refinanced our previous $ 198 million term loan due 2019 with a new $ 200 million term loan
| results of operations the following general discussions should be read in conjunction with the consolidated financial statements , the notes to the consolidated financial statements and other financial information appearing and referred to elsewhere in this report . additional detail relating to changes in operating revenue and operating expense and the quantification of specific factors affecting or causing such changes , is provided in the segment discussion below . during the fourth quarter of 2013 , assets related to our development activities in the united kingdom met the criteria for classification as discontinued operations and as such all prior periods have been reclassified to conform to this presentation . see item 8. financial statements and supplementary data — note 4. dispositions , assets held for sale and discontinued operations for additional information . the comparability of the information provided below with respect to our revenue , expense and certain other items for periods during each of the years presented was affected by several factors . as outlined in item 8. financial statements and supplementary data — note 1. organization and summary of significant accounting policies and note 3. new business and asset management , our business development initiatives and acquisitions resulted in various transactions , which are reflected in comparative revenue and expense . these factors must be taken into account in developing meaningful comparisons between the periods compared below . the results of operations discussion below compares our revenue , expense and certain other items during each of the years presented for continuing operations . the following terms used within the results of operations discussion are defined as follows : “ same store ” : reflects the performance at each facility on a comparable period-over-period basis , excluding the impacts of transitions and transactions .
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as of march 7 , 2011 , we offered 26 brands of new vehicles and all brands of used vehicles in 82 stores in the united states and online at lithia.com . we sell new and used cars and light trucks , replacement parts , provide vehicle maintenance , warranty , paint and repair services and arrange related financing , service contracts , protection products and credit insurance . we continue to believe that the fragmented nature of the automotive dealership sector provides us with the opportunity to achieve growth through consolidation . we have completed over 100 acquisitions since our initial public offering in 1996. our acquisition strategy has been to acquire underperforming dealerships and , through the application of our centralized operating structure , leverage costs and improve store profitability . we believe the current economic environment provides us with attractive acquisition opportunities . we also believe that we can continue to improve operations at our existing stores . by promoting entrepreneurial leadership in our general manager position , we anticipate continuing improvement in the percentage of new vehicle sales we capture in our local markets . while we retail approximately one used vehicle for every new vehicle sold , we believe we can make additional improvements in our used vehicle sales performance by offering lower-priced value vehicles and selling brands other than the new vehicle franchise at each location . overall , organic growth through improved operations is a goal in 2011. we believe our cost structure is aligned with current industry sales levels . through initiatives started in the second quarter of 2008 , we have successfully established a cost structure which can be leveraged as vehicle sales levels improve . however , no assurances can be given that industry sales will not experience a further decline , or that our restructuring efforts were sufficient to meet our operating objectives in a declining market . critical accounting policies and estimates the preparation of financial statements in conformity with u.s. generally accepted accounting principles requires us to make certain estimates , judgments and assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities and reported amounts of revenues and expenses at the date of the financial statements . certain accounting policies require us to make difficult and subjective judgments on matters that are inherently uncertain . the following accounting policies involve critical accounting estimates because they are particularly dependent on assumptions made by management . while we have made our best estimates based on facts and circumstances available to us at the time , different estimates could have been used in the current period . changes in the accounting estimates we used are reasonably likely to occur from period to period , which may have a material impact on the presentation of our financial condition and results of operations . our most critical accounting estimates include those related to goodwill and franchise value , long-lived assets , deferred tax assets , service contracts and other insurance contracts , and lifetime oil change and self insurance programs . we also have other key accounting policies for valuation of accounts receivable , expense accruals and revenue recognition . however , these policies either do not meet the definition of critical accounting estimates described above or are not currently material items in our financial statements . we review our estimates , judgments and assumptions periodically and reflect the effects of revisions in the period that they are deemed to be necessary . we believe that these estimates are reasonable . however , actual results could differ materially from these estimates . 29 goodwill and franchise value we are required to test our goodwill and franchise value for impairment at least annually , or more frequently if conditions indicate that an impairment may have occurred . we have determined that we operate as one reporting unit for evaluating goodwill . for the goodwill impairment testing , we apply a fair-value based test using the adjusted present value method ( apv ) to indicate the fair value of our reporting unit . under the apv method , future cash flows are based on recently prepared budget forecasts and business plans to estimate the future economic benefits that the reporting unit will generate . an estimate of the appropriate discount rate is utilized to convert the future economic benefits to their present value equivalent . the goodwill impairment test is a two step process . the first step identifies potential impairments by comparing the calculated fair value of a reporting unit with its book value . if the fair value of the reporting unit exceeds the carrying amount , goodwill is not impaired and the second step is not necessary . if the carrying value exceeds the fair value , the second step includes determining the implied fair value through further market research . the implied fair value of goodwill is then compared with the carrying amount to determine if an impairment loss is recorded . as of december 31 , 2010 , we had $ 6.2 million of goodwill on our balance sheet . the first step of our annual goodwill impairment analysis , which we performed as of october 1 , 2010 , did not result in an indication of impairment . the fair value at december 31 , 2010 , using the apv method , was 54 % greater than the carrying value at december 31 , 2010. our impairment testing of goodwill in 2008 resulted in impairment charges of $ 299.3 million to fully write-off our goodwill , primarily due to the adverse change in the business climate and our reduced earnings and cash flow forecast . we did not have any goodwill on our balance sheet at december 31 , 2009. we have determined the appropriate unit of accounting for testing franchise rights for impairment is on an individual store basis . for the franchise value impairment testing , we estimate the fair value of our franchise rights primarily using the apv model . story_separator_special_tag if we are unable to meet the projected taxable income levels utilized in our analysis , and depending on the availability of feasible tax planning strategies , we might record a valuation allowance on a portion or all of our deferred tax assets in the future . in the event that a manufacturer is unable to remain solvent , our operations may be impacted and we might record a valuation allowance on a portion or all of the deferred tax assets , which could have a material adverse impact on our financial position and results of operations . service contract and other insurance contracts we receive commissions from the sale of vehicle service contracts and certain other insurance contracts . the contracts are sold through unrelated third parties , but we may be charged back for a portion of the commissions in the event of early termination of the contracts by customers . we sell these contracts on a straight commission basis ; in addition , we may also participate in future underwriting profit pursuant to retrospective commission arrangements , which are recognized as income upon receipt . we record commissions at the time of sale of the vehicles , net of an estimated liability for future charge-backs . we have established a reserve for estimated future charge-backs based on an analysis of historical charge-backs in conjunction with estimated lives of the applicable contracts . if future cancellations are different than expected , we could have additional expense or income related to the cancellations in future periods , which could have a material adverse impact on our financial position and results of operations . at december 31 , 2010 and 2009 , the reserve for future cancellations totaled $ 9.4 million and $ 10.3 million , respectively , and is included in accrued liabilities and other long-term liabilities on our consolidated balance sheets . a 10 % increase in expected cancellations would result in an additional reserve of approximately $ 1.0 million . lifetime oil change self-insurance in march 2009 , we assumed from a third party the obligation to provide future lifetime oil service for a pool of existing contracts and began to self-insure the majority of the lifetime oil contracts we sell . payments we receive upon sale of the lifetime oil contracts are deferred and recognized in revenue over the expected life of the service agreement to best match the expected timing of the costs to be incurred to perform the service . we estimate the timing and amount of future costs for claims and cancellations related to our lifetime oil contracts using historical experience rates and estimated future costs . if our estimates of future costs to perform under the contracts exceed the existing deferred revenue , we record a charge in the statement of operations . we perform our loss contingency analysis separately for the pool of assumed contracts and the pool of self-insured contracts sold starting in march 2009. we recorded a charge of $ 1.0 million and $ 1.4 million in 2010 and 2009 , respectively , for expected costs in excess of revenue deferred related to the pool of assumed contracts . we believe the new vehicle purchase cycle has been delayed for many buyers . if the ownership cycle does not accelerate towards pre-recession levels , our estimate of the number of oil changes to be performed over a vehicles life may require upward revisions , which may adversely affect our financial position and results of operations . in addition , other changes in assumptions about future costs expected to be incurred to service contracts could result in the recognition of additional charges , which could have a material adverse impact on our financial position and results of operations . 32 a 10 % change in expected claims costs per contract for the assumed pool of contracts would result in additional reserves of approximately $ 1.0 million . a 10 % change in expected claims per contract for the self-insured sold contracts would not require any reserve . at december 31 , 2010 and 2009 , the remaining deferred revenue related to the assumed obligation and the self-insured sold contracts was $ 7.5 million and $ 13.9 million , respectively . self insurance programs we self-insure a portion of our property and casualty insurance , medical insurance and workers ' compensation insurance . a third-party is engaged to estimate the loss exposure related to the self-retained portion of the risk associated with these insurances . additionally , we analyze our historical loss and claims experience to estimate the loss exposure associated with these programs . any changes in assumptions or claim experience could result in the recognition of additional charges , which could have a material adverse impact on our financial position and results of operations . at december 31 , 2010 and 2009 , the total reserve associated with these programs was $ 7.3 million and $ 3.2 million , respectively , and is included in accrued liabilities and other long-term liabilities on our consolidated balance sheets . a 10 % increase in claims experience would result in additional reserves of approximately $ 3.3 million . story_separator_special_tag style= '' font-family : times new roman '' > wholesale vehicle sales are typically done at or near inventory cost and do not comprise a meaningful component of our gross profit . we generated wholesale profit ( loss ) of $ 0.6 million , $ 0.4 million and $ ( 3.1 ) million in 2010 , 2009 and 2008 , respectively . 37 finance and insurance replace_table_token_10_th in 2010 , finance and insurance sales increased as we sold a greater number of new and used vehicles than in 2009 and had more opportunity to present our product offerings to consumers . additionally , banks returned to the auto finance market in 2010 , providing alternate financing options to customers that we had primarily shifted to credit unions in 2009. banks typically pay a higher commission for arranging retail automotive financing and our revenue per retail unit increased as a result .
| results of continuing operations for the year ended december 31 , 2010 , we reported income from continuing operations , net of tax , of $ 14.1 million , or $ 0.53 per diluted share . for the years ended december 31 , 2009 and 2008 , we reported income from continuing operations , net of tax , of $ 6.9 million , or $ 0.31 per diluted share , and net loss from continuing operations , net of tax , of $ 225.1 million , or $ 11.15 per diluted share , respectively . discontinued operations as a result of the restructuring we began in 2008 , we have sold or closed certain stores in 2008 , 2009 and 2010. results for sold or closed stores , qualifying for reclassification under the applicable accounting guidance , have their results presented as discontinued operations in our consolidated statements of operations . as a result , our results from continuing operations are presented on a comparable basis for all periods . within discontinued operations , we realized a net gain ( loss ) of $ ( 0.4 ) million , $ 2.2 million and $ ( 27.5 ) million for the years ended december 31 , 2010 , 2009 and 2008 , respectively . see notes 1 and 16 of notes to consolidated financial statements for additional information . 33 key performance metrics certain key performance metrics for revenue and gross profit were as follows for 2010 , 2009 and 2008 ( dollars in thousands ) : replace_table_token_6_th ( 1 ) commissions reported net of anticipated cancellations . same store operating data we believe that same store sales are a key indicator of our financial performance . same store metrics demonstrate our ability to grow our revenue and profitability in our existing locations . as a result , same store sales have been integrated into the discussion below .
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f-17 of the $ 0.9 million of acquired intangible assets , the following table reflects the allocation of the acquired intangible assets and related estimated useful lives : allocated fair value weighted average useful life ( in thousands ) patents $ 863 6.0 years customer and contract relationships 68 4.0 years total intangible assets $ 931 in a related transaction , on november 30 , 2010 , we entered into an asset purchase agreement and a transition agreement ( together , the edwards agreements ) , each with story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and the related notes contained elsewhere in this annual report on form 10-k and in our other securities and exchange commission filings . the following discussion may contain predictions , estimates , and other forward-looking statements that involve a number of risks and uncertainties , including those discussed under risk factors and elsewhere in this annual report on form 10-k. these risks could cause our actual results to differ materially from any future performance suggested below . overview we are a medical device company that develops , manufactures , and markets medical devices and implants for the treatment of peripheral vascular disease . our principal product offerings are sold throughout the world , primarily in the united states , the european union and , to a lesser extent , japan . we estimate that the annual worldwide market for all peripheral vascular devices approximates $ 3 billion , within which our core product lines address roughly $ 750 million . we have grown our business by using a three-pronged strategy : competing in niche markets , expanding our worldwide direct sales force , and acquiring and developing complementary vascular devices . we have used acquisitions as a primary means of further accessing the larger peripheral vascular device market , and we expect to continue to pursue this strategy in the future . additionally , we have increased our efforts to expand our vascular device offerings through new product development efforts . in 2011 , we introduced two new products to the market the second-generation unballoon modeling catheter and the over-the-wire valvulotome . we currently manufacture most of our product lines in our burlington , massachusetts , headquarters . our products are used by vascular surgeons who treat peripheral vascular disease through both open surgical methods and endovascular techniques . in contrast to interventional cardiologists and interventional radiologists , neither of whom are certified to perform open surgical procedures , vascular surgeons can perform both open surgical and minimally invasive endovascular procedures , and are therefore uniquely positioned to provide a wider range of treatment options to patients . below is a listing of our principal product lines and product categories : our open vascular product category includes our balloon catheters , carotid shunts , remote endarterectomy devices , valvulotomes , vascular grafts , and vessel closure systems . we also report the results of our distribution of the xenosure biologic patch in this category 44 our endovascular and other product category includes our aortic stent grafts , contrast injection device , laparoscopic cholecystectomy devices , non-occlusive modeling catheter , and radiopaque marking tape . we also report the results of our distribution of the endologix powerlink system within this category . we divested our aortic stent grafts in june 2011 and terminated our distribution of the endologix products in august 2011 , each of which was previously reported in this product category . we evaluate the sales performance of our various product lines utilizing criteria that varies based upon the position of each product line in its expected life cycle . for established products , we typically review unit sales and selling prices . for newer or faster growing products , we typically also focus upon new account generation and customer retention . to assist us in evaluating our business strategies , we regularly monitor long-term technology trends in the peripheral vascular device market . additionally , we consider the information obtained from discussions with the medical community in connection with the demand for our products , including potential new product launches . we also use this information to help determine our competitive position in the peripheral vascular device market and our manufacturing capacity requirements . our business opportunities include the following : the long-term growth of our sales force in north america , europe and japan , sometimes in connection with terminations of certain distributor relationships in order to expand our sales presence in new countries ; the addition of complementary products through acquisitions ; the updating of existing products and introduction of new products through research and development ; and the introduction of our products in new markets upon obtainment of regulatory approvals in these markets . we are currently pursuing each of these opportunities . we sell our products primarily through a direct sales force . as of december 31 , 2011 our sales force was comprised of 78 sales representatives in north america , the european union and japan . we also sell our products in other countries through distributors . our worldwide headquarters is located in burlington , massachusetts . our international operations are headquartered in sulzbach , germany . we also have sales offices located in tokyo , japan , madrid , spain , and milan , italy . in 2011 , approximately 93 % of our net sales were generated in markets in which we employ direct sales representatives . in recent years we have experienced comparatively greater success in product markets characterized by low or limited competition , for example the market for valvulotome devices . in these markets , we believe that we have been able to increase selling prices without compromising market share . there can be no assurance that we will not meet resistance to increased selling prices in the future . in contrast , we have experienced comparatively lesser success in highly competitive product markets such as such as prosthetic polyester and eptfe grafts , where we face stronger competition from larger companies with greater resources . story_separator_special_tag the following table indicates the impact of foreign currency fluctuations and changes to our business activities for each of our quarters during the three most recently completed fiscal years : replace_table_token_7_th ( 1 ) represents the impact of the change in foreign exchange rates compared to the corresponding quarter of the prior year based on the weighted average exchange rate for each quarter . ( 2 ) represents the impact of new sales of acquired products or businesses and newly distributed sales of other manufacturers ' during the current year period , measured for 12 months following the date of the event or transaction . ( 3 ) represents the impact of sales related to discontinued and divested products , and discontinued distributed sales of other manufacturers ' products , during the comparable prior period , measured for 12 months following the date of the event or transaction . upon our divestiture of the stent graft product lines , we reorganized our product categories from vascular , endovascular , and general surgery to open vascular and endovascular and other as we re-focused our portfolio and sales channel on open vascular products . our consolidated financial statements and the related management discussion and analysis for the years ended december 31 , 2011 , 2010 , and 2009 have been reclassified to reflect this change . net sales and expense components the following is a description of the primary components of our net sales and expenses : net sales . we derive our net sales from the sale of our products , less discounts and returns . net sales includes the shipping and handling fees paid for by our customers . most of our sales are generated by our direct sales force and are shipped and billed to hospitals or clinics throughout the world . in countries where we do not have a direct sales force , sales are primarily generated by shipments to distributors who , in turn , sell to hospitals and clinics . in those cases where our products are held on consignment at a hospital or clinic , we generate sales at the time the product is used in surgery rather than at shipment . 47 cost of sales . we manufacture nearly all of the products that we sell . our cost of sales consists primarily of manufacturing personnel , raw materials and components , depreciation of property and equipment , and other allocated manufacturing overhead , as well as freight expense we pay to ship products to customers . sales and marketing . our sales and marketing expense consists primarily of salaries , commissions , stock based compensation , travel and entertainment , attendance at medical society meetings , training programs , advertising and product promotions , direct mail , and other marketing costs . general and administrative . general and administrative expense consists primarily of executive , finance and human resource expense , stock based compensation , legal and accounting fees , information technology expense , intangible amortization expense , and insurance expense . research and development . research and development expense includes costs associated with the design , development , testing , enhancement , and regulatory approval of our products , principally salaries , laboratory testing , and supply costs . it also includes costs associated with design and execution of clinical studies , regulatory submissions and costs to register , maintain , and defend our intellectual property , and royalty payments associated with licensed and acquired intellectual property . restructuring . restructuring expense includes costs directly associated with distribution agreement termination expenses , severance and retention costs for terminated employees , factory relocation costs , and other expenses associated with restructuring our operations . other income ( expense ) . other income ( expense ) primarily includes interest income and expense , investment impairment charges , foreign currency gains ( losses ) , and other miscellaneous gains ( losses ) . income tax expense . we are subject to federal and state income taxes for earnings generated in the united states , which include operating losses in certain foreign jurisdictions for certain years depending on tax elections made , and foreign taxes on earnings of our wholly-owned german , french , italian , spanish , and japanese subsidiaries . our consolidated tax expense is affected by the mix of our taxable income ( loss ) in the united states , germany , france , italy , spain , and japan , permanent items , discrete items , unrecognized tax benefits , and amortization of goodwill for u.s tax reporting purposes . story_separator_special_tag million related to deferred rent charges upon exiting the biomateriali facility in march 2011. in march 2012 , we completed the biomateriali liquidation and dissolution process . in 2010 , we incurred a $ 1.8 million restructuring charge related to the closure of our biomateriali manufacturing facility in brindisi , italy , and the related transition of production to our existing corporate headquarters in burlington , massachusetts . the restructuring charge consisted of $ 1.4 million of employee-related severance charges , $ 0.3 million of charges associated with repayment of a development grant and loan from the italian government , and $ 0.1 million of charges related to the abandonment of fixed assets and legal fees . in may 2011 , we adopted a reorganization plan ( the lifespan plan ) that was designed to eliminate redundant costs resulting from our 2010 acquisition of the lifespan vascular graft and to improve efficiencies in our manufacturing operations . we have transitioned the production of our lifespan vascular graft from laguna hills , california to our existing corporate headquarters in burlington , massachusetts . the lifespan plan resulted in the termination of 7 employees at the laguna hills facility , relocation of manufacturing equipment , and the hiring of approximately 4 employees to staff the required functions in burlington .
| results of operations comparison of the year ended december 31 , 2011 , to the year ended december 31 , 2010 the following tables set forth , for the periods indicated , our results of operations and the change between the specified periods expressed as a percent increase or decrease : replace_table_token_8_th 48 net sales . net sales increased 3 % to $ 57.7 million in 2011 from $ 56.1 million in 2010. sales in our open vascular product category grew 11 % , while sales in our endovascular and other product category decreased by 17 % from the previous year . acquisitions , primarily the lifespan vascular graft , increased sales 2 % compared to 2010. divestitures , primarily of the taarget and unifit stent graft product lines as well as the termination of the endologix aortic stent graft distribution agreement , decreased sales 4 % from the prior year . changes in foreign currency exchange rates added 2 % to year over year sales growth . sales increases in 2011 were largely driven by higher average selling prices across nearly all product lines , as well as stronger sales of our open vascular products , primarily biologic patches of $ 0.9 million , catheters of $ 0.6 million and vessel closure systems of $ 0.5 million , in addition to full-year lifespan vascular graft sales and favorable changes in foreign currency exchange rates . these gains were partially offset by a $ 2.8 million decrease in our endovascular and other product category , primarily due to the decline of , and subsequent exit from , stent grafts , as well as unit decreases in a number of open vascular products . direct-to-hospital net sales were 93 % in 2011 and 2010. net sales by geography .
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in august 2016 , the fasb issued asu 2016-15 story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes to those statements included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . as a result of many important factors , including those set forth in the `` risk factors '' section of this annual report on form 10-k , our actual results could differ materially from the results described in , or implied , by these forward-looking statements . overview we are a medical device company focused on the development of implantable devices used in the surgical treatment of the sacropelvic anatomy . we have pioneered a proprietary minimally invasive surgical implant system , which we call ifuse , to fuse the sacroiliac joint to treat sacroiliac joint dysfunction , which often causes severe lower back pain . since we introduced ifuse in 2009 , as of december 31 , 2019 , more than 44,000 procedures have been performed by over 2,000 surgeons , in the u.s. and 35 other countries . we introduced our second-generation implant , the ifuse-3d , in 2017. this patented titanium implant combines the triangular cross-section of our first-generation ifuse implant with a proprietary 3d-printed porous surface and fenestrated design . in april 2019 , we received clearance from the u.s. food and drug administration ( `` fda '' ) , to promote the use of our ifuse system with the ifuse bedrock technique for fusion of the sacroiliac joint in conjunction with multi-level spinal fusion procedures to provide further stabilization and immobilization of the sacroiliac joint . we received ce marking and began marketing our ifuse system for the same indication in europe in december 2019. we market our products primarily with a direct sales force as well as a number of distributors in the u.s. , and with a combination of a direct sales force and distributors in other countries . in october 2018 , we completed our initial public offering ( `` ipo '' ) by issuing 8,280,000 shares of common stock , at an offering price of $ 15.00 per share , for net proceeds of $ 113.4 million after deducting underwriting discounts and commissions and offering expenses payable by us . in january 2020 , we received $ 50.3 million of net proceeds , after deducting the underwriting discounts and commissions but before offering expenses , from our public offering of 4,300,000 shares of our common stock , of which 2,490,053 shares were offered and sold by us . further , in february 2020 , the underwriters fully exercised its option to purchase 645,000 shares of our common stock at a public offering price of $ 21.50 per share for an additional net proceeds of $ 13.0 million to us , after deducting the underwriting discounts and commissions . for more information regarding this subsequent public offering , refer to item 8. financial statements and supplementary data , “ note 14 - subsequent events ” in the accompanying notes to consolidated financial statements . factors affecting results of operations and key performance indicators we monitor certain key performance indicators that we believe provides us and our investors indications of conditions that may affect results of our operations . our revenue growth rate and commercial progress is impacted by , among others , our key performance indicators including our ability to expand our sales force , increase surgeon activity , engage key opinion leaders and influence coverage and reimbursements . expanding our sales force we made significant investments in our sales force . as of december 31 , 2019 , our u.s. sales force consisted of 56 territory sales managers directly employed by us and 37 third-party distributors , compared to 45 territory sales managers directly employed by us and 30 third-party distributors as of december 31 , 2018 . as of december 31 , 2019 , our international sales force consisted of 19 sales representatives directly employed by us and 27 exclusive third-party distributors , compared to 14 sales representatives directly employed by us and 23 exclusive third-party distributors as of december 31 , 2018 . we anticipate continuing to build our operations in the major european countries while establishing distributor arrangements in smaller ones . we believe that our expanded field organization allows us to reach more surgeons , educating them to include the sacroiliac joint in their differential diagnosis of lower back pain and to regularly perform the ifuse procedure for patients for whom the procedure is indicated . 59 increasing surgeon activity we grew our active surgeon base to 539 surgeons as of december 31 , 2019 , compared to 450 active surgeons as of december 31 , 2018 . we define an active surgeon to be a surgeon who has performed at least one case in the last three months . the increase in active surgeons is primarily due to training of additional surgeons throughout the year . we have several surgeon trainer consultants who train new surgeons , focusing on diagnosis and treatment . as of december 31 , 2019 , approximately 1,400 surgeons in the u.s. have been trained on ifuse and have treated at least one patient . we will continue to pursue the remainder of the approximately 7,500 target surgeons in the u.s. for training in the future . engaging key opinion leaders we conduct training courses in several academic centers in the u.s. we are seeing interest from key opinion leaders at academic centers in our bedrock technique . we introduced this technique in june 2019 for use in the fusion of the sacroiliac joints in conjunction with a multi-segment spinal fusion , or long construct , procedure . story_separator_special_tag in addition , our sales and marketing expenses include commissions and bonuses , generally based on a percentage of sales , to our senior sales management , direct territory sales managers , territory associate representatives and third-party distributors . we expect our sales and marketing expenses to increase with the continued commercialization of our current and future products and continued investment in our global sales organization , including broadening our relationships with third-party distributors , expanding exclusivity commitments among them and increasing the number of our direct sales representatives , especially with increased reimbursement and adoption in the u.s. our sales and marketing expenses may fluctuate from period to period due to the seasonality of our business and as we continue to add direct territory sales managers in new territories . research and development expenses our research and development expenses primarily consist of engineering , product development , clinical and regulatory expenses ( including clinical study expenses ) , and consulting services , outside prototyping services , outside research activities , materials , depreciation , and other costs associated with development of our products . research and development expenses also include related personnel and consultants ' compensation and stock-based compensation expense . we expense research and development costs as they are incurred . we expect research and development expense to increase as we develop new products , add research and development personnel , and undergo clinical activities , including more clinical studies to gain additional regulatory clearances and wider surgeon adoption . general and administrative expenses general and administrative expenses primarily consist of salaries , stock-based compensation expense , and other costs for finance , accounting , legal , compliance , and administrative matters . we expect our general and administrative expenses to increase to support the growth of our business . we also expect to incur additional general and administrative expenses as a result of operating as a public company , including but not limited to : expenses related to compliance with the rules and regulations of the securities and exchange commission and those of the nasdaq global market on which our securities are traded ; additional insurance expenses ; investor relations activities ; and other administrative and professional services . 61 interest income interest income is primarily related to our investments of excess cash in money market funds and marketable securities . interest expense interest expense is primarily related to borrowings and amortization of debt issuance costs . prior to our initial public offering , interest expense also included the amortization of debt discounts derived from the issuance of warrants . other income ( expense ) , net other income ( expense ) , net consists primarily of net foreign exchange gains ( losses ) on foreign transactions . prior to our initial public offering , other income ( expense ) , net included changes in fair value of our preferred stock warrant liability . in connection with our ipo , our preferred stock warrant liability was reclassified to equity upon conversion of preferred stock warrants to common stock warrants . story_separator_special_tag ; '' > $ 63.4 million of net proceeds after deducting underwriting discounts and commissions but before offering expenses , from a follow-on public offering of our common stock , including the underwriters ' full exercise its option to purchase additional shares of our common stock . for more information regarding subsequent public offering , refer to item 8. financial statements and supplementary data , “ note 14 - subsequent events ” in the accompanying notes to consolidated financial statements . as of december 31 , 2019 , we had an accumulated deficit of $ 195.6 million . during the years ended december 31 , 2019 and 2018 , we incurred a net loss of $ 38.4 million and $ 17.5 million , respectively , and expect to incur additional losses in the future . we have not achieved positive cash flow from operations to date . as of december 31 , 2019 and 2018 , we had $ 39.2 million and $ 39.0 million , respectively , principal amount of outstanding debt , net of debt issuance costs . the debt covenants associated with our current debt agreement require us to maintain a minimum cash balance and meet either minimum net sales or trailing 12-month consolidated earnings before interest , taxes , depreciation , and amortization ( `` ebitda '' ) targets as discussed in detail below . if we do not comply with these covenants , the debt will immediately become due . based upon our current operating plan , we believe that our existing cash , cash equivalents and short-term investments will enable us to fund our operating expenses and capital expenditure requirements through at least the next 12 months . we continue to face challenges and uncertainties and , as a result , our available capital resources may be consumed more rapidly than currently expected due to : ( a ) decreases in sales of our products and the uncertainty of future revenues from new products ; ( b ) changes we may make to the business that affect ongoing operating expenses ; ( c ) changes we may make in our business strategy ; ( d ) regulatory developments affecting our existing products ; ( e ) changes we may make in our research and development spending plans ; and ( f ) other items affecting our forecasted level of expenditures and use of cash resources . if we need to raise additional capital to fund our operations , funding may not be available to us on acceptable terms , or at all . if we are unable to obtain adequate financing when needed , we may have to delay , reduce the scope of or suspend one or more of our sales and marketing efforts , research and development activities , or other operations . we may seek to raise any necessary additional capital through a combination of public or private equity offerings , debt financings , and collaborations or licensing arrangements .
| results of operations we manage and operate as one reportable segment . the table below summarizes our results of operations for the periods presented ( percentages are amounts as a percentage of revenue ) , which we derived from the accompanying consolidated financial statements : replace_table_token_0_th we derive the majority of our revenue from sales to customers in the u.s. revenue by geography is based on billing address of the customer . no single country outside the u.s. accounts for more than 10 % of the total revenue during the periods presented . the table below summarizes our revenue by geography : replace_table_token_1_th 62 comparison of the years ended december 31 , 2019 and 2018 revenue , cost of goods sold , gross profit , and gross margin : replace_table_token_2_th revenue . revenue increased $ 11.9 million , or 22 % , for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 . this is primarily due to an increase of $ 11.7 million from growth of u.s. revenue due to the hiring of more sales force and training of new surgeons resulting to increased case volumes . our international sales also increased $ 0.2 million for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 mainly due to increased case volumes . cost of goods sold , gross profit , and gross margin . total cost of goods sold increased $ 2.0 million , or 40 % , for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 . the increase was primarily due to higher sales volumes . higher net revenue resulted in increased gross profit of $ 10.0 million , or 20 % .
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overview recall acquisition on may 2 , 2016 ( sydney , australia time ) , we completed the recall transaction . at the closing of the recall transaction , we paid approximately $ 331.8 million in cash and issued approximately 50.2 million shares of our common stock which , based on the closing price of our common stock as of april 29 , 2016 ( the last day of trading on the nyse prior to the closing of the recall transaction ) of $ 36.53 per share , resulted in a total purchase price to recall shareholders of approximately $ 2,166.9 million . we account for acquisitions using the acquisition method of accounting , and , accordingly , the assets and liabilities acquired are recorded at their estimated fair values and the results of operations for each acquisition have been included in our consolidated results from their respective acquisition dates . with respect to the acquisition of recall , the results of operations of recall have been included in our consolidated results from may 2 , 2016. see note 6 to notes to consolidated financial statements included in this annual report for unaudited pro forma results of operations for us and recall , as if the recall transaction was completed on january 1 , 2015 , for the years ended december 31 , 2015 and 2016 , respectively . we currently estimate total acquisition and integration expenditures associated with the recall transaction to be approximately $ 380.0 million , the majority of which is expected to be incurred by the end of 2018. this amount consists of ( i ) approximately $ 80.0 million of operating expenditures to complete the recall transaction , including advisory and professional fees and costs to complete the divestments ( as defined in note 6 to notes to consolidated financial statements included in this annual report ) required in connection with receipt of regulatory approval and to provide transitional services required to support the divested businesses during a transition period ( “ recall deal close & divestment costs ” ) and ( ii ) approximately $ 300.0 million of integration expenditures , including operating expenditures associated with moving , severance , facility upgrade , reit conversion and system upgrade costs ( “ recall integration costs ” and , collectively with recall deal close & divestment costs , “ recall costs ” ) and capital expenditures to integrate recall with our existing operations . from january 1 , 2015 through december 31 , 2016 , we have incurred cumulative operating and capital expenditures associated with the recall transaction of $ 197.4 million , including $ 179.0 million of recall costs and $ 18.4 million of capital expenditures . see note 16 to notes to consolidated financial statements included in this annual report for more information on recall costs , including costs recorded by segment as well as recorded between cost of sales and selling , general and administrative expenses . divestitures i. divestments associated with the recall transaction as disclosed in note 6 to notes to consolidated financial statements included in this annual report , we sought regulatory approval of the recall transaction and , as part of the regulatory approval process , we agreed to make the divestments . the initial united states divestments , the seattle/atlanta divestments , the recall canadian divestments and the uk divestments ( each as defined in note 6 to notes to consolidated financial statements included in this annual report ) ( collectively , the `` recall divestments '' ) meet the criteria to be reported as discontinued operations as the recall divestments met the criteria to be reported as assets and liabilities held for sale at , or within a short period of time following , the closing of the recall transaction . accordingly , the results of operations for the recall divestments are presented as a component of discontinued operations in our consolidated statement of operations and the cash flows associated with the recall divestments are presented as a component of cash flows from discontinued operations in our consolidated statement of cash flows for the year ended december 31 , 2016 . 33 the australia divestment business and the iron mountain canadian divestments ( each as defined in note 6 to notes to consolidated financial statements included in this annual report ) ( collectively , the `` iron mountain divestments '' ) do not meet the criteria to be reported as discontinued operations as our decision to divest the iron mountain divestments does not represent a strategic shift that will have a major effect on our operations and financial results . accordingly , the results of operations for the iron mountain divestments are presented as a component of income ( loss ) from continuing operations in our consolidated statements of operations for the years ended december 31 , 2014 , 2015 and 2016 and the cash flows associated with the iron mountain divestments are presented as a component of cash flows from continuing operations in our consolidated statements of cash flows for the years ended december 31 , 2014 , 2015 and 2016. the australia divestment business represents approximately $ 65.0 million and $ 44.0 million of total revenues and approximately $ 5.8 million and $ 1.1 million of total income from continuing operations for the years ended december 31 , 2015 and 2016 , respectively . the iron mountain canadian divestments represent approximately $ 2.7 million of total revenues and approximately $ 1.5 million of total income from continuing operations for each of the years ended december 31 , 2015 and 2016 , respectively . the australia divestment business was previously included in our other international business segment and the iron mountain canadian divestments were previously included in our north american records and information management business segment . see note 14 to notes to consolidated financial statements included in this annual report for additional information regarding the presentation of the divestments in our consolidated statements of operations and consolidated statements of cash flows for the years ended december 31 , 2014 , 2015 and 2016. ii . story_separator_special_tag selling , general and administrative expenses consist primarily of wages and benefits for management , administrative , information technology , sales , account management and marketing personnel , as well as expenses related to communications and data processing , travel , professional fees , bad debts , training , office equipment and supplies . trends in facility occupancy costs are impacted by the total number of facilities we occupy , the mix of properties we own versus properties we occupy under operating leases , fluctuations in per square foot occupancy costs , and the levels of utilization of these properties . trends in total wages and benefits in dollars and as a percentage of total consolidated revenue are influenced by changes in headcount and compensation levels , achievement of incentive compensation targets , workforce productivity and variability in costs associated with medical insurance and workers ' compensation . the expansion of our international businesses has impacted the major cost of sales components and selling , general and administrative expenses . our international operations are more labor intensive than our operations in north america and , therefore , labor costs are a higher percentage of international segment revenue . in addition , the overhead structure of our expanding international operations has not achieved the same level of overhead leverage as our north american segments , which may result in an increase in selling , general and administrative expenses , as a percentage of consolidated revenue , as our international operations become a more meaningful percentage of our consolidated results . our depreciation and amortization charges result primarily from the capital-intensive nature of our business . the principal components of depreciation relate to storage systems , which include racking structures , buildings , building and leasehold improvements and computer systems hardware and software . amortization relates primarily to customer relationship intangible assets . both depreciation and amortization are impacted by the timing of acquisitions . 36 our consolidated revenues and expenses are subject to variations caused by the net effect of foreign currency translation incurred by our entities outside the united states . it is difficult to predict the future fluctuations of foreign currency exchange rates and how those fluctuations will impact our consolidated statements of operations . as a result of the relative size of our international operations , these fluctuations may be material on individual balances . our revenues and expenses from our international operations are generally denominated in the local currency of the country in which they are derived or incurred . therefore , the impact of currency fluctuations on our operating income and operating margin is partially mitigated . in order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations , we compare the percentage change in the results from one period to another period in this report using constant currency presentation . the constant currency growth rates are calculated by translating the 2014 results at the 2015 average exchange rates and the 2015 results at the 2016 average exchange rates . constant currency growth rates are a non-gaap measure . the following table is a comparison of underlying average exchange rates of the foreign currencies that had the most significant impact on our united states dollar-reported revenues and expenses : replace_table_token_14_th replace_table_token_15_th 37 non-gaap measures adjusted ebitda adjusted ebitda is defined as income ( loss ) from continuing operations before interest expense , net , provision ( benefit ) for income taxes , depreciation and amortization , and also excludes certain items that we believe are not indicative of our core operating results , specifically : ( i ) loss ( gain ) on disposal/write-down of property , plant and equipment ( excluding real estate ) , net ; ( ii ) intangible impairments ; ( iii ) other expense ( income ) , net ; ( iv ) gain on sale of real estate , net of tax ; ( v ) recall costs ; and ( vi ) reit costs ( as defined below ) . adjusted ebitda margin is calculated by dividing adjusted ebitda by total revenues . we use multiples of current or projected adjusted ebitda in conjunction with our discounted cash flow models to determine our estimated overall enterprise valuation and to evaluate acquisition targets . we believe adjusted ebitda and adjusted ebitda margin provide our current and potential investors with relevant and useful information regarding our ability to generate cash flow to support business investment . these measures are an integral part of the internal reporting system we use to assess and evaluate the operating performance of our business . adjusted ebitda excludes both interest expense , net and the provision ( benefit ) for income taxes . these expenses are associated with our capitalization and tax structures , which we do not consider when evaluating the operating profitability of our core operations . finally , adjusted ebitda does not include depreciation and amortization expenses , in order to eliminate the impact of capital investments , which we evaluate by comparing capital expenditures to incremental revenue generated and as a percentage of total revenues . adjusted ebitda and adjusted ebitda margin should be considered in addition to , but not as a substitute for , other measures of financial performance reported in accordance with accounting principles generally accepted in the united states of america ( `` gaap '' ) , such as operating income , income ( loss ) from continuing operations , net income ( loss ) or cash flows from operating activities from continuing operations ( as determined in accordance with gaap ) . reconciliation of income ( loss ) from continuing operations to adjusted ebitda ( in thousands ) : replace_table_token_16_th _ ( 1 ) includes costs associated with our conversion to a reit , excluding reit compliance costs beginning january 1 , 2014 ( `` reit costs '' ) .
| results of operations comparison of year ended december 31 , 2016 to year ended december 31 , 2015 and comparison of year ended december 31 , 2015 to year ended december 31 , 2014 ( in thousands ) : replace_table_token_19_th replace_table_token_20_th _ ( 1 ) see `` non-gaap measures—adjusted ebitda '' in this annual report for the definition , reconciliation and a discussion of why we believe these measures provide relevant and useful information to our current and potential investors . 46 revenues replace_table_token_21_th replace_table_token_22_th _ ( 1 ) constant currency growth rates are calculated by translating the 2015 results at the 2016 average exchange rates and the 2014 results at the 2015 average exchange rates . ( 2 ) our internal revenue growth rate , which is a non-gaap measure , represents the weighted average year-over-year growth rate of our revenues excluding the impact of business acquisitions , divestitures and foreign currency exchange rate fluctuations . the revenues generated by recall have been integrated with our existing revenues and it is impracticable for us to determine actual recall revenue contribution for the applicable periods . therefore , our internal revenue growth rates exclude the impact of revenues associated with the recall transaction based upon forecasted or budgeted recall revenues beginning in the third quarter of 2016. our internal revenue growth rate includes the impact of acquisitions of customer relationships . storage rental revenues consolidated storage rental revenues increased $ 305.0 million , or 16.6 % , to $ 2,142.9 million for the year ended december 31 , 2016 from $ 1,837.9 million for the year ended december 31 , 2015 . in the year ended december 31 , 2016 , the net impact of acquisitions/divestitures and consolidated internal storage rental revenue growth were partially offset by unfavorable fluctuations in foreign currency exchange rates compared to the year ended december 31 , 2015 .
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the revolving credit facilities story_separator_special_tag overview correction of prior period financial data as discussed further in notes 15 and 17 the company corrected an immaterial computational error that understated revenue in 2017 and the first 9 months of 2018. in 2018 and 2017 , net income was $ 65.6 million and $ 72.9 million , respectively . diluted earnings per share decreased $ 0.16 to $ 1.36 or 10.5 % from 2017 to 2018. the $ 7.3 million decrease in net income was driven primarily by a $ 6.9 million reduction in revenue due to the cal water cost of capital decision and a $ 5.0 million increase in new business development expenses . in addition , increases in depreciation and amortization expense of $ 7.0 million , labor costs of $ 3.9 million , maintenance costs of $ 2.0 million , property tax expenses of $ 2.5 million , and interest expense of $ 3.9 million also decreased net income . these factors were partially offset by rate increases of $ 20.3 million , a california public utilities commission ( cpuc ) authorization to recover $ 3.3 million of 2016 and 2017 incremental drought program costs , and a $ 16.7 million decrease in income taxes due to a decrease in pre-tax income , reduction in the federal income tax rate , and increase in tax benefits from “ repairs ” deductions . also , there were other changes driven by factors outside the company 's immediate control that decreased net income , including a $ 5.4 million reduction in unrealized income from certain benefit plan investments due to market conditions , a $ 0.9 million reduction in unbilled revenue accrual , and a $ 0.6 million decrease in gain on sale of property that was partially offset by a $ 1.1 million benefit from company-owned life insurance . in 2017 and 2016 , net income was $ 72.9 million and $ 48.7 million , respectively . diluted earnings per share increased $ 0.51 to $ 1.52 or 50.5 % from 2016 to 2017. the $ 24.2 million increase in net income was primarily the result of increased rates adopted in the recent california grc , a decrease in other operations expense , which included a grc settlement agreement to write-off $ 3.2 million associated with a canceled water supply project in bakersfield in 2016 , and a $ 2.5 million increase in estimated unbilled revenue in 2017. these increases to net income were partially offset by increases in depreciation and amortization , employee wage , property tax , and net interest expenses . net other loss decreased $ 3.3 million to $ 0.2 million in 2017 , due primarily to the authorization of allowance for equity funds used during construction and unrealized gains on certain benefit plan investments . we plan to continue to seek rate relief to recover our operating cost increases and receive reasonable returns on invested capital . we expect to fund our long-term capital needs through a combination of debt , common stock offerings , and cash flow from operations . critical accounting policies and estimates we maintain our accounting records in accordance with accounting principles generally accepted in the united states of america and as directed by the commissions to which our operations are subject . the process of preparing financial statements requires the use of estimates on the part of management . the estimates used by management are based on historic experience and an understanding of current facts and circumstances . a summary of our significant accounting policies is listed in note 2 of the notes to consolidated financial statements . the following sections describe those policies where the level of subjectivity , judgment , and variability of estimates could have a material impact on the financial condition , operating performance , and cash flows of the business . revenue recognition revenue from contracts with customers the company principally generates operating revenue from contracts with customers by providing regulated water and wastewater services at tariff-rates authorized by the commissions in the states in which they operate and non-regulated water and wastewater services at rates authorized by contracts with government agencies . revenue from contracts with customers reflects amounts billed for the volume of consumption at authorized per unit rates , for a service charge , and for other authorized charges . the company satisfies its performance obligation to provide water and wastewater services over time as services are rendered . the company applies the invoice practical expedient and recognizes revenue from contracts with customers in the amount for which the company has a right to invoice . the company has a right to invoice for the volume of consumption , for the service charge , and for other authorized charges . the measurement of sales to customers is generally based on the reading of their meters , which occurs on a systematic basis throughout the month . at the end of each month , the company estimates consumption since the date of the last meter 32 reading and a corresponding unbilled revenue is recognized . the estimate is based upon the number of unbilled days that month and the average daily customer billing rate from the previous month ( which fluctuates based upon customer usage ) . contract terms are generally short-term and at will by customers and , as a result , no separate financing component is recognized for the company 's collections from customers , which generally require payment within 30 days of billing . the company applies judgment , based principally on historical payment experience , in estimating its customers ' ability to pay . certain customers are not billed for volumetric consumption , but are instead billed a flat rate at the beginning of each monthly service period . the amount billed is initially deferred and subsequently recognized over the monthly service period , as the performance obligation is satisfied . the deferred revenue balance , which is included in `` other accrued liabilities '' on the consolidated balance sheets , is inconsequential . story_separator_special_tag different estimates used by our management could result in significant variances in the cost recognized for pension and postretirement health care benefit plans . the estimates used are based on historical experience , current facts , future expectations , and recommendations from independent advisors and actuaries . we use an investment advisor to provide advice in managing the plan 's investments . we anticipate any increases in funding for the pension benefits plans will be recovered in future rate filings , thereby mitigating the financial impact . we believe it is probable that future costs will be recovered in future rates and therefore have recorded a regulatory asset in accordance with generally accepted accounting principles . changes to the pension benefits actuarial assumptions can significantly affect pension costs , regulatory assets , and liabilities . the following table reflects the sensitivity of pension amounts reported for the year ended december 31 , 2018 , to changes in actuarial assumptions : replace_table_token_6_th 34 story_separator_special_tag increased $ 2.2 million , or 7.7 % , mainly due to 2.5 % increase in water production . in 2017 , purchased power expenses increased $ 1.7 million , or 6.2 % , mainly due to 5.4 % increase in well water production . changes in climate change regulations could increase the cost of power which in turn would result in an increase in the rates our power suppliers charge us . any change in pricing of our purchased power expenses in california would be recovered from our customers through the mcba mechanism . any change in power costs in other states would be requested to be recovered by the customers in those states . the impact of such legislation , is dependent upon the enacted date , the factors that impact our suppliers cost structure , and their ability to pass the costs to us in their approved tariffs . these items are not known at this time . administrative and general expenses administrative and general expenses include payroll related to administrative and general functions , all employee benefits charged to expense accounts , insurance expenses , legal fees , expenses associated with being a public company , and general corporate expenses . during 2018 , administrative and general expenses increased $ 7.5 million or 8.0 % , as compared to 2017. the increase was mostly due to increases in employee pension costs of $ 3.5 million , employee and retiree medical expenses of $ 2.7 million , employee wage increases of $ 0.8 million , consulting and outside service cost increases of $ 2.6 million . these costs increases were partially offset by cpuc authorization to recover $ 2.6 million of 2016 and 2017 drought program costs . employee pension benefit expenses are fully recovered in rates and are tracked in a balancing account , such that revenues are recovered on a dollar-for-dollar basis up to the amounts authorized in the 2015 grc . employee and retiree medical expenses are recovered in rates through a balancing account authorized in the 2015 grc , such that revenues are recovered up to 85 % of the variance between adopted and recorded expenses . during 2017 , administrative and general expenses increased $ 5.7 million or 6.5 % , as compared to 2016. the increase was mostly due to increases in uninsured loss costs of $ 1.5 million , employee wages of $ 1.8 million , and employee pension and other postretirement benefit costs of $ 0.7 million . employee pension benefit expenses are fully recovered in rates and are tracked in a balancing account , such that revenues are recovered on a dollar-for-dollar basis up to the amounts authorized in the 2015 grc . employee and retiree medical expenses are recovered in rates through a balancing account authorized in the 2015 grc , such that revenues are recovered up to 85 % of the variance between adopted and recorded expenses . 36 other operations expenses the components of other operations expenses include payroll , material and supplies , and contract service costs of operating the regulated water systems , including the costs associated with water transmission and distribution , pumping , water quality , meter reading , billing , operations of district offices , and water conservation programs . during 2018 , other operations expenses increased $ 5.4 million , or 7.3 % , compared to 2017. the increase was mostly due to increases in costs associated with the deferral of operating revenue of $ 4.9 million , employee wage increases of $ 2.0 million , district office maintenance and landscaping expense increases of $ 0.7 million , and bacterial lab cost increases of $ 0.6 million . these costs increases were partially offset by a decrease in conservation program expenses of $ 2.2 million and cpuc authorization to recover $ 0.7 million of 2016 and 2017 drought program costs . conservation program expenses are fully recovered in rates and are tracked in a balancing account if it is within the authorized amount , such that revenues are recovered on a dollar-for-dollar basis up to the amounts authorized in the 2015 grc . during 2017 , other operations expenses decreased $ 5.6 million , or 7.0 % , compared to 2016. the decrease was mostly due to conservation program expense decreases of $ 4.3 million , the write-off of $ 3.2 million of capital costs in 2016 , and $ 2.0 million of mcba cost deferral associated with the deferral of operating revenue . the decreases were partially offset by employee wage increases of $ 1.3 million , the write-off of $ 1.1 million of costs in 2017 that were previously capitalized , state of department of public health fee increase of $ 0.7 million , and a software maintenance and licensing cost increase of $ 0.7 million . conservation program expenses are fully recovered in rates and are tracked in a balancing account if it is within the authorized amount , such that revenues are recovered on a dollar-for-dollar basis up to the amounts authorized in the 2015 grc .
| results of operations operating revenue operating revenue in 2018 was $ 698.2 million , an increase of $ 22.1 million , or 3.3 % , over 2017. operating revenue in 2017 was $ 676.1 million , an increase of $ 66.7 million , or 11.0 % , over 2016. the sources of changes in operating revenue were : replace_table_token_7_th _ ( 1 ) in 2018 , the operating revenue increase is due to rate increases , which increase wram and service charges ( see table in rates and regulation section below ) . in 2017 , the operating revenue increase is due to rate increases , which increase wram and service charges ( see table in rates and regulation section below ) and an increase of $ 2.5 million in estimated unbilled revenue mostly due to a combination of higher average daily customer billing rates and an increase in unbilled days at the end of 2017 as compared to 2016 . ( 2 ) the mcba revenue increase in 2018 resulted from an increase in actual water production costs relative to adopted water production costs in 2018 as compared to 2017. the mcba revenue increase in 2017 resulted from an increase in actual water production costs relative to adopted water production costs in 2017 as compared to 2016. as required by the mcba mechanism , the change in water production costs in california changes operating revenue in the same amount . ( 3 ) the other balancing accounts revenue consists of the pension , conservation and health care balancing account revenues . pension and conservation balancing account revenues are the differences between actual expenses and adopted rate recovery . health care balancing account revenue is 85 % of the difference between actual health care expenses and adopted rate recovery .
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( `` wyse `` ) in exchange for approximately $ 13 million in cash , plus related acquisition costs . wyse was a developer and provider of point of sale software specifically designed for the hospitality market in brazil , and their results have been reported within our hospitality segment since the date of the acquisition . hospitality reseller acquisitions during 2012 , the company acquired the assets of six of its domestic hospitality resellers in separate transactions for aggregate cash consideration of approximately $ 17 million , plus related acquisition costs . acquisition of transoft , inc. on september 7 , 2012 , the company acquired substantially all of the assets of transoft , inc. in exchange for approximately $ 40 million in cash , plus related acquisition costs , of which the company will recognize $ 7 million as compensation expense included within selling , general and administrative expenses over a period of two years from the acquisition date . transoft , inc. was a global leader in cash management software for financial institutions , and their results have been reported within our financial services segment since the date of the acquisition . acquisition of ugenius technology , inc. on , december 31 , 2012 , the company story_separator_special_tag business overview ncr corporation is a leading global technology company that provides innovative products and services that enable businesses to connect , interact and transact with their customers and enhance their customer relationships by addressing consumer demand for convenience , value and individual service . our portfolio of self-service and assisted-service solutions serve customers in the financial services , retail , hospitality , travel , and telecommunications and technology industries and include automated teller machines ( atms ) , self-service kiosks and point of sale devices , as well as software applications that can be used by consumers to enable them to interact with businesses from their computer or mobile device . we also complement these product solutions by offering a complete portfolio of services that support both ncr and third party solutions . we also resell third-party networking products and provide related service offerings in the telecommunications and technology sectors . we have four operating segments : financial services , retail solutions , hospitality and emerging industries . each of our lines of business derives its revenues by selling products and services in each of the sales theaters in which ncr operates . our solutions are based on a foundation of long-established industry knowledge and consulting expertise , value-added software , hardware technology , global customer support services , and a complete line of business consumables and specialty media products . ncr 's reputation is founded upon over 128 years of providing quality products , services and solutions to our customers . at the heart of our customer and other business relationships is a commitment to acting responsibly , ethically and with the highest level of integrity . this commitment is reflected in ncr 's code of conduct , which is available on the corporate governance page of our website . 2012 overview as more fully discussed in later sections of this md & a , the following were significant themes and events for 2012 : revenue growth of approximately 8 % compared to full year 2011 gross margin improvement of approximately 120 basis points compared to full year 2011 continued realization of the benefits of our cost reduction initiatives continued growth of higher margin software and services offerings and improvements in revenue mix completion of phase two of our pension strategy completion of the offering of $ 600 million aggregate principal amount of 5.00 % senior unsecured notes due in 2022 , and $ 500 million aggregate principal amount of 4.625 % senior notes due in 2021 entered into a definitive agreement and plan of merger to acquire retalix ltd. for a cash purchase price of approximately $ 800 million completion of the disposition of our entertainment business to redbox automated retail , llc for cash consideration of $ 100 million overview of strategic initiatives we have a focused and consistent business strategy targeted at revenue growth , gross margin expansion and improved customer loyalty . to execute this strategy , we identified three key imperatives that aligned with our financial objectives for 2012 and beyond : deliver disruptive innovation ; focus on migrating our revenue to higher margin software and services revenue ; and more fully enable our sales force with a consultative selling model that better leverage the innovation we are bringing to the market . our strategy , on which we will remain focused in 2013 , is summarized in more detail below : gain profitable share - we seek to optimize our investments in demand creation to increase ncr 's market share in areas with the greatest potential for profitable growth , which include opportunities in self-service technologies with our core financial services , retail , and hospitality customers as well as the shift of our business model to focus on growth of higher margin software and services . we focus on expanding our presence in our core industries , while seeking additional growth by : ◦ penetrating market adjacencies in single and multi-channel self-service segments ; ◦ expanding and strengthening our geographic presence and sales coverage across customer tiers through use of the indirect channel ; and ◦ leveraging ncr services and consumables solutions to grow our share of customer revenue , improve customer retention , and deliver increased value to our customers . expand into emerging growth industry segments - we are focused on broadening the scope of our self-service solutions from our existing customers to expand these solution offerings to customers in newer industry-vertical markets including telecommunications and technology as well as travel and gaming . we expect to grow our business in these industries through integrated service offerings in addition to targeted acquisitions and strategic partnerships . story_separator_special_tag in 2010 , selling , general , and administrative expenses included $ 67 million of pension costs , $ 18 million of incremental costs related to the relocation of our worldwide headquarters and $ 8 million related to a litigation charge offset by a $ 6 million gain related to the sale of an office building in france . after considering these items , selling , general , and administrative expenses slightly increased as a percentage of revenue to 12.9 % in 2011 from 12.7 % in 2010 . research and development expenses research and development expenses increased $ 43 million to $ 219 million in 2012 from $ 176 million in 2011 . as a percentage of revenue , these costs were 3.8 % in 2012 and 3.3 % in 2011 . pension costs included in research and development expenses were $ 34 million in 2012 as compared to $ 24 million in 2011 . after considering this item , research and development expenses slightly increased to 3.2 % in 2012 from 2.9 % in 2011 as a percentage of revenue and are in line with management expectations as we continue to invest in broadening our self-service solutions . research and development expenses increased $ 20 million to $ 176 million in 2011 from $ 156 million in 2010 . pension costs included in research and development expenses were $ 24 million in 2011 as compared to $ 25 million in 2010 . after considering this item , research and development costs increased slightly as a percentage of revenue from 2.8 % in 2010 to 2.9 % in 2011 and are in line with management expectations as we continue to invest in broadening our self-service solutions . interest and other expense items interest expense was $ 42 million in 2012 compared to $ 13 million in 2011 and $ 2 million in 2010 . for the years ended december 31 , 2012 and 2011 , interest expense is primarily related to borrowings under the company 's senior secured credit facility . the increase is primarily related to a full year of interest expense in 2012 compared to a partial year in 2011 as the facility was entered into during august 2011. other expense ( income ) , net was $ 8 million in 2012 compared to $ 3 million in 2011 and $ 11 million in 2010 . other expense ( income ) , net includes items such as gains or losses on equity investments , interest income , among others . interest income was $ 6 million in 2012 , $ 5 million in 2011 , and $ 5 million in 2010 . in 2012 , other expense ( income ) , net included $ 7 million related to the impairment of an investment and $ 5 million in bank related fees . in 2011 , other expense ( income ) , net included $ 7 million related to loss from foreign currency fluctuations partially offset by income from the sale of certain patents and a benefit of $ 3 million from final settlement of a litigation matter . in 2010 , other expense ( income ) , net included $ 14 million related to the impairment of an investment . income taxes the effective tax rate was 23 % in 2012 , 26 % in 2011 , and ( 8 ) % in 2010 . during 2012 , we favorably settled examinations with canada for the 2003 tax year and japan for tax years 2001 through 2006 that resulted in tax benefits of $ 14 million and $ 13 million , respectively . in addition , the 2012 tax rate was favorably impacted by the mix of taxable profits and losses by country . these benefits were partially offset by an increase of $ 17 million to the u.s. valuation allowance for deferred tax assets , primarily related to tax attributes expiring by 2015. during 2011 , we favorably settled examinations with canada for 1997 through 2001 that resulted in a $ 12 million tax benefit . the 2010 tax rate was favorably impacted by the release of a $ 40 million valuation allowance in the third quarter of 2010 that was no longer required on specific deferred tax assets in ncr 's subsidiary in japan and by the mix of taxable profits and losses by country . in connection with the american taxpayer relief act of 2012 that was signed into law in january 2013 , we expect to record a one-time benefit of approximately $ 16 million related to retroactive tax relief for certain tax law provisions that expired in 2012. because the legislation was signed into law after the end of our 2012 fiscal year , the retroactive effects of the bill will be reflected in the first quarter of 2013. we anticipate that our effective tax rate will be approximately 26 % in 2013. however , changes in profit mix or other events , such as tax audit settlements or changes in our valuation allowances , could impact this anticipated rate . during 2011 , the internal revenue service commenced examinations of our 2009 and 2010 income tax returns , which are ongoing . during 2012 , we favorably settled the examination of radiant 's 2009 and 2010 income tax returns with the internal revenue service . while we are subject to numerous federal , state and foreign tax audits , we believe that the appropriate reserves exist for issues that might arise from these audits . should these audits be settled , the resulting tax effect could impact the tax provision and cash flows in future periods . during 2013 , the company expects to resolve certain tax matters related to u.s. and foreign tax jurisdictions .
| results discussion revenue revenue increased 12 % in 2011 from 2010 due to improvement across all lines of business . the effects of foreign currency fluctuations had a 3 % favorable impact on revenue . for the year ended december 31 , 2011 , our product revenue increased 13 % and services revenue increased 12 % compared to the year ended december 31 , 2010 . the increase in our product revenue was due to increases in sales volumes in the financial services and retail lines of business in the americas and amea theaters coupled with incremental revenues generated in the hospitality line of business following the acquisition of radiant systems , inc. on august 24 , 2011. the increase in our services revenue was primarily attributable to increases in professional and installation services and maintenance services in the financial services and retail lines of business in the americas , europe and amea theaters . the acquisition of radiant also led to an incremental increase in services revenue in the americas theater . gross margin gross margin as a percentage of revenue was 22.3 % in 2011 compared to 21.0 % in 2010 . product gross margin in 2011 increased slightly to 22.4 % compared to 21.8 % in 2010 due to improved sales mix . services gross margin increased to 22.3 % in 2011 compared to 20.2 % in 2010 . services gross margin was negatively impacted by $ 18 million in higher pension expense , or 0.7 % as a percentage of services revenue . after considering the effect of pension expense , the increase in services gross margin was due to lower labor and service delivery costs and continued focus on overall cost containment .
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intangible asset class weighted average amortization period patents 10 years customer relationships estimated customer life core technology 5 years non-competition agreement contractual term capitalized software shorter of 7 years or useful life capitalized story_separator_special_tag overview we are a designer , manufacturer , and distributor of footwear , apparel and accessories for men , women and children . we strive to be the global leader in molded footwear design and development . we offer a broad product range which provides new and exciting molded footwear products featuring fun , comfort and functionality . our primary products include footwear and accessories which utilize our proprietary closed cell-resin , called croslite . the croslite material is unique in that it enables us to produce an innovative , lightweight , non-marking , and odor-resistant shoe . since the initial introduction and popularity of the beach and crocs classic designs , we have expanded our croslite products to include a variety of new styles and products and have further extended our product reach through the acquisition of brand platforms such as jibbitz , llc ( jibbitz ) and ocean minded , inc. ( ocean minded ) . we continue to branch out into other types of footwear so as to bring a unique and original perspective to the consumer in styles that may be unexpected from crocs . we believe this will help us to continue to build a stable year-round business as we look to offer more winter-oriented styles . our marketing efforts surround specific product launches and employ a fully integrated approach utilizing a variety of media outlets , including print and online . our marketing efforts drive business to both our wholesale partners and our company-operated retail and internet stores , ensuring that our presentation and story are first class and drive purchasing at the point of sale . we currently sell our crocs-branded products globally through domestic and international retailers and distributors . we also sell our products directly to consumers through our webstores , company-operated retail stores , outlets and kiosks . the broad appeal of our footwear has allowed us to market our products to a wide range of distribution channels , including department stores and traditional footwear retailers as well as a variety of specialty and independent retail channels . financial highlights during the year ended december 31 , 2011 , revenues increased $ 211.2 million , or 26.7 % , compared to the same period in 2010 , and exceeded $ 1.0 billion for the first time in the history of our business . this revenue growth was driven by expansion in all three of our operating segments as we focused on improving average footwear selling prices with new product styles , the expansion of existing and new wholesale accounts and the continued expansion of our direct-to-consumer sales channels . also during the year ended december 31 , 2011 , diluted earnings per share improved to $ 1.24 compared to $ 0.76 during the same period in 2010 and operating margin increased to 13.6 % from 10.3 % which were both driven by improved leverage from selling , general and administrative expenses while gross margin remained relatively flat . these financial improvements resulted from stronger sales in each of our geographic operating segments and more effective marketing and merchandising programs , ongoing investment in the growth of our retail and internet channels which have historically yielded higher margins . they also reflect strong global demand for our diversified product line as we continue to transform crocs brand awareness to an all-season footwear brand despite a difficult global economic selling environment and increased global competition from footwear manufacturers and retailers . as a percentage of total revenues , sales generated from the clog silhouette sales continued to decrease with the expansion of our product line . for the year ended december 31 , 2011 , clog silhouette revenues made up 48.5 % of total footwear revenues ( excluding 3.2 % of revenues generated from clogs with licensed marks and b-grade or other discounted clog styles ) , down from 53.7 % during the same period in 2010 ( excluding 3.3 % of revenues generated from clogs with licensed marks and b-grade or other discounted clog styles ) . 22 story_separator_special_tag effect of these sales was accretive to our gross profit in 2009. as a result of these and other actions taken as part of our turnaround strategy , we achieved improved year-over-year gross margin in 2009 as well as improved operating margin and net loss , despite weakened economic conditions during 2009. the benefits of our turnaround strategy continued through the year ended december 31 , 2010 , during which sales of discontinued and impaired product were at more normal levels . our turnaround strategy , as discussed above , had a considerable impact on our operating results for the years ended december 31 , 2010 and 2009. the following summarizes specific significant items related to the implementation of this strategy as well as other material events which should be considered in evaluating the comparability of such results . revenues and gross profit for the year ended december 31 , 2009 were impacted by the effect of the sale of excess discontinued and impaired product inventories ( much of which had been written down in 2008 to a level that we had considered realizable ) at prices substantially higher than previously estimated . the net effect of these sales accretive to our gross profit during the year ended december 31 , 2009 was $ 49.8 million . although we were able to sell $ 58.3 million of this impaired product at higher than anticipated price levels , such sales were deeply discounted and consequently drove down footwear average selling price and revenues in 2009. during 2010 and 2008 , sales of discontinued and impaired product were at more normal levels given seasonality and historical fluctuations in our business . story_separator_special_tag additionally , we continue to increase shipments made directly from the factories to our wholesale customers and our retail channel which lower distribution costs . we realized improvements in gross profit during 2010 as factory direct shipment volume increased . offsetting these increases was the accretive effect of impaired unit sales that took place during 2009 as previously discussed . the net effect of these sales during the year ended december 31 , 2009 was $ 49.8 million . during 2010 , retail and internet sales continued to increase as a percentage of total revenue . this trend contributed to higher gross margins as we were able to achieve a higher footwear average selling price in these channels while many of the fixed costs associated with operating our company-operated retail stores are included in selling , general and administrative expenses . also during 2010 , we sold a wide range of products which required additional materials , such as canvas , cloth lining and suede , and additional processes , such as stitching , to manufacture , thereby increasing our direct costs and lowering our gross margins on those products . as we continue to expand our portfolio and non-classic models become a larger portion of our business , we expect that our profit margins will be adversely affected . impact on gross profit due to foreign exchange rate fluctuations . changes in average foreign currency exchange rates during the year ended december 31 , 2010 increased our gross profit by $ 13.0 million compared to the same period in 2009. selling , general and administrative expenses and foreign currency transaction ( gains ) /losses . selling , general and administrative expenses increased $ 28.3 million , or 9.1 % , in the year ended december 31 , 2010 compared to the same period in 2009 , primarily due to : an increase of approximately $ 28.6 million in salaries , rent and other retail related costs largely driven by the expansion of our retail sales channel ; and an increase of approximately $ 15.9 million in costs related to our 2010 marketing campaign ; which were partially offset by a decrease of $ 20.7 million in share-based compensation , $ 13.3 million of which was due to the acceleration of share-based compensation expense from the 2009 tender offer ; and an increase of $ 2.2 million gains on transactions denominated in foreign currencies . impact on selling , general , and administrative expenses due to foreign exchange rate fluctuations . changes in average foreign currency exchange rates used to translate expenses from our functional currencies to our reporting currency , the u.s. dollar , during the year ended december 31 , 2010 increased selling , general and administrative expenses by approximately $ 5.0 million as compared to the same period in 2009. restructuring charges . we recorded $ 3.8 million in restructuring charges in the year ended december 31 , 2010 , of which $ 1.3 million was recorded to cost of sales . these restructuring charges consisted of $ 2.0 million in severance costs related to the departure of a former chief executive officer , and $ 1.8 million due to a change in estimate of our original accruals for lease termination costs for our canadian office and our distribution facilities in north america and europe . during the year ended december 31 , 2009 , we recorded $ 14.7 million in restructuring charges , of which $ 7.1 million was included in costs of sales . these charges primarily consisted of : $ 5.6 million in costs associated with the consolidation of our warehousing , distribution and office space worldwide ; $ 3.8 million related to the termination of our manufacturing agreement with a third party in bosnia and our sponsorship agreement with the association of volleyball professionals ; 28 $ 3.7 million in severance costs ; and $ 1.1 million related to the release from further obligations under the earn-out provisions of our acquisition of bite , llc . asset impairment charges . during the year ended december 31 , 2010 , we recorded $ 0.1 million in impairment charges compared to $ 26.1 million in impairment charges recorded during the same period in 2009 due to the implementation of our turnaround strategy in 2009 , as previously discussed . the 2009 charges primarily consisted of $ 18.1 million related to the write-off of obsolete molds , tooling , manufacturing and distribution equipment , sales and marketing assets and other distribution and manufacturing assets , largely associated with the consolidation of warehouse and distribution space ; and $ 7.6 million related to the write-off of capitalized software , patents , trade names and other intangible assets that we no longer intended to utilize . of the $ 26.1 million impairment charges recorded in 2009 , $ 18.0 million related to assets previously depreciated or amortized to cost of sales . interest expense . interest expense decreased $ 0.8 million , or 56.1 % , during the year ended december 31 , 2010 compared to same period in 2009 primarily due to lower borrowing rates and lower borrowing balances under our current revolving credit facility . income tax ( benefit ) expense . income tax expense increased $ 19.6 million during the year ended december 31 , 2010 compared to the same period in 2009 which was primarily due to an increase of $ 129.4 million in income before taxes . our 2010 effective tax rate of 16.2 % differs from the federal u.s. statutory rate because of differences in the statutory rates of foreign subsidiaries , certain items of revenue and or expense for which there is a permanent difference in taxability treatment for financial reporting and tax purposes , and changes in the amount of valuation allowances resulting from changes in the company 's judgments about whether certain deferred tax assets are more likely than not to be realized .
| results of operations comparison of the years ended december 31 , 2011 and 2010 replace_table_token_7_th revenues . the following table sets forth revenues by channel , footwear average selling price and unit sales for the years ended december 31 , 2011 and 2010. replace_table_token_8_th during the year ended december 31 , 2011 , revenues increased $ 211.2 million , or 26.7 % , compared to the same period in 2010 , primarily due to an increase of 5.1 million , or 12.0 % , in global footwear unit sales and an increase of $ 2.35 , or 13.3 % , in footwear average selling price . revenues by channel . during the year ended december 31 , 2011 , revenues from our wholesale channel increased $ 116.6 million , or 24.2 % , which was primarily driven by strong demand in all three operating segments , particularly asia . revenues from our retail channel increased $ 73.8 million , or 31.7 % , as we continued to grow our retail presence by opening new retail stores . we also continue to close certain kiosks as branded stores allow us to better merchandise the full breadth and depth of our product line . revenues from our internet channel increased $ 20.9 million , or 27.9 % , primarily driven by increased internet sales in the americas and europe operating segments . 23 the table below illustrates the overall growth in the number of our company-operated retail locations as of december 31 , 2011 and 2010. replace_table_token_9_th impact on revenues due to foreign exchange rate fluctuations . average foreign currency exchange rates during the year ended december 31 , 2011 increased revenue by $ 39.0 million as compared to the same period in 2010. sales in international markets in foreign currencies are expected to continue to represent a substantial portion of our overall revenues .
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the term of agreement 2 is twelve months and the value of the shares is being expensed over the term . also on may 22 , 2020 , the company entered into a consulting agreement ( “ agreement 3 ” ) with a marketing consultant , pursuant to which the marketing consultant was to provide marketing research consulting services to the company for consideration of 100,000 shares of common stock of the company ( the “ share payment ” ) . agreement 3 has been terminated and the value of the shares was fully expensed during the quarter ended june 30 , 2020. on august 24 , 2020 , the company entered into a consulting agreement ( “ agreement 4 ” ) with a business development consultant , pursuant to which the business development consultant will provide business development consulting services to the company for consideration of 100,000 shares of common stock of the company ( the “ share payment ” ) . the term of agreement 4 is twelve months and the value of the shares is being expensed over the term . on september 1 , 2020 , the company entered into a consulting agreement ( “ agreement 5 ” ) with a medical education consultant , pursuant to which the medical education consultant will provide medical education consulting services to the company for consideration of 75,000 shares of common stock of the company ( the “ share payment ” ) . the term of agreement 5 is six months and the value of the shares is being expensed over the term . on september 15 , 2020 , the company granted 75,000 shares under an existing consulting agreement . see note 7 for additional information . note 7. related party transactions convertible notes payable , related party : see note 4. consulting agreement – during the year ended december 31 , 2019 , the company entered into a consulting agreement with the shareholder referenced in relation to convertible promissory note 3 in footnote 4. the terms of the agreement provide that in exchange for certain consulting services the consultant received 300,000 shares of common stock immediately upon execution of the agreement . further the agreement provides for the granting of 75,000 additional shares annually beginning on the effective date of the agreement . as of december 31 , 2020 and december 31 , 2019 , 450,000 and 375,000 shares respectively , had been granted under the agreement . subsequent events : see note 9. note 8. commitments and contingencies there are no pending or threatened legal proceedings as of december 31 , 2020. the company has no non-cancellable operating leases . note 9. subsequent events effective january 1 , 2021 , the shareholder referenced in relation to convertible promissory note 3 in footnote 4 elected to convert the outstanding principal of $ 55,000 along with accrued interest of $ 7,951 into common stock at a price of $ 0.25 per share resulting in the issuance of 251,805 shares of common stock . f- 11 story_separator_special_tag the following discussion and analysis of our financial condition and result of operations contains forward-looking statements and involves numerous risks and uncertainties , including , but not limited to , those described in the “ risk factors ” section of this report . actual results may differ materially from those contained in any forward-looking statements . in some cases , you can identify forward-looking statements by terminology such as “ may , ” “ will , ” “ should , ” “ expect , ” “ plan , ” “ anticipate , ” “ believe , ” “ estimate , ” “ predict , ” “ potential ” or “ continue , ” the negative of such terms or other comparable terminology . these statements are only predictions . although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . moreover , neither we , nor any other person , assume responsibility for the accuracy and completeness of the forward-looking statements . we are under no obligation to update any of the forward-looking statements after the filing of this report to conform such statements to actual results or to changes in our expectations . the following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in the financial statements of usa equities corp and its subsidiaries for the years ended december 31 , 2020 and 2019 and should be read in conjunction with such financial statements and related notes included in this report . story_separator_special_tag covid-19 has accelerated both the healthcare provider and patient acceptance of virtual care technologies . many patients are now open to telemedicine , which is excellent , but it 's not the complete solution , as it still requires a physician 's direct involvement . regulators and insurance companies recognize what health care technologists have been saying for nearly 15 years , which is that most chronic conditions are better managed with more frequent and short encounters than infrequent visits . health insurers are beginning to recognize that ai enabled digital medicine technologies such as those provided through qhslab can provide the necessary encounters to foster patient compliance in between visits to a physician . our ability to operate profitably is determined by our ability to generate revenues from the licensing of our qhslab and the sale of diagnostic and treatment and the provision of services through our qhslab . currently , we are generating revenues from the sale of allergi end ® diagnostic related products and immunotherapy treatments . our ability to generate a profit from these sales is determined by our ability to increase the number of physicians using these products . story_separator_special_tag we will be constantly upgrading qhslab in an effort to increase the number of products sold based upon the services it can provide and to be able to charge a fee for its use . while our revenues are largely determined by the volume of product delivered and the prices at which such products are sold , our costs are determined by a number of factors . the principal factors impacting our costs are the cost of improvements to qhslab , the costs of products sold to pcps , marketing expenses to recruit new pcps and introduce new products and financing costs . as our business grows , these costs should be spread over a wider base of pcps leading to a reduction in costs per sale , helping to increase our gross margin . 20 results of operations during the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 during the fourth quarter of 2020 we began to sell the allergi end ® products and recorded revenues of $ 124,532. in the second quarter of 2020 , we distributed our qhslab to 159 medical practices on a free test use basis . prior to these activities , we were engaged primarily in research and development activities from which we derived no revenues . in 2020 , we incurred a net loss of $ 327,388 as our expenses consisting of general and administrative expenses of $ 131,767 , research and development of $ 98,290 , marketing of $ 95,141 , loss on extinguishment of debt of $ 21,299 , cost of revenue of $ 74,439 and interest expenses of $ 30,984 exceeded our revenue of $ 124,532. this compared to a net loss in 2019 of $ 166,516 due to expenses consisting of general and administrative expenses of $ 53,870 , research and development of $ 100,230 and interest expenses of $ 12,416 in the absence of any revenues . our general and administrative expenses increased by $ 77,897 during the year 2020 as compared to the prior year mainly due to increased expenses associated with operating as a public company . with our initial revenues occurring in 2020 , we also started incurring marketing expenses with $ 95,141 and cost of revenue of $ 74,439 during 2020 , both were $ 0 in 2019. liquidity and capital resources on december 31 , 2020 , we had $ 297,863 of total assets consisting of $ 94,342 of cash , $ 60,522 of accounts receivable , $ 99,701 of inventory , $ 11,598 related to the prepayment of service contracts and $ 31,700 of capitalized software development costs . we had total current liabilities of $ 214,620 consisting of $ 159,620 in accounts payable and accrued expenses and $ 55,000 in a convertible note payable . our long-term liabilities of $ 691,569 consisted of seven convertible notes in the aggregate principal amount of $ 554,704 along with accrued interest of $ 115,566 and premium of $ 21,299. as of december 31 , 2020 , we had total liabilities of $ 906,189. on december 31 , 2019 , we had $ 26,340 of total assets consisting of $ 23,590 of cash and $ 2,750 of prepayments for annual services contracts . we had total current liabilities of $ 20,942 consisting entirely of accounts payable and accrued expenses . our long-term liabilities of $ 435,189 consisted of four convertible notes in the aggregate principal amount of $ 341,688 along with accrued interest of $ 93,501. as of december 31 , 2019 , we had $ 456,131 in total liabilities . the increases in accounts receivable , inventory and accounts payable primarily relate to our sales of allergi end ® products . we used cash of $ 165,564 and $ 134,838 in operations during 2020 and 2019 , respectively . we financed our negative cash flows during 2020 and 2019 , primarily through related party borrowings as a result of which we owed $ 508,271 , including principal and accrued interest , to our major shareholder as of december 31 , 2020. there is no assurance that any of our related parties will continue to provide such capital as may be necessary to continue our business or , if such funds are provided , that the agreed upon terms of any advance will be favorable to us . plan of operation and funding the accompanying consolidated financial statements have been prepared on a going concern basis , which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business . we had an accumulated deficit of $ 1,748,719 at december 31 , 2020 , generated net losses of $ 327,388 and $ 166,516 in 2020 and 2019 , respectively , and used cash of $ 165,564 and $ 134,838 in operations in 2020 and 2019. although we began to generate revenue during the fourth quarter of 2020 , we anticipate that we will continue to generate negative cash flow for the immediate future . these factors , among others , raise substantial doubt about our ability to continue as a going concern for a reasonable period of time . our continuation as a going concern is dependent upon our ability to obtain necessary equity or debt financing and ultimately from generating revenues and positive cash flow to continue operations . the condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the company be unable to continue as a going concern . 21 we expect that working capital requirements will continue to be funded through a combination of our existing funds and further issuances of securities . our working capital requirements are expected to increase in line with the growth of our business , as we incur marketing expenses and the cost of building an inventory . existing working capital ,
| overview we are a medical device technology and software as a service ( saas ) company focused on enabling primary care physicians ( pcp 's ) to increase their revenues by providing them with relevant , value-based tools to evaluate and treat chronic disease through reimbursable procedures . in some cases , the products we will provide our physician clients will enable them to diagnose and treat patients with chronic diseases which they historically have referred to specialists , allowing them to enhance their practice revenue . as part of our mission , we are providing pcp 's with the software , training and devices necessary to allow them to treat their patients using value-based healthcare , informatics and algorithmic personalized medicine , including digital therapeutics which foster reimbursable behavior based remote patient monitoring , chronic care and preventive medicine . in december 2019 we consummated a share exchange with the former stockholders of medical practice income , inc. ( “ mpi ” ) pursuant which we issued 2,172,600 shares of our common stock in exchange for all of the then issued and outstanding shares of common stock of mpi . as a result of this transaction , we became focused on value-based healthcare , informatics and algorithmic personalized medicine including digital therapeutics , behavior based remote patient monitoring , chronic care and preventive medicine . the transaction with mpi was accounted for as a change in reporting entity between entities under common control , whereby a change in reporting entity requires retrospective combination of the entities for all periods as if the combination had been in effect since inception of common control in accordance with asc 250-10-45-21. except where the context requires otherwise , references herein to “ we ” , “ us ” , “ our ” and the “ company ” are reference to usa equities , inc. and its wholly-owned subsidiaries , inclusive of mpi .
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m & t bank , with total assets of $ 118.1 billion at december 31 , 2017 , is a new york-chartered commercial bank with 780 domestic banking offices in new york state , maryland , new jersey , pennsylvania , delaware , connecticut , virginia , west virginia and the district of columbia , a full-service commercial banking office in ontario , canada , and an office in the cayman islands . m & t 45 bank and its subsidiaries offer a broad range of financial services to a diverse base of consumers , businesses , professional clients , governmental entities and financial institutions located in their markets . lending is largely focused on consumers residing in the states noted above and on small and medium size businesses based in those areas , although loans are originated through offices in other states and in ontario , canada . certain lending activities are also conducted in other states through various subsidiaries . trust and other fiduciary services are offered by m & t bank and through its wholly owned subsidiary , wilmington trust company . other subsidiaries of m & t bank include : m & t real estate trust , a commercial mortgage lender ; m & t realty capital corporation , a multifamily commercial mortgage lender ; m & t securities , inc. , which provides brokerage , investment advisory and insurance services ; wilmington trust investment advisors , inc. , which serves as an investment advisor to the wilmington funds , a family of proprietary mutual funds , and other funds and institutional clients ; and m & t insurance agency , inc. , an insurance agency . wilmington trust , n.a . is a national bank with total assets of $ 5.0 billion at december 31 , 2017. wilmington trust , n.a . and its subsidiaries offer various trust and wealth management services . wilmington trust , n.a . also offered selected deposit and loan products on a nationwide basis , largely through telephone , internet and direct mail marketing techniques . on november 1 , 2015 , m & t completed its acquisition of hudson city bancorp , inc. ( “ hudson city ” ) . immediately following completion of the merger , hudson city savings bank merged with and into m & t bank . pursuant to the merger agreement , m & t paid cash consideration of $ 2.1 billion and issued 25,953,950 shares of m & t common stock in exchange for hudson city shares outstanding at the time of acquisition that added $ 3.1 billion to m & t 's common shareholders ' equity . assets acquired totaled approximately $ 36.7 billion , including $ 19.0 billion of loans ( predominantly residential real estate loans ) and $ 7.9 billion of investment securities . liabilities assumed aggregated $ 31.5 billion , including $ 17.9 billion of deposits and $ 13.2 billion of borrowings . immediately following the acquisition , the company restructured its balance sheet by selling $ 5.8 billion of investment securities obtained in the acquisition and repaying $ 10.6 billion of borrowings assumed in the transaction . critical accounting estimates the company 's significant accounting policies conform with generally accepted accounting principles ( “ gaap ” ) and are described in note 1 of notes to financial statements . in applying those accounting policies , management of the company is required to exercise judgment in determining many of the methodologies , assumptions and estimates to be utilized . certain of the critical accounting estimates are more dependent on such judgment and in some cases may contribute to volatility in the company 's reported financial performance should the assumptions and estimates used change over time due to changes in circumstances . some of the more significant areas in which management of the company applies critical assumptions and estimates include the following : accounting for credit losses — the allowance for credit losses represents the amount that in management 's judgment appropriately reflects credit losses inherent in the loan and lease portfolio as of the balance sheet date . a provision for credit losses is recorded to adjust the level of the allowance as deemed necessary by management . in estimating losses inherent in the loan and lease portfolio , assumptions and judgment are applied to measure amounts and timing of expected future cash flows , collateral values and other factors used to determine the borrowers ' abilities to repay obligations . historical loss trends are also considered , as are economic conditions , industry trends , portfolio trends and borrower-specific financial data . in accounting for loans acquired at a discount that is , in part , attributable to credit quality which are initially recorded at fair value with no carry-over of an acquired entity 's previously established allowance for credit losses , the cash flows expected at acquisition in excess of estimated fair value are recognized as interest income over the remaining lives of the loans . subsequent decreases in the expected 46 principal cash flows require the company to evaluate the need for additions to the company 's allowance for credit losses . subsequent improvements in expected cash flows result first in the recovery of any applicable allowance for credit losses and then in the recognition of additional interest income over the remaining lives of the loans . changes in the circumstances considered when determining management 's estimates and assumptions could result in changes in those estimates and assumptions , which may result in adjustment of the allowance or , in the case of loans acquired at a discount , increases in interest income in future periods . a detailed discussion of facts and circumstances considered by management in determining the allowance for credit losses is included herein under the heading “ provision for credit losses ” and in note 5 of notes to financial statements . valuation methodologies — management of the company applies various valuation methodologies to assets and liabilities which often involve a significant degree of judgment , particularly when liquid markets do not exist for the particular items being valued . story_separator_special_tag on october 9 , 2017 , wilmington trust corporation , a wholly owned subsidiary of m & t , reached an agreement with the u.s. attorney 's office for the district of delaware related to alleged conduct that took place between 2009 and 2010 prior to the acquisition of wilmington trust corporation by m & t . under the terms of that agreement , wilmington trust corporation was required to pay $ 60 million and settled the government 's claims . the settlement amount included $ 16 million previously paid to the u.s. securities and exchange commission in a related action . the result was a payment of $ 44 million that is not deductible for income tax purposes . wilmington trust corporation did not admit any liability . as of september 30 , 2017 , the company increased the reserve for legal matters by $ 50 million . that increase , coupled with the non-deductible nature of the $ 44 million payment , reduced net income in 2017 by $ 48 million , or $ .31 of diluted earnings per common share . the hudson city transaction was accounted for using the acquisition method of accounting and , accordingly , the results of operations acquired in such transaction have been included in the company 's financial results for the final two months of 2015 and for all of 2016 and 2017. the acquired operations added to the company 's average earning assets , net interest income and non-interest expenses . net acquisition and integration-related expenses ( included herein as merger-related 48 expenses ) associated with the hudson city acquisition totaled $ 22 million after-tax effect , or $ .14 of diluted earnings per common share during 2016 and $ 61 million after-tax effect , or $ .44 of diluted earnings per common share in 2015. there were no merger-related expenses in 2017. taxable-equivalent net interest income increased 9 % to $ 3.82 billion in 2017 from $ 3.50 billion in 2016. that improvement resulted from a widening of the net interest margin , or taxable-equivalent net interest income expressed as a percentage of average earning assets , from 3.11 % in 2016 to 3.47 % in 2017. partially offsetting the impact of the widened net interest margin was a 2 % decline in average earning assets to $ 110.0 billion in 2017 from $ 112.6 billion in 2016. taxable-equivalent net interest income in 2016 was 22 % higher than $ 2.87 billion in 2015 due predominantly to a $ 21.4 billion increase in average earning assets . that increase reflected higher average balances of loans and leases of $ 17.8 billion , principally due to the full-year impact of the hudson city acquisition , and interest-bearing deposits at banks of $ 3.1 billion . offsetting the impact of higher earning assets was a three basis point ( hundredths of one percent ) narrowing of the net interest margin from 3.14 % in 2015. lower yields on investment securities and an increase in rates on interest-bearing deposits , reflecting the impact of time deposits in the former hudson city markets , led to that narrowing . the provision for credit losses decreased 12 % to $ 168 million in 2017 from $ 190 million in 2016. the provision in 2015 of $ 170 million reflected $ 21 million , as provided for by gaap , for incurred credit losses in connection with the $ 18.3 billion of loans acquired in the hudson city transaction at a premium that were not individually identifiable as impaired at the acquisition date . net charge-offs were $ 140 million in 2017 , $ 157 million in 2016 and $ 134 million in 2015. net charge-offs as a percentage of average loans and leases were .16 % in 2017 , .18 % in 2016 and .19 % in 2015. other income totaled $ 1.85 billion in 2017 , compared with $ 1.83 billion in each of 2016 and 2015. comparing 2017 with 2016 , higher trust income and service charges on deposit accounts were partially offset by a decline in residential mortgage banking revenues and lower gains on investment securities . during 2016 , higher gains recognized on sales of investment securities and increased trading account and foreign exchange gains as compared with 2015 were offset by a $ 45 million gain in 2015 on the sale of the company 's trade processing business . other expense increased 3 % to $ 3.14 billion in 2017 from $ 3.05 billion in 2016. other expense in 2015 totaled $ 2.82 billion . included in those amounts are expenses considered by m & t to be “ nonoperating ” in nature , consisting of amortization of core deposit and other intangible assets of $ 31 million , $ 43 million and $ 26 million in 2017 , 2016 and 2015 , respectively , and merger-related expenses of $ 36 million and $ 76 million in 2016 and 2015 , respectively . exclusive of those nonoperating expenses , noninterest operating expenses aggregated $ 3.11 billion in 2017 , compared with $ 2.97 billion in 2016 and $ 2.72 billion in 2015. the increase in such expenses in 2017 as compared with 2016 was largely due to higher costs for salaries and employee benefits , professional services and charitable contributions , and increases to the reserve for legal matters . the increase in noninterest operating expenses in 2016 as compared with 2015 reflects the full-year impact of the hudson city acquisition and higher costs for salaries and employee benefits and fdic assessments . the efficiency ratio measures the relationship of operating expenses to revenues . the company 's efficiency ratio , or noninterest operating expenses ( as previously defined ) divided by the sum of taxable-equivalent net interest income and noninterest income ( exclusive of gains and losses from bank investment securities ) , was 55.1 % in 2017 , compared with 56.1 % and 58.0 % in 2016 and 2015 , respectively .
| earnings summary dollars in millions replace_table_token_7_th ( a ) changes were calculated from unrounded amounts . ( b ) interest income data are on a taxable-equivalent basis . the taxable-equivalent adjustment represents additional income taxes that would be due if all interest income were subject to income taxes . this adjustment , which is related to interest received on qualified municipal securities , industrial revenue financings and preferred equity securities , is based on a composite income tax rate of approximately 39 % . ( c ) includes other-than-temporary impairment losses , if any . supplemental reporting of non-gaap results of operations as a result of business combinations and other acquisitions , the company had intangible assets consisting of goodwill and core deposit and other intangible assets totaling $ 4.7 billion at each of december 31 , 2017 , 2016 and 2015. included in such intangible assets was goodwill of $ 4.6 billion at each of those dates . amortization of core deposit and other intangible assets , after-tax effect , totaled $ 19 million , $ 26 million and $ 16 million during 2017 , 2016 and 2015 , respectively . m & t consistently provides supplemental reporting of its results on a “ net operating ” or “ tangible ” basis , from which m & t excludes the after-tax effect of amortization of core deposit and other intangible assets ( and the related goodwill , core deposit intangible and other intangible asset balances , net of applicable deferred tax amounts ) and gains and expenses associated with merging acquired operations into the company , since such items are considered by management to be “ nonoperating ” in nature .
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as a bdc , we have elected to be treated as a regulated investment company ( `` ric '' ) , under subchapter m of the internal revenue code of 1986 ( the `` internal revenue code '' or the `` code '' ) . we invest primarily in senior and subordinated debt and equity of companies in need of capital for acquisitions , divestitures , growth , development , recapitalizations and other purposes . we work with the management teams or financial sponsors to seek investments with historical cash flows , asset collateral or contracted pro-forma cash flows . we currently have nine origination strategies in which we make investments : ( 1 ) lending in private equity sponsored transactions , ( 2 ) lending directly to companies not owned by private equity firms , ( 3 ) control investments in corporate operating companies , ( 4 ) control investments in financial companies , ( 5 ) investments in structured credit , ( 6 ) real estate investments , ( 7 ) investments in syndicated debt , ( 8 ) aircraft leasing and ( 9 ) online lending . we continue to evaluate other origination strategies in the ordinary course of business with no specific tops-down allocation to any single origination strategy . lending in private equity sponsored transactions – we make loans to companies which are controlled by leading private equity firms . this debt can take the form of first lien , second lien , unitranche or unsecured loans . in making these investments , we look for a diversified customer base , recurring demand for the product or service , barriers to entry , strong historical cash flow and experienced management teams . these loans typically have significant equity subordinate to our loan position . historically , this strategy has comprised approximately 50 % -60 % of our business , but more recently it is less than 50 % of our business . lending directly to companies – we provide debt financing to companies owned by non-private equity firms , the company founder , a management team or a family . here , in addition to the strengths we look for in a sponsored transaction , we also look for the alignment with the management team with significant invested capital . this strategy often has less competition than the private equity sponsor strategy because such company financing needs are not easily addressed by banks and often require more diligence preparation . direct lending can result in higher returns and lower leverage than sponsor transactions and may include warrants or equity to us . historically , this strategy has comprised approximately 5 % -15 % of our business , but more recently it is less than 5 % of our business . control investments in corporate operating companies – this strategy involves acquiring controlling stakes in non-financial operating companies . our investments in these companies are generally structured as a combination of yield-producing debt and equity . we provide certainty of closure to our counterparties , give the seller personal liquidity and generally look for management to continue on in their current roles . this strategy has comprised approximately 10 % -15 % of our business . control investments in financial companies – this strategy involves acquiring controlling stakes in financial companies , including consumer direct lending , sub-prime auto lending and other strategies . our investments in these companies are generally structured as a combination of yield-producing debt and equity . these investments are often structured in a tax-efficient ric-compliant partnership , enhancing returns . this strategy has comprised approximately 5 % -15 % of our business . investments in structured credit – we make investments in collateralized loan obligations ( “ clos ” ) , generally taking a significant position in the subordinated interests ( equity ) of the clos . the clos include a diversified portfolio of broadly syndicated loans and do not have direct exposure to real estate , mortgages , sub-prime debt , or consumer based debt . the clos in which we invest are managed by top-tier collateral managers that have been thoroughly diligenced prior to investment . this strategy has comprised approximately 10 % -20 % of our business . 56 real estate investments – we make investments in real estate through our three wholly-owned tax-efficient real estate investment trusts ( `` reits '' ) , american property reit corp. , national property reit corp. and united property reit corp. ( collectively , `` our reits '' ) . our real estate investments are in various classes of fully developed and occupied real estate properties that generate current yields . we seek to identify properties that have historically high occupancy and steady cash flow generation . our reits partner with established property managers with experience in managing the property type to manage such properties after acquisition . this is a more recent investment strategy that has comprised approximately 5 % -10 % of our business . investments in syndicated debt – on an opportunistic basis , we make investments in loans and high yield bonds that have been sold to a syndicate of buyers . here we look for investments with attractive risk-adjusted returns after we have completed a fundamental credit analysis . these investments are purchased with a long term , buy-and-hold outlook and we look to provide significant structuring input by providing anchoring orders . this strategy has comprised approximately 5 % -10 % of our business . aircraft leasing – we invest debt as well as equity in aircraft assets subject to commercial leases to credit-worthy airlines across the globe . these investments present attractive return opportunities due to cash flow consistency from long-lived assets coupled with hard asset collateral . we seek to deliver risk-adjusted returns with strong downside protection by analyzing relative value characteristics across the spectrum of aircraft types of all vintages . our target portfolio includes both in-production and out-of-production jet and turboprop aircraft and engines , operated by airlines across the globe . story_separator_special_tag the following shows the composition of our investment portfolio by level of control as of june 30 , 2014 and june 30 , 2013 : replace_table_token_7_th the following shows the composition of our investment portfolio by type of investment as of june 30 , 2014 and june 30 , 2013 : replace_table_token_8_th 60 the following shows our investments in interest bearing securities by type of investment as of june 30 , 2014 and june 30 , 2013 : replace_table_token_9_th the following shows the composition of our investment portfolio by geographic location as of june 30 , 2014 and june 30 , 2013 : replace_table_token_10_th 61 the following shows the composition of our investment portfolio by industry as of june 30 , 2014 and june 30 , 2013 : replace_table_token_11_th ( 1 ) although designated as diversified financial services within our schedules of investments in item 8 of this report , our clo investments do not have industry concentrations and as such have been separated in the table above . 62 portfolio investment activity during the year ended june 30 , 2014 , we acquired $ 2,082,327 of new investments , completed follow-on investments in existing portfolio companies totaling approximately $ 840,134 , funded $ 14,850 of revolver advances , and recorded pik interest of $ 15,145 , resulting in gross investment originations of $ 2,952,456 . the more significant of these transactions are briefly described below . on july 12 , 2013 , we provided $ 11,000 of secured second lien financing to water pik , inc. , a leader in developing innovative personal and oral healthcare products . the second lien term loan bears interest in cash at the greater of 9.75 % or libor plus 8.75 % and has a final maturity of january 8 , 2021. on july 23 , 2013 , we made a $ 2,000 investment in carolina beverage group , llc ( “ carolina beverage ” ) , a contract beverage manufacturer . the senior secured note bears interest in cash at 10.5 % and has a final maturity of july 23 , 2018. on july 26 , 2013 , we made a $ 2,000 follow-on senior secured debt investment in spartan energy services , inc. ( “ spartan ” ) to finance the formation of the well testing division . the first lien note bears interest in cash at the greater of 10.5 % or libor plus 9.0 % and has a final maturity of december 28 , 2017. on july 26 , 2013 , we made a $ 20,000 follow-on secured second lien investment in royal adhesives & sealants , llc ( “ royal ” ) to facilitate an acquisition . the second lien term loan bears interest in cash at the greater of 9.75 % or libor plus 8.5 % and has a final maturity of january 31 , 2019. on july 31 , 2013 , we made a $ 5,100 follow-on investment in coverall north america , inc. to fund a dividend recapitalization . the first lien note bears interest in cash at the greater of 11.5 % or libor plus 8.5 % and has a final maturity of december 17 , 2017. on august 2 , 2013 , we made an investment of $ 44,100 to purchase 90 % of the subordinated notes in cifc funding 2013-iii , ltd. on august 2 , 2013 , we provided $ 81,273 of debt and $ 12,741 of equity financing to support the recapitalization of cp holdings , an energy services company based in western oklahoma . through the recapitalization , we acquired a controlling interest in cp holdings for $ 73,009 in cash and 1,918,342 unregistered shares of our common stock . after the financing , we received repayment of the $ 18,991 loan previously outstanding . the $ 58,773 first lien note issued to cp energy services inc. bears interest in cash at the greater of 9.0 % or libor plus 7.0 % and interest payment in kind of 9.0 % and has a final maturity of august 2 , 2018. the $ 22,500 first lien note issued to cp well testing holding company llc bears interest in cash at the greater of 11.0 % or libor plus 9.0 % and has a final maturity of august 2 , 2018. on august 9 , 2013 , we provided $ 80,000 in senior secured loans and a senior secured revolving loan facility , of which $ 70,000 was funded at closing , for the recapitalization of matrixx initiatives , inc. , owner of zicam , a developer and marketer of otc cold remedy products under the zicam brand . the $ 35,000 term loan a note bears interest in cash at the greater of 7.5 % or libor plus 6.0 % and has a final maturity of august 9 , 2018. the $ 35,000 term loan b note bears interest in cash at the greater of 12.5 % or libor plus 11.0 % and has a final maturity of august 9 , 2018. the $ 10,000 senior secured revolver , which was unfunded at closing , bears interest in cash at the greater of 10.0 % or libor plus 8.5 % and has a final maturity of february 9 , 2014. on august 15 , 2013 , we made a $ 14,000 follow-on investment in totes isotoner corporation ( `` totes '' ) to fund a dividend to shareholders . the second lien term loan bears interest in cash at the greater of 10.75 % or libor plus 9.25 % and has a final maturity of january 8 , 2018. on august 30 , 2013 , we made a $ 16,000 follow-on investment in system one holdings , llc to support an acquisition . the first lien note bears interest in cash at the greater of 11.0 % or libor plus 9.5 % and has a final maturity of december 31 , 2018. on september 5 , 2013 , we provided a $ 50,382 senior secured term loan to united bank card , inc. ( d/b/a harbortouch ) , a payments processor .
| fourth quarter highlights investment transactions during the three months ended june 30 , 2014 , we acquired $ 386,642 of new investments , completed follow-on investments in existing portfolio companies totaling approximately $ 55,360 , and recorded pik interest of $ 2,102 , resulting in gross investment originations of $ 444,104 . during the three months ended june 30 , 2014 , we received full repayments on five investments , and received several partial prepayments and amortization payments totaling $ 169,617 . the more significant of these transactions are discussed in `` portfolio investment activity . '' sec matter on may 6 , 2014 , we announced in our filing on form 10-q for the quarter ended march 31 , 2014 that the sec staff had asserted certain of our wholly-owned holding companies were investment companies , such companies were required to be consolidated in our historical financial results and financial position , and restatement of such financial statements was needed . at that time , we disclosed that we disagreed with the views of the sec staff and wished to appeal the conclusion through the office of the chief accountant . on june 10 , 2014 , based on those discussions with the office of the chief accountant , we concluded the following : our historical non-consolidation of wholly-owned and substantially wholly-owned holding companies did not require restatement of our prior period financial statements . upon our adoption of asu 2013-08 for the fiscal year ended june 30 , 2015 , we will begin consolidating on a prospective basis certain of our wholly-owned and substantially wholly-owned holding companies formed by us in order to facilitate our investment strategy .
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where necessary , discussions have been segregated under the heading `` midamerican funding '' to allow the reader to identify information applicable only to midamerican funding . explanations include management 's best estimate of the impact of weather , customer growth and other factors . this discussion should be read in conjunction with the historical consolidated financial statements and notes to consolidated financial statements in item 8 of this form 10-k. midamerican energy 's and midamerican funding 's actual results in the future could differ significantly from the historical results . 235 results of operations overview midamerican energy - midamerican energy 's net income for 2017 was $ 605 million , an increase of $ 63 million , or 12 % , compared to 2016 , including $ 7 million of net expense as a result of the tax cuts and jobs act enacted on december 22 , 2017 ( the `` 2017 tax reform '' ) . excluding the net effect of the 2017 tax reform , adjusted net income for 2017 was $ 612 million , an increase of $ 70 million , or 13 % , compared to 2016. the increase was due to a higher income tax benefit from additional production tax credits of $ 38 million , the effects of ratemaking and lower pre-tax income , and higher electric gross margins of $ 76 million , excluding the impact of an increase in electric dsm program revenue ( offset in operating expense ) of $ 22 million , partially offset by higher maintenance expense of $ 52 million due to additional wind-powered generating facilities and the timing of fossil-fueled generation maintenance , higher depreciation and amortization of $ 21 million due to wind-powered generation and other plant placed in-service and accruals for iowa regulatory arrangements , partially offset by a december 2016 reduction in depreciation rates , and higher property and other taxes of $ 7 million . electric gross margins increased due to higher recoveries through bill riders , higher retail customer volumes , higher wholesale revenue and higher transmission revenue , partially offset by higher coal and purchased power costs . retail customer volumes increased 2.4 % due to industrial growth net of lower residential and commercial volumes from milder temperatures . midamerican energy 's income from continuing operations of $ 542 million for 2016 increased $ 96 million , or 22 % , compared to 2015 due to higher electric margins of $ 172 million , higher production tax credits of $ 39 million and lower fossil-fueled generation operations and maintenance of $ 35 million , partially offset by higher depreciation and amortization of $ 72 million from wind-powered generation and other plant placed in service and an accrual related to an iowa revenue sharing arrangement , higher operations costs recovered through bill riders of $ 20 million , higher interest expense of $ 13 million primarily due to the issuance of first mortgage bonds in october 2015 and a lower income tax benefit due to higher pre-tax income and the effects of ratemaking . electric margins reflect higher retail rates in iowa , higher retail sales volumes , lower energy costs , higher wholesale revenue and higher transmission revenue . midamerican funding - midamerican funding 's net income for 2017 was $ 574 million , an increase of $ 42 million , or 8 % , compared to 2016 , including after-tax charges of $ 17 million related to the tender offer of a portion of its 6.927 % senior bonds due 2029 and $ 10 million of net expense as a result of the 2017 tax reform . excluding the net effect of the 2017 tax reform and the tender offer , midamerican funding 's adjusted net income for 2017 was $ 601 million , an increase of $ 69 million , or 13 % , compared to 2016. midamerican funding 's income from continuing operations for 2016 was $ 532 million , an increase of $ 90 million , or 20 % , compared to 2015 . in addition to the changes in midamerican energy 's earnings discussed above , midamerican funding , in 2015 , recognized an $ 8 million after-tax gain on the sale of an investment in a generating facility lease . 236 regulated electric gross margin operating revenue and cost of fuel , energy and capacity are the key drivers of midamerican energy 's regulated electric results of operations as they encompass retail and wholesale electricity revenue and the direct costs associated with providing electricity to customers . midamerican energy believes that a discussion of gross margin , representing operating revenue less cost of fuel , energy and capacity , is therefore meaningful . a comparison of key results related to regulated electric gross margin is as follows for the years ended december 31 : replace_table_token_155_th ( 1 ) gwh amounts are net of energy used by the related generating facilities . ( 2 ) all or some of the renewable energy attributes associated with generation from these generating facilities may be : ( a ) used in future years to comply with renewable portfolio standards or other regulatory requirements or ( b ) sold to third parties in the form of renewable energy credits or other environmental commodities . 237 for 2017 compared to 2016 , regulated electric gross margin increased $ 98 million primarily due to : ( 1 ) higher retail gross margin of $ 51 million due to - an increase of $ 73 million from higher recoveries through bill riders , including $ 22 million of electric dsm program revenue ( offset in operating expense ) ; an increase of $ 32 million from non-weather-related usage factors , including higher industrial sales volumes ; partially offset by a decrease of $ 33 million from higher retail energy costs primarily due to higher coal-fueled generation and higher purchased power costs ; and a decrease of $ 21 million from the impact of milder temperatures ; ( 2 ) higher wholesale gross margin of $ 32 million due to higher margins per unit story_separator_special_tag other income and ( expense ) midamerican energy - interest expense increased $ 18 million for 2017 compared to 2016 due to higher interest expense from the issuance of $ 850 million of first mortgage bonds in february 2017 and $ 30 million of variable rate tax-exempt bonds in december 2016 , partially offset by the redemption of $ 250 million of 5.95 % senior notes in february 2017. refer to note 9 of notes to financial statements in item 8 of this form 10-k for further discussion of first mortgage bonds . interest expense increased $ 13 million for 2016 compared to 2015 primarily due to higher interest expense from the issuance of $ 650 million of first mortgage bonds in october 2015 , partially offset by the payment of a $ 426 million turbine purchase obligation in december 2015. allowance for borrowed and equity funds increased $ 29 million for 2017 compared to 2016 primarily due to higher construction work-in-progress balances related to the construction of wind-powered generating facilities and the wind turbine repowering project . other , net increased $ 5 million for 2017 compared to 2016 due to higher returns from corporate-owned life insurance policies and higher interest income from favorable cash positions , partially offset by a gain of $ 5 million in 2016 on the redemption of midamerican energy 's investments in auction rate securities . other , net increased $ 9 million for 2016 compared to 2015 due to a gain of $ 5 million on the redemption of midamerican energy 's investments in auction rate securities and higher returns from corporate-owned life insurance policies . 240 midamerican funding - in addition to the fluctuations discussed above for midamerican energy , midamerican funding 's other , net for 2017 reflects a pre-tax charge of $ 29 million from the early redemption of a portion of midamerican funding 's 6.927 % senior bonds due 2029 , for 2016 reflects income of $ 2 million from a partnership 's sale of a real estate investment , for 2015 reflects a $ 13 million pre-tax gain on the sale of an investment in a generating facility lease . income tax benefit midamerican energy - midamerican energy 's income tax benefit increased $ 51 million for 2017 compared to 2016 , and the effective tax rate was ( 43 ) % for 2017 and ( 32 ) % for 2016 . the change in the effective tax rate was substantially due to an increase of $ 38 million in production tax credits and the effects of ratemaking , partially offset by the impact of the 2017 tax reform and higher pre-tax income . midamerican energy 's income tax benefit on continuing operations decreased $ 15 million for 2016 compared to 2015 , and the effective tax rate was ( 32 ) % for 2016 and ( 49 ) % for 2015 . the change in the effective tax rate was substantially due to higher pre-tax income , partially offset by an increase of $ 39 million in production tax credits . federal renewable electricity production tax credits are earned as energy from qualifying wind-powered generating facilities is produced and sold based on a prescribed per-kilowatt rate pursuant to the applicable federal income tax law and are eligible for the credits for 10 years from the date the qualifying generating facilities are placed in service . beginning in late 2014 , some of midamerican energy 's wind-powered generating facilities surpassed the 10-year eligibility period and are no longer earning the credits . a credit per kilowatt hour of $ 0.024 for 2017 and $ 0.023 for 2016 and 2015 was applied to annual production , which resulted in $ 287 million , $ 249 million and $ 210 million , respectively , in production tax credits . midamerican funding - midamerican funding 's income tax benefit increased $ 63 million for 2017 compared to 2016 , and the effective tax rate was ( 54 ) % for 2017 and ( 35 ) % for 2016 . midamerican funding 's income tax benefit on continuing operations decreased $ 11 million for 2016 compared to 2015 , and the effective tax rate was ( 35 ) % for 2016 and ( 51 ) % for 2015 . the change in effective tax rates was due principally to the factors discussed for midamerican energy . additionally , 2017 reflects an income tax benefit from a charge of $ 29 million for the early redemption of a portion of midamerican funding 's 6.927 % senior bonds due 2029 , and 2015 reflects income taxes on a $ 13 million gain from the sale of an investment in a generating facility lease . liquidity and capital resources as of december 31 , 2017 , midamerican energy 's total net liquidity was $ 707 million consisting of $ 172 million of cash and cash equivalents and $ 905 million of credit facilities reduced by $ 370 million of the credit facilities reserved to support midamerican energy 's variable-rate tax-exempt bond obligations . as of december 31 , 2017 , midamerican funding 's total net liquidity was $ 711 million , including mhc 's $ 4 million credit facility . cash flows from operating activities midamerican energy 's net cash flows from operating activities were $ 1,396 million , $ 1,403 million and $ 1,351 million for 2017 , 2016 and 2015 , respectively . midamerican funding 's net cash flows from operating activities were $ 1,380 million , $ 1,393 million and $ 1,335 million for 2017 , 2016 and 2015 , respectively . cash flows from operating activities decreased for 2017 compared to 2016 primarily due to lower income tax receipts and higher interest payments , partially offset by higher cash margins for midamerican energy 's regulated electric business , including a reduction in fuel inventories .
| results of operations net income for the year ended december 31 , 2017 was $ 109 million , an increase of $ 25 million , or 30 % , compared to 2016 , which includes $ 1 million of tax benefit from the tax cuts and jobs act enacted on december 22 , 2017 ( the `` 2017 tax reform '' ) . excluding the impact of 2017 tax reform , adjusted net income was $ 108 million , an increase of $ 24 million compared to 2016 , due to lower interest on deferred charges and long-term debt of $ 11 million , higher electric margins of $ 8 million , lower depreciation and amortization primarily due to regulatory amortizations of $ 4 million and lower operating costs of $ 4 million . the increase in electric margin was due to the impacts of weather , higher transmission revenue and customer usage patterns , partially offset by lower wholesale revenue due to lower volumes . net income for the year ended december 31 , 2016 was $ 84 million , an increase of $ 1 million , or 1 % , compared to 2015 . net income increased due to a decrease in interest expense from financing transactions in 2016 of $ 8 million , increased customer growth and usage primarily due to the impacts of weather of $ 7 million and lower planned maintenance costs . the increase in net income was partially offset by disallowances resulting from the settlement of the regulatory rate review in 2016 of $ 5 million , higher depreciation and amortization primarily due to higher plant placed in-service of $ 5 million , a settlement payment associated with terminated transmission service in 2015 of $ 4 million and lower margins from a decrease in wholesale demand charges and changes in usage patterns with commercial and industrial customers .
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the company also provided bbdhs with warrants to purchase 1,200,000 shares of company common stock at an exercise price of $ 0.05 , exercisable as follows : 240,000 shares between september 1 , 2017 and october 31 , 2017 , 240,000 shares between november 1 , 2017 and december 31 , 2017 , 240,000 shares between january 1 , 2018 and february 28 , 2018 , 240,000 shares between march 1 , 2018 and may 30 , 2018 , and 240,000 shares between june 1 , 2018 and july 30 , 2018. see notes 8 and 12. as of june 30 , 2018 , the company has written the receivable of $ 200,000 off to bad debt . as of june 30 , 2019 , all warrants are unexercised and expired . on may 15 , 2018 , the company issued to cowan a license agreement that grants him exclusive licensee distribution rights to the freedom leaf inc. magazine , as well as other “ freedom leaf ” branded merchandise and services in the southern california area . in consideration of such license , cowan cancelled $ 240,000 of payables owed to him by the company . also , in connection with this transaction , the company issued to cowan a warrant , exercisable between july 1 , 2018 and november 15 , 2019 , to acquire 1,000,000 shares at an exercise price of $ 0.25 per share . this has been reflected as other income ( “ licensing income – related party ” ) in the consolidated statement of operations and comprehensive loss . sales representation contract on december 22 , 2016 , the company and nuaxon bioscience , inc. ( “ nuaxon ” ) , a delaware corporation , executed a sales representation contract . nuaxon is a manufacturer and distributor for bulk extracts , rebel herbs brand products , and intelligence tree brand products . the contract appoints the company as nuaxon 's sales representative worldwide . the contract is for a period of one year and shall automatically renew for successive terms of the same duration . the contract provides a commission for sales by the company at rates as follows : a ) bulk extracts is 9 % with a 2 % bonus on annual sales above $ 500,000 ; b ) rebel herbs and intelligence tree brand products is 10 % with a 3 % bonus on annual sales above $ 1,000,000 . as of june 30 , 2019 , there have been no sales or commissions earned and the contract has been canceled . equipment sales representative contract on december 22 , 2016 , the company and nuaxon executed an equipment sales representative contract . nuaxon is a manufacturer and distributor for extraction equipment . the contract appoints the company as nuaxon 's equipment sales representative worldwide . the contract is for a period of one year and shall automatically renew for successive terms of the same duration . the contract provides a commission for sales by the company at various rates ranging from 3 % to 10 % , dependent on the cumulative annual sales . on march 15 , 2017 , the company entered into an exclusive distribution agreement with nuaxon to sell nuaxon 's co2 extraction equipment pursuant to which the company would be paid increasing commissions depending on gross sales of the equipment . on march 16 , 2017 , the company issued a purchase order ( the “ purchase order ” ) to nuaxon to purchase extraction equipment for one of the company 's customers . as of june 30 , 2019 , there has been one sale and the contract has been canceled . the company owes $ 51,735 to nuaxon at june 30 , 2019. f- 14 loss on disposition of assets during the year ended june 30 , 2019 , the company disposed of freedom leaf europe , tierra sciences global , as well as its interests in two cost method investments , cicero transact group and cicero platform group . as a result of the dispositions , the company recognized a net loss on disposition of assets of $ 580,458 . note 3 –business combinations and asset acquisitions irie acquisition on april 16 , 2018 , leafceuticals consummated the acquisition , with an effective date of april 1 , 2018 ( date of change in control ) , of substantially all of the assets of : earth born , inc. , a california corporation ( “ earth born california ” ) , earth born , inc. , a delaware corporation ( “ earth born delaware ” ) , irie living , a california nonprofit mutual benefit corporation ( “ irie ” ) , and genesis media works , llc , a utah limited liability company doing business as “ terra 's way , ” “ irie hemp company , ” “ earth born botanicals , ” and “ santa cruz hemp company ” ( “ genesis ” and together with earth born california , earth born delaware , and irie , collectively referred to herein as the “ sellers ” or irie ) . irie cbd is a california-based product line owned by the sellers that has been operating since 2015 that formulates , manufactures and distributes cbd tinctures , cbd edibles , cbd topicals and cbd concentrates to retail markets across the country . irie leases a full manufacturing and processing facility in oakland , california . story_separator_special_tag the company typically satisfies its performance obligations within a few months of entering into the contract . depending on the size of the project , the performance obligations could be satisfied sooner or later . 17 the company provides a 30-day warranty on product sales . the amount accrued for expected returns and warranty claims was immaterial as of june 30 , 2019. significant judgements . for most revenue contracts , the company invoices the customer when the performance obligation is satisfied , and payment is due 30 days later . occasionally , other terms such as progress billings or longer terms are agreed to on a case-by-case basis . the company does not have significant financing components , non-cash consideration , or variable consideration . the company estimates the transaction price between performance obligations based on stand-alone product prices . the company elected the practical expedient by which disclosures are not required regarding the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less . impairment of long-lived assets . the company accounts for long-lived assets in accordance with the provisions of statement of financial accounting standards asc 360-10 , “ accounting for the impairment or disposal of long-lived assets ” . this statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset . if such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets . assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell . fair value of financial instruments and fair value measurements . the company measures their financial assets and liabilities in accordance with generally accepted accounting principles . for certain of our financial instruments , including cash , accounts payable , accrued expenses escrow liability and short-term loans the carrying amounts approximate fair value due to their short maturities . we have adopted accounting guidance for financial and non-financial assets and liabilities . the adoption did not have a material impact on our results of operations , financial position or liquidity . this standard defines fair value , provides guidance for measuring fair value and requires certain disclosures . this standard does not require any new fair value measurements , but rather applies to all other accounting pronouncements that require or permit fair value measurements . this guidance does not apply to measurements related to share-based payments . this guidance discusses valuation techniques , such as the market approach ( comparable market prices ) , the income approach ( present value of future income or cash flow ) , and the cost approach ( cost to replace the service capacity of an asset or replacement cost ) . the guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels . the following is a brief description of those three levels : level 1 : observable inputs such as quoted prices ( unadjusted ) in active markets for identical assets or liabilities . level 2 : inputs other than quoted prices that are observable , either directly or indirectly . these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active . level 3 : unobservable inputs in which little or no market data exists , therefore developed using estimates and assumptions developed by us , which reflect those that a market participant would use . stock-based compensation . the company accounts for stock-based instruments issued to employees in accordance with asc topic 718. asc topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees . the company accounts for non-employee share-based awards in accordance with asc topic 505-50. the value of the portion of an award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method . the company estimates the fair value of each stock option at the grant date by using the black-scholes option-pricing model . the company estimates the fair value of each stock option at the grant date by using the black-scholes option-pricing model . non-gaap financial measures adjusted net earnings in addition to reporting net loss from operations as defined under generally accepted accounting principles ( “ gaap ” ) , the company presents adjusted net earnings from operations ( adjusted net earnings ) , which is a non-gaap performance measure . adjusted net earnings consist of net loss from operations after adjustment for those items shown in the table below . adjusted net earnings does not represent , and should not be considered an alternative to , gaap measurements such as net loss from operations ( its most comparable gaap financial measure ) , and the company 's calculations thereof may not be comparable to similarly titled measures reported by other companies . by eliminating the items shown below , the company believes that the measure is useful to investors because similar measures are frequently used by securities analysts , investors , and other interested parties in their evaluation of companies . the company 's management does not view adjusted net earnings in isolation and also uses other measurements , such as net loss from operation and revenues to measure operating performance . the following table provides a reconciliation of net loss from operations , the most
| results of operations revenue . for the year ended june 30 , 2019 , our revenue was $ 2,318,749 , compared to $ 411,272 for the same period in 2018. this increase in revenue was attributable to increases in product sales from the irie brands , as well as the newly-acquired tierra sciences global and accuvape entities . leafceuticals contributed $ 1,494,332 , green lotus contributed $ 204,021 , tierra science global contributed $ 130,347 and accuvape contributed $ 72,080 to this increase in product sales . these increases were offset by a decrease in license revenue . the company shifted its focus in 2018 from licensing to the sale of products through its acquisitions . operating expenses : direct costs of revenue . for the year ended june 30 , 2019 , direct costs of revenue were $ 2.3 million compared to $ 0.3 million for the same period in 2018. as a percent of revenue , direct costs of revenue were 99 % and 76 % , respectively , for 2019 and 2018. this increase in direct costs of revenue was attributable to recently acquired entities . the margin is not indicative of the future . general and administrative expenses . for the year ended june 30 , 2019 , general and administrative expenses were $ 8,901,380 compared to $ 2,237,301 for the same period in 2018. the increase was due to the expanded operations , primarily through the acquisitions . management projects that these expenses , excluding bad debt expense , to be consistent with its operations based on the current operations . other income ( expense ) .
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we record a contract asset when revenue is recognized prior to invoicing , or a contract liability ( deferred revenue ) when revenue will be recognized subsequent to invoicing . 62 axon enterprise , inc. notes to consolidated financial statements – ( story_separator_special_tag management 's discussion and analysis of financial condition and results of operations ( `` md & a '' ) is designed to provide a reader of our consolidated financial statements with a narrative from the perspective of our management on our financial condition , results of operations , liquidity and certain other factors that may affect our future results . our md & a should be read in conjunction with the other sections of this annual report on form 10-k , including part i , item 1a : “ risk factors ” and part ii , item 8 : “ financial statements and supplementary data. ” the various sections of this md & a contain a number of forward-looking statements , all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing . the tables in the md & a sections below are derived from exact numbers and may have immaterial rounding differences . this section discusses our results of operations for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019. for a discussion and analysis of the year ended december 31 , 2019 , compared to the same period in 2018 please refer to management 's discussion and analysis of financial condition and results of operations included in part ii , item 7 of our annual report on form 10-k for the year ended december 31 , 2019 , filed with the sec on february 27 , 2020. overview axon is a global network of devices , apps and people that helps public safety personnel become smarter and safer . with a mission of protecting life , our technologies give law enforcement the confidence , focus and time they need to protect their communities . our products impact every aspect of a public safety officer 's day-to-day experience with the goal of helping everyone get home safe . our revenues for the year ended december 31 , 2020 were $ 681.0 million , an increase of $ 150.1 million , or 28.2 % , from the prior year . we had a loss from operations of $ 14.2 million compared to $ 6.4 million in the prior year . the higher loss from operations was primarily the result of increased stock compensation expense for our ceo performance award and xspp awards and an increase in legal expenses . remaining cost increases were primarily attributable to the increase in unit sales and an increase in headcount . these cost increases were largely offset by higher revenue and improved gross margin . for the year ended december 31 , 2020 , we recorded net loss of $ 1.7 million compared to net income of $ 0.9 million for the prior year . 2021 outlook for the year ending december 31 , 2021 , we expect revenue of $ 740 million to $ 780 million . we anticipate that revenue for the three months ending march 31 , 2021 will reflect approximately 12 % growth as compared to the three months ended march 31 , 2020. we anticipate capital expenditures of approximately $ 65 million to $ 70 million in 2021 , including approximately $ 25 million in support of capacity expansion and automation of taser device and cartridge manufacturing , approximately $ 20 million for development of our planned new manufacturing and office facility in scottsdale , arizona , and the remainder on investments to support our continued growth . covid-19 in late 2019 , covid-19 was first detected in wuhan , china . in march 2020 the world health organization declared covid-19 a global pandemic . this contagious disease outbreak , which has continued to spread throughout the united states and world , has adversely affected workforces , economies , and financial markets globally , leading to an economic downturn . as an essential provider of products and services for law enforcement and other first responders , we remain focused on protecting the health and wellbeing of our employees while assuring the continuity of our business operations . in response to the pandemic , axon has taken a number of actions : customer support : ● free access to axon citizen cloud software to all public law enforcement agencies in 2020 to enable social distancing ; 28 ● a partnership with the national police foundation to provide personal protective equipment ( “ ppe ” ) for first responders ; ● an online support center for our customers , www.axon.com/covid-19-support-center ; and ● our annual axon accelerate user conference was held virtually in late august 2020 . employee safety and manufacturing : ● curbed all non-essential travel at the beginning of march ; ● we continue to allow for a remote work model for the majority of our office staff , with medical screening for any employees who do work in our offices ; and ● mitigating contamination risk in our facilities through staggered shifts , the use of ppe , increased distancing , cleaning standards that exceed cdc guidance , and paying or subsidizing certain high-risk employees while they stay at home . supply chain : ● we previously took steps to diversify our supply chain and global manufacturing footprint , which have positioned us well to manage through the pandemic . thus far , we have been able to produce and ship our critical core products with little to no interruption . ● we have proactively built up a safety stock of raw and finished goods inventory aligned to our strategic model to help meet strong product demand while also preparing us to stagger factory work schedules . we continue to adjust strategic inventory levels based on areas of risk to mitigate potential supply disruptions . story_separator_special_tag revenue from axon body cameras increased $ 13.1 million following the introduction of our axon body 3 camera during the third quarter of 2019. backlog - as of december 31 , 2020 compared to december 31 , 2019 our backlog for products and services includes all orders that have been received and are believed to be firm . in the taser segment , we define backlog as equal to deferred revenue . deferred revenue represents amounts invoiced to customers for goods and services to be delivered in subsequent periods . we process orders within the taser segment quickly , and our best estimate of firm orders outstanding as of period end represents those that have been invoiced but remain undelivered . the taser segment backlog balance was $ 61.8 million as of december 31 , 2020. we expect to realize $ 28.9 million of this deferred revenue balance as revenue during the next 12 months . this represents cash received and accounts receivable from customers on or prior to december 31 , 2020 for products and services expected to be delivered in the next 12 months . in the software and sensors segment , we define backlog as cumulative bookings , net of cancellations , less product and service revenue recognized to date . bookings are generally realized as revenue over multiple years . the software and sensors backlog balance was $ 1.4 billion as of december 31 , 2020. this backlog balance includes $ 213.4 million of deferred revenue , and $ 1.2 billion that has been recorded as bookings but not yet invoiced , all as of december 31 , 2020. we expect to realize approximately $ 370.0 million of the december 31 , 2020 backlog balance as revenue during the next 12 months . replace_table_token_6_th our backlog of $ 1.5 billion as of december 31 , 2020 has increased significantly from $ 1.1 billion as of december 31 , 2019. the increase in taser segment backlog is not expected to have a material impact on revenue or operating margins . our significant increase in backlog , primarily in the software and sensors segment is indicative of expected revenue growth in this segment . cost of product and service sales cost of product and services sales in dollars and as a percent of related segment sales ( dollars in thousands ) : replace_table_token_7_th within the taser segment , cost of product and service sales was $ 136.9 million , an increase of $ 29.7 million , or 27.7 % , from 2019. cost as a percentage of sales decreased to 37.4 % from 38.1 % . the increase in cost of sales was primarily a result of increased sales , with improvement to the cost as a percentage of sales primarily a result of 32 increased leverage on manufacturing overhead expenses and higher expense in the prior year for taser 7 ramp-up and optimization costs related to scrap , obsolete inventory , and higher labor costs . within the software and sensors segment , cost of product and service sales was $ 127.7 million , an increase of $ 11.4 million , or 9.8 % , from 2019. as a percentage of net sales , cost of product and service sales decreased to 40.6 % in 2020 from 46.7 % in 2019. cost of product sales increased $ 3.7 million primarily driven by the impact of increased units , but decreased as a percentage of total segment net sales , reflecting higher average selling prices on axon cameras and docks , overall product mix , and relatively stable unit costs . cost of service sales increased $ 7.7 million driven primarily by a $ 3.9 million increase in third party cloud data cost , and an increase in professional services expense due to increased deployments in 2020. gross margin gross margin ( dollars in thousands ) : replace_table_token_8_th gross margin increased $ 109.0 million to $ 416.3 million for the year ended december 31 , 2020 compared to $ 307.3 million for 2019. as a percentage of net sales , gross margin increased to 61.1 % for 2020 from 57.9 % for 2019. as a percentage of net sales , gross margin for the taser segment increased to 62.6 % for the year ended december 31 , 2020 from 61.9 % for the year ended december 31 , 2019. within the software and sensors segment , gross margin as a percentage of total segment net sales was 59.4 % and 53.3 % for the years ended 2020 and 2019 , respectively . within the software and sensors segment , product gross margin was 36.6 % for the year ended december 31 , 2020 and 29.8 % for the same period in 2019 , while the service margins were 77.1 % and 74.8 % during those same periods , respectively . sales , general and administrative expenses sales , general and administrative ( `` sg & a '' ) expenses ( dollars in thousands ) : replace_table_token_9_th sg & a expenses increased $ 94.3 million , or 44.3 % . stock-based compensation expense increased $ 44.5 million in comparison to the prior year comparable period , which was primarily attributable to an increase of $ 41.5 33 million in expense related to the ceo performance award and xspp . as of december 31 , 2020 , eleven operational goals for the ceo performance award and xspp are considered probable of attainment or have been attained ; during the prior year comparable period , nine operational goals were considered probable . refer to note 13 of the notes to our consolidated financial statements within this annual report on form 10-k for additional discussion of the ceo performance award and xspp . stock-based compensation expense also increased over the prior year comparable period due to an increase in headcount . professional , consulting and lobbying expenses increased $ 24.0 million , driven primarily by an increase of $ 19.1 million in expenses related to the ftc litigation .
| summary as of december 31 , 2020 , we had $ 155.4 million of cash and cash equivalents , a decrease of $ 16.8 million from december 31 , 2019. cash and cash equivalents and investments totaled $ 652.6 million , an increase of $ 256.4 million from december 31 , 2019. cash flows the following table summarizes our cash flows from operating , investing and financing activities ( in thousands ) : replace_table_token_14_th operating activities net cash provided by operating activities in 2020 of $ 38.5 million consisted of $ 1.7 million in net loss , the net add-back of non-cash income statement items totaling $ 141.0 million and a $ 100.8 million net change in operating assets and liabilities . included in the non-cash items were $ 12.5 million in depreciation and amortization expense , $ 133.6 million in stock-based compensation expense , and a $ 16.5 million increase in deferred income tax assets . the most significant increase to the portion of cash provided by operating activities related to the changes in operating assets and liabilities was a $ 107.8 million increase in accounts and notes receivable and contract assets . the increase in accounts and notes receivable and contract assets was attributable to increased sales in 2020 , primarily sales made under subscription plans . operating cash flows were also negatively impacted by increased inventory of $ 52.2 million , as we proactively built up a safety stock of inventory to help meet strong product demand while also preparing us to stagger factory work schedules , and increased prepaid expenses and other assets of $ 14.9 million resulting primarily from an increase in deferred commissions expense . operating cash flows were positively impacted by an increase in deferred revenue of $ 65.1 million .
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each fiscal year generally consists of four 13-week fiscal quarters , with each fiscal quarter ending on the saturday that is closest to the last day of the last month of the quarter . each of the fiscal years ended july 28 , 2018 , july 29 , 2017 , and july 30 , 2016 , included 52 weeks of operations . throughout this annual report , all references to quarters and years are to our fiscal quarters and fiscal years unless otherwise noted . in addition , this discussion contains forward-looking statements that reflect our plans , estimates and beliefs , and involve risks and uncertainties . our actual results and the timing of certain events could differ materially from those anticipated in or implied by 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 stitch fix is transforming the way people find what they love , one client at a time and one fix at a time . we are reinventing the shopping experience by delivering one-to-one personalization to our clients through the combination of data science and human judgment . this combination drives a better client experience and a more powerful business model than either element could deliver independently . our stylists hand select items from a broad range of merchandise . stylists pair their own judgment with our analysis of client and merchandise data to provide a personalized shipment of apparel , shoes and accessories suited to each client 's needs . we call each of these unique shipments a fix . our clients may choose to schedule automatic shipments that arrive every two to three weeks or on a monthly , bi-monthly or quarterly cadence , or schedule a fix on demand . clients can increase or decrease their desired fix frequency at any time , and can select the exact date by which they want to receive a fix . after receiving a fix , our clients purchase the items they want to keep and return the other items . historically , we have charged clients a $ 20 styling fee that is credited towards the merchandise purchased . if the client chooses to keep all items in a fix , she receives a 25 % discount on her entire purchase . we also provide select clients with an alternative to paying a $ 20 styling fee per fix , known as style pass . style pass clients pay a $ 49 annual fee for unlimited styling that is credited towards merchandise purchases . in february 2018 , we launched extras , a new feature that allows clients to select items such as socks , bras , underwear and other intimates that are then added to the five items their stylist selects for their fix . in july 2018 , we launched stitch fix kids in time for back-to-school season . in addition , in october 2018 , we announced our plan to launch in the united kingdom , or uk . the very human experience that we deliver is powered by data science . our data science capabilities consist of our rich data set and our proprietary algorithms , which fuel our business by enhancing the client experience and driving business model efficiencies . the vast majority of our client data is provided directly and explicitly by our clients , rather than inferred , scraped or obtained from other sources . we also gather extensive merchandise data , such as inseam , pocket shape , silhouette and fit . this large and growing data set provides the foundation for proprietary algorithms that we use throughout our business , including those that predict purchase behavior , forecast demand , optimize inventory and enable us to design new apparel . we believe our data science capabilities give us a significant competitive advantage , and as our data set grows , our algorithms become more powerful . our stylists leverage our data science through a custom-built , web-based styling application that provides recommendations from our broad selection of merchandise . our stylists then apply their judgment to select what they believe to be the best items for each fix . our stylists provide a personal touch , offer styling advice and context to each item selected , and help us develop long-term relationships with our clients . our stylists are u.s.-based employees , most of whom work part-time and remotely . we maintain a broad range of product offerings to serve our clients . we offer both merchandise sourced from brand partners and our own exclusive brands . we use our data to inform the merchandise we buy and develop to best suit our clients . we reach clients through a combination of word of mouth , referrals , advertising and other marketing efforts . we invest in marketing with the goal of attracting new clients , improving engagement with current clients and expanding our client closet share over time . as we continue to expand our marketing efforts , we plan to remain disciplined in measuring the return on advertising spend . we believe our success in serving clients has resulted in our rapid and profitable growth . we have achieved positive cash flows from operations on an annual basis since 2014 , while continuing to make meaningful investments to drive growth . for the fiscal year ended july 28 , 2018 , we reported $ 1.2 billion of revenue representing year-over-year growth of 25.5 % from the fiscal year ended july 29 , 2017 , compared to year-over-year growth of 33.8 % from the fiscal year ended july 30 , 2016 , to the fiscal year ended july 29 , 2017 . story_separator_special_tag 30 non-gaap earnings per share - diluted we define non-gaap eps as diluted eps excluding , when present , the per share impact of the remeasurement of preferred stock warrant liability , compensation expense related to certain stock sales by current and former employees , and the related tax impact of those items , as well as the per share impact of the remeasurement of our net deferred tax assets in relation to the adoption of the tax act . the following table presents a reconciliation of eps attributable to common stockholders - diluted , the most comparable gaap financial measure , to non-gaap eps attributable to common stockholders - diluted for each of the periods presented : replace_table_token_7_th ( 1 ) for the fiscal year ended july 28 , 2018 , the preferred stock warrant liability was dilutive and included in earnings per share attributable to common stockholders - diluted . therefore , it is not an adjustment to arrive at non-gaap eps - diluted . ( 2 ) the u.s. government enacted comprehensive tax legislation in december 2017. this resulted in a net charge of $ 4.2 million for the fiscal year ended july 28 , 2018 , due to the remeasurement of our net deferred tax assets for the reduction in tax rate from 35 % to 21 % . the adjustment to non-gaap net income only includes this transitional impact . it does not include the ongoing impacts of the lower u.s. statutory rate on current year earnings . free cash flow we define free cash flow as cash flow from operations reduced by purchases of property and equipment that are included in cash flow from investing activities . the following table presents a reconciliation of cash flows from operating activities , the most comparable gaap financial measure , to free cash flow for each of the periods presented : replace_table_token_8_th active clients we believe that the number of active clients is a key indicator of our growth and the overall health of our business . we define an active client as a client who checked out a fix in the preceding 12-month period , measured as of the last date of that period . a client checks out a fix when she indicates what items she is keeping through our mobile application or on our website . we had 2,742,000 , 2,194,000 and 1,674,000 active clients as of july 28 , 2018 , july 29 , 2017 , and july 30 , 2016 , respectively , representing year-over-year growth of 25.0 % and 31.1 % , respectively . factors affecting our performance client acquisition and engagement to grow our business , we must continue to acquire clients and successfully engage them . we believe that implementing broad-based marketing strategies that increase our brand awareness has the potential to strengthen stitch fix as a national consumer brand , help us acquire new clients and drive revenue growth . as our business has achieved a greater scale and we are able to support a large and growing client base , we have increased our investments in marketing to take advantage of more marketing channels to efficiently acquire clients . for example , we recently significantly increased our advertising spend , from $ 70.5 million and $ 25.0 million for the fiscal years ended july 29 , 2017 , and july 30 , 2016 , respectively , to $ 102.1 million for the fiscal year ended july 28 , 2018 , to support the growth of our business . we expect to continue to make significant marketing investments to grow our business . we currently utilize both digital and 31 offline channels to attract new visitors to our website or mobile app and subsequently convert them into clients . our current marketing efforts include client referrals , affiliate programs , partnerships , display advertising , television , print , radio , video , content , direct mail , social media , email , mobile “ push ” communications , search engine optimization and keyword search campaigns . to successfully acquire clients and increase engagement , we must also continue to improve the diversity of our offering . these efforts may include broadening our brand partnerships and expanding into new categories , product types , price points and geographies . for example , in july 2018 we launched stitch fix kids , expanding our client and vendor base , and in october 2018 , we announced our intention to launch in the uk , expanding our geographic scope . investment in our operations and infrastructure to grow our client base and enhance our offering , we will incur additional expenses . we intend to leverage our data science and deep understanding of our clients ' needs to inform investments in operations and infrastructure . we anticipate that our expenses will increase as we continue to hire additional personnel and further advance our technological and data science capabilities . moreover , we intend to make capital investments in our inventory , fulfillment centers and office space and logistics infrastructure as we launch new categories , expand internationally and drive operating efficiencies . we expect to increase our spending on these investments in the future and can not be certain that these efforts will grow our client base or be cost-effective . however , we believe these strategies will yield positive returns in the long term . inventory management we leverage our data science to buy and manage our inventory , including merchandise assortment and fulfillment center optimization . to ensure sufficient availability of merchandise , we generally enter into purchase orders well in advance and frequently before apparel trends are confirmed by client purchases . as a result , we are vulnerable to demand and pricing shifts and availability of merchandise at time of purchase . we incur inventory write-offs and changes in inventory reserves that impact our gross margins . because our merchandise assortment directly correlates to client success , we may at times optimize our inventory to prioritize long-term client success over short-term gross margin impact .
| quarterly results of operations the following tables set forth our unaudited quarterly consolidated statements of operations for each of the quarters indicated . the information for each quarter has been prepared on a basis consistent with our audited consolidated financial statements included in this annual report and reflect , in the opinion of management , all adjustments of a normal , recurring nature that are necessary for a fair presentation of the financial information contained in those statements . our historical results are not necessarily indicative of the results that may be expected for the full year or any other period in the future . the following quarterly financial information should be read in conjunction with our audited consolidated financial statements and related notes included in this annual report . replace_table_token_12_th 35 the following table provides a reconciliation of net income ( loss ) to adjusted ebitda : replace_table_token_13_th the following table provides a reconciliation of net income ( loss ) to non-gaap net income ( loss ) : replace_table_token_14_th ( 1 ) the u.s. government enacted comprehensive tax legislation in december 2017. this resulted in a net charge of $ 4.7 million for the three months ended january 27 , 2018 and a net benefit of $ 0.5 million for the three months ended july 28 , 2018 , due to the remeasurement of our net deferred tax assets for the reduction in tax rate from 35 % to 21 % . the adjustment to non-gaap net income only includes this transitional impact . it does not include the ongoing impacts of the lower u.s. statutory rate on current year earnings . 36 the following table provides a reconciliation of earnings per share - diluted to non-gaap earnings per share - diluted : replace_table_token_15_th ( 1 ) for fiscal 2018 , the preferred stock warrant liability was dilutive and included in earnings per share attributable to common stockholders - diluted .
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we also granted reig the option to buy up to an additional 5,700,000 common shares at a price of $ 3.00 per share , which was exercisable through august 4 , 2014. on february 13 , 2012 , pursuant to the terms of the original option , we called in and canceled the option granted to reig in exchange for the issuance of 2,521,561 common shares with an aggregate value equal to $ 13,566 . this amount equals the volume weighted average price per common share for the 20 trading days prior to the exercise of the option , less the story_separator_special_tag certain statements appearing in this item 7 are forward-looking statements within the meaning of the federal securities laws . our actual results may differ materially . we caution you not to place undue reliance on any such forward-looking statements . see “ cautionary factors that may affect future results ” for additional information regarding our forward-looking statements . background as of december 31 , 2013 , we owned interests in 54 hotels in major urban gateway markets including new york , washington dc , boston , philadelphia , san diego , los angeles and miami , including 48 wholly-owned hotels and interests in six hotels owned through unconsolidated joint ventures . our `` summary of operating results '' section below contains operating results for 43 consolidated hotel assets and six hotel assets owned through an unconsolidated joint venture . these results exclude the hampton inn pearl street , new york , ny , which is currently under redevelopment and is expected to open during the first quarter of 2014. the results below also exclude a portfolio of four non-core hotels , for which a purchase and sale agreement has been entered into and the sale of which is expected to close in the first quarter of 2014. as a result , results for these four non-core hotels are included in discontinued operations . we have elected to be taxed as a reit for federal income tax purposes , beginning with the taxable year ended december 31 , 1999. for purposes of the reit qualification rules , we can not directly operate any of our hotels . instead , we must lease our hotels to a third party lessee or to a trs , provided that the trs engages an eligible independent contractor to manage the hotels . as of december 31 , 2013 , we have leased all of our hotels to a wholly-owned trs , a joint venture owned trs , or an entity owned by our wholly-owned trs . each of these trs entities will pay qualifying rent , and the trs entities have entered into management contracts with qualified independent managers , including hhmlp , with respect to our hotels . we intend to lease all newly acquired hotels to a trs . the trs structure enables us to participate more directly in the operating performance of our hotels . the trs directly receives all revenue from , and funds all expenses relating to , hotel operations . the trs is also subject to income tax on its earnings . overview in 2013 , lodging fundamentals for those markets in which we focus , and for our company in particular , continued to stabilize following the economic recession that began in 2008 and 2009. as we conclude 2013 , we believe the improvements in our equity and debt capitalization and repositioning of our portfolio enables us to capitalize on further improvements in lodging fundamentals . we continue to expect improvements in adr , revpar and operating margins , led by hotels in our core urban markets of new york , boston , philadelphia , los angeles , san diego and miami . we also continue to seek acquisition opportunities in urban centers and central business districts . in addition , we will continue to look for attractive opportunities to dispose of properties in secondary and tertiary markets at favorable prices , potentially redeploying that capital in our focus markets . we do not expect to actively pursue acquisitions made through joint ventures in the near term ; however , we may seek to buy out , or sell our joint venture interests to , select existing joint venture partners . we do not expect to actively pursue development loans or land leases in the near term . while property joint ventures and development loans played an important role in our growth in the past , we do not expect them to play the same role in our near-term future . the repositioning of our portfolio , to focus more on high barrier to entry and major urban markets , continued in 2012 and 2013. we acquired seven hotels , including three in miami , one in san diego , one in philadelphia , one in boston , and one in new york city . during 2012 and 2013 , we closed on the sale of 33 wholly owned and 5 joint venture hotels in secondary and tertiary markets that we determined to be non-core . we believe these efforts to reposition our portfolio have yielded positive results in both 2013 and 2012. as shown in the tables below under “ summary of operating results , ” in 2013 , we grew occupancy by approximately 110 basis points , adr by 2.6 % and revpar by 4.0 % across our portfolio of consolidated hotels . likewise , 2012 resulted in increases in occupancy by 200 basis points , adr by 5.2 % and revpar by 7.9 % across our portfolio of consolidated hotels . although we are planning for continued stabilization and improvement in consumer and commercial spending and lodging demand as we enter 2014 , the manner in which the economy will continue to grow , if at all , is not predictable , and certain core economic metrics , including unemployment , are not rebounding as quickly as many had hoped . story_separator_special_tag the operating results of the unconsolidated joint ventures improved by $ 210 for the year ended december 31 , 2013. since the beginning of 2012 , we have made efforts to decrease our investment in unconsolidated joint ventures resulting in the sale of 5 of these assets to third parties and the purchase of the remaining 50 % interest in our holiday inn express , new york , ny hotel on june 18 , 2012. accordingly , the results of this hotel are now included in our consolidated results and our interest in metro 29 th was remeasured . as a result , during the year ended december 31 , 2012 , we recorded a loss from the remeasurement of our investments in the unconsolidated joint venture of approximately $ 224 . on august 13 , 2012 , the company purchased the remaining 50 % ownership interest in inn america hospitality at ewing , the lessee of the courtyard by marriot , ewing , nj . as such , we ceased to account for our investment in inn america hospitality at ewing under the equity method of accounting as of august 10 , 2012 because it became a consolidated subsidiary . our interest in inn america hospitality at ewing , which consisted of our investment in inn america hospitality at ewing and a receivable , was remeasured and as a result based on the appraised value of the hotel , we recorded a loss from the remeasurement of our investments in the unconsolidated joint venture of approximately $ 1,668 during the twelve months ended december 31 , 2012. we recorded an impairment loss of $ 1,813 related to the courtyard , norwich , ct , one of the properties owned by mystic partners , llc . mystic partners , llc is currently in discussions to transfer title to the property to the lender . as we do not anticipate recovering our investment balance in this asset , we have reduced our investment attributed to this property to $ 0 as of december 31 , 2013. income tax benefit during the year ended december 31 , 2013 , the company recorded an income tax benefit of $ 5,600 compared an income tax benefit of $ 3,355 in 2012. excluded from the income tax benefit for 2013 is $ 190 of income tax expense related to discontinued operations . approximately $ 2,866 of the income tax benefit relates to deferred tax assets that the company now believes are realizable and variances between the tax return and year end provision for the y ear ended december 31 , 2012. the remaining income tax benefit is a result of the operations of the company 's taxable reit subsidiary , 44 new england . discontinued operations on september 20 , 2013 , the company entered into a purchase and sale agreement to sell a portfolio of 16 non-core hotels for an aggregate purchase price of approximately $ 217,000 . during the third quarter of 2013 , the company had recorded an impairment of $ 6,591 in connection with the anticipated disposition . as of december 31 , 2013 , the company had closed on the sale of 12 of the hotels . accordingly , a gain of $ 31,559 was recognized during the fourth quarter of 2013 as the proceeds from the sale exceeded the carrying value . the company expects to close on the remaining four non-core hotels during the first quarter of 2014 . 40 on june 12 , 2013 , we closed on the sale of our comfort inn , harrisburg , pa. the company sold the hotel for $ 3,700 and recorded a gain on sale of $ 442. additionally , on september 17 , 2013 , we closed on the sale of holiday inn express camp springs , md property . the company sold the hotel for $ 8,500 and recorded a gain on the sale of $ 1 20 and an impairment charge of $ 3,723 during the second quarter of 2013 as the anticipated net proceeds did not exceed the carrying value . during the year ended december 31 , 2012 , the company closed on the sale of 18 non-core hotel properties , transferred the title of the comfort inn north dartmouth , ma to the lender and closed on the sale of the land parcel and improvements located at 585 eighth avenue , new york , ny . as a result of these transactions , we recognized a gain of approximately $ 11,231 for the year ended december 31 , 2012. the operating results for all 37 of the above described hotel properties and one land parcel have been reclassified to discontinued operations in the statement of operations for the years end december 31 , 2013 and 2012 , respectively . we recorded income from discontinued operations of approximately $ 7,388 during the twelve months ended december 31 , 2013 , compared to income of approximately $ 3,489 during the twelve months ended december 31 , 2012. see “ note 12 – discontinued operations ” for more information . net income/loss net income applicable to common shareholders for the year ended december 31 , 2013 was $ 32,752 compared to net income applicable to common shareholders of $ 8,376 for the same period in 2012. as previously discussed , net income applicable to common shareholders for the year ended december 31 , 2013 was positively impacted by a net gain of approximately $ 12,096 on the purchase of the hyatt union square , new york , ny , as the fair value of the assets acquired less any liabilities assumed exceeded the consideration transf erred . additionally , the $ 31,559 gain on the sale of 12 of the 16 non-core hotels that closed during the year ended december 31 , 2013 positively impacted net income applicable to common shareholders .
| summary of operating results the following table outlines operating results for the company 's portfolio of wholly owned hotels and those owned through joint venture interests ( excluding hotel assets classified as discontinued operations and the hampton inn pearl street , which is a hotel undergoing a re-development project ) that are consolidated in our financial statements for the three years ended december 31 , 2013 , 2012 and 2011. replace_table_token_11_th revpar for the year ended december 31 , 2013 increased 4.0 % for our consolidated hotels when compared to the same period in 2012. this increase represents a continued growth trend in revpar , which is primarily due to the improving economic conditions in 2013 and the acquisition of hotel properties consummated in 2013 that are accretive to revpar . the following table outlines operating results for the three years ended december 31 , 2013 , 2012 and 2011 for hotels we own through an unconsolidated joint venture interest ( excluding those hotel assets have been sold to an independent third party during the period presented ) . these operating results reflect 100 % of the operating results of the property including our interest and the interests of our joint venture partners and other noncontrolling interest holders . replace_table_token_12_th for our unconsolidated hotels , revpar for the year ended december 31 , 2013 was consistent with revpar achieved during the year ended december 31 , 2012. the relatively stable results in revpar during the year of 2013 when compared to the year of 2012 is primarily the result of joint venture assets that are now consolidated for financial reporting purposes and therefore no longer contribute to the operating results of our portfolio of unconsolidated hotels .
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unfavorable changes in these factors could negatively impact hotel room demand and pricing , which would reduce our profit margins on rented suites . additionally , our ability to manage costs could be adversely impacted by significant increases in operating expenses , resulting in lower operating margins and higher hourly labor costs . either a further increase in supply or a further decline in demand could result in increased competition , which could have an adverse effect on the rates and revenue of the hotels in their respective markets . 7 we experienced stronger economic conditions during fiscal year 2019. we anticipate that a strong economy will exist during all of fiscal 2020. we expect the major challenge for fiscal year 2020 to be the continuation of strong competition for corporate leisure group and government business in the markets in which we operate , which may affect our ability to increase room rates while maintaining market share . we believe that we have positioned the hotels to remain competitive through refurbishment , by offering a relatively large number of two-room suites at each location , and by maintaining a robust complementary guest items and a free internet access system . our strategic plan is to obtain the full benefit of our real estate equity , by marketing the hotels at attractive current prices . in addition , the trust is seeking a large private merger partner that may benefit from a merger that would afford that partner access to our listing on the nyse american . for more information on our strategic plan , including information on our progress in disposing of our hotel properties , see “ future positioning ” in this management 's discussion and analysis of financial condition and results of operations . disposition of yuma hotel effective october 24 , 2018 , the trust sold the yuma hotel to an unrelated third party for $ 16.05 million . with an estimated basis of approximately $ 4.6 million , the sale resulted in the recognition of a significant profit after transactional costs . for more information about the disposition of the yuma , arizona hotel , see note 23 of our consolidated financial statements - “ discontinued operations . disposition of ibc hospitality technologies in fiscal 2019 the trust sold its wholly owned subsidiary , inndependent boutique collection ( “ ibc ” , “ ibc hotels ” , “ ibc hotels , llc ” , “ ibc hospitality ” or “ ibc hospitality technologies ” ) , which had a network of approximately 2,000 unrelated hospitality properties ; providing reservation services with proprietary software , plus exclusive marketing distribution and services . on august 15 , 2018 , innsuites hotels , inc. , a wholly-owned subsidiary of innsuites hospitality trust ( “ iht ” ) entered into an agreement to sell ibc hotels , llc to 102037739 saskatchewan ltd. , a wholly-owned subsidiary of obasa capital investments , inc. , an unrelated third party , for $ 3,000,000. the transaction closed , and closing funds of $ 250,000 were transferred to iht , on august 16 , 2018. the sale was made effective as of august 1 , 2018. during the last fiscal year end january 31 , 2018 ibc reported net losses of $ 2.38 million , including an impairment on goodwill , amortization of intangible assets and depreciation of fixed assets . for more information about the sale of our ibc technology segment , see note 23 of our consolidated financial statements - “ discontinued operations ” . 8 our expenses consist primarily of property taxes , insurance , corporate overhead , interest on mortgage debt , professional fees , depreciation of the hotels and hotel operating expenses . hotel operating expenses consist primarily of payroll , guest and maintenance supplies , marketing and utilities expenses . under the terms of its partnership agreement , the partnership is required to reimburse us for all such expenses . accordingly , management believes that a review of the historical performance of the operations of the hotels , particularly with respect to occupancy , which is calculated as rooms sold divided by total rooms available , average daily rate ( “ adr ” ) , calculated as total room revenue divided by number of rooms sold , and revenue per available room ( “ revpar ” ) , calculated as total room revenue divided by number of rooms available , is appropriate for understanding revenue from the hotels . in fiscal year 2019 , as compared with fiscal 2018 , occupancy increased 5.84 % to 80.65 % from 74.81 % in the prior fiscal year . adr decreased by $ 3.09 or 3.86 % to $ 76.98 in fiscal year 2019 from $ 80.07 in fiscal year 2018. the increased occupancy and adr resulted in an increase in revpar of $ 2.30 or 3.83 % to $ 62.37 in fiscal year 2019 from $ 60.07 in fiscal year 2018. the increased occupancy , in spite of the decrease in adr , reflect an improved product and improved economy resulting in the increase in revpar . we anticipate in the next fiscal year , with the completion of refurbishments in our hotels , that steady demand will exist with a significant increase in hotel room supply resulting in additional pressure on the hotel industry to lower rates to maintain current occupancy levels . the following table shows certain historical financial and other information for the periods indicated : replace_table_token_2_th no assurance can be given that occupancy , adr and revpar will not increase or decrease as a result of changes in national or local economic or hospitality industry conditions . story_separator_special_tag the transaction was dated as of july , 31 , 2019. for the fiscal year ended january 31 , 2019 we had total revenue of approximately $ 223,000 compared to approximately $ 1,112,000 for the fiscal year ended january 31 , 2018. a decrease of $ 797,000 or 71.6 % , based on ( 1 ) only six month of revenue in the current fiscal year and ( 2 ) adoption of asu no . 2014-09 ( topic 606 ) “ revenue from contracts with customers ” . expenses – discontinuing operations hotel operations & corporate overhead segment for the twelve months ended january 31 , 2019 , we had approximately $ 2,808,000 of total expenses compared to approximately $ 5,003,000 of total expenses for the fiscal year ended january 31 , 2018. for the fiscal year ended january 31 , 2019 , our yuma , arizona hotel was owned and operated by the trust for approximately 9 months and incurred normal routine operating expenses including approximately $ 1,262,000 of room expenses , approximately $ 36,000 food and beverage expenses , approximately $ 365,000 general and administrative expenses , approximately $ 177,000 of sales and marketing expenses , approximately $ 185,000 of repairs and maintenance expenses , approximately $ 168,000 of hospitality expenses , approximately $ 161,000 utilities , approximately $ 344,000 of depreciation , approximately $ 88,000 of property insurance and tax expenses . in the fiscal year ended january 31 , 2018 , we had approximately $ 3,054,000 of total expenses for the yuma , arizona hotel which included approximately $ 989,000 rooms expenses , approximately $ 59,000 food and beverage expenses , approximately $ 360,000 of general and administrative expenses , approximately $ 352,000 of sales and marketing expenses , approximately $ 281,000 of repairs and maintenance expense , approximately $ 210,000 of hospitality expenses , approximately $ 202,000 of utility expenses , approximately $ 94,000 of property insurance and taxes expenses and approximately $ 468,000 of depreciation expense . for the fiscal year ended january 31 , 2018 , our ontario , california hotel was owned and operated by the trust for approximately 4 months and incurred normal routine operating expenses including approximately $ 942,000 rooms expenses , approximately $ 66,000 food and beverage expenses , approximately $ 360,000 general and administrative expenses , approximately $ 123,000 of sales and marketing expenses , approximately $ 100,000 of repairs and maintenance expenses , approximately $ 122,000 of hospitality expenses , approximately $ 75,000 utilities , approximately $ 178,000 of depreciation , approximately $ 56,000 of taxes and insurance and approximately $ 129,000 interest 12 ibc development segment total expenses of approximately $ 892,000 for the twelve months ended january 31 , 2019 decreased approximately $ 2,781,000 from approximately $ 3,668,024 for the twelve months ended january 31 , 2018. our ibc technologies division was sold in august 2018. general and administrative expenses of approximately $ 402,000 for the twelve months ended january 31 , 2019 decreased approximately $ 946,000 from approximately $ 1,348,000 for the twelve months ended january 31 , 2018. sales and marketing expenses decreased by approximately $ 757,000 , from approximately $ 1,049,000 for the twelve months ended january 31 , 2018 to approximately $ 292,000 for the twelve months ended january 31 , 2019. reservation acquisition costs for the twelve months ended january 31 , 2018 were approximately $ 143,000 , compared to $ 234,000 for the twelve months ended january 31 , 2018 , a decrease of approximately $ 91,000. depreciation expenses decreased by $ 54,000 to approximately $ 50,000 for the fiscal year ended january 31 , 2019 as compared with approximately $ 104,000 for the fiscal year ended january 31 , 2018. liquidity and capital resources overview – hotel operations & corporate overhead our principal source of cash to meet our cash requirements , including distributions to our shareholders , is our share of the partnership 's cash flow , quarterly distributions from the albuquerque , new mexico properties and the sale of our hotel property in yuma , arizona . the partnership 's principal source of revenue is hotel operations for the one hotel property it owns in tucson , arizona . our liquidity , including our ability to make distributions to our shareholders , will depend upon our ability , and the partnership 's ability , to generate sufficient cash flow from hotel operations and to service our debt . hotel operations are significantly affected by occupancy and room rates at the hotels . we anticipate occupancy and adr will grow during this coming year and capital improvements are expected to decrease from the prior year . with approximately $ 2,647,000 of cash and short term investments as of january 31 , 2019 and the availability of a $ 1,000,000 related party demand/revolving line of credit/promissory note and the availability of our two available advances to affiliate credit facilities for a total of $ 1,000,000 maximum borrowing capacity , we believe that we will have enough cash on hand to meet all of our financial obligations as they become due for at least the next twelve months from the issuance date of the these consolidated financial statements . in addition , our management is analyzing other strategic options available to us , including raising additional funds , increasing borrowings at either , or both , the albuquerque and tucson hotels and using the funds generated to pay intercompany loans ( 1 ) due from the tucson hotel to the partnership of approximately $ 2.2 million , and ( 2 ) due from the albuquerque hotel due to the trust of approximately $ 1.1 million ; however , such transactions may not be available on termsthat are favorable to us , or at all .
| overview a summary of total trust operating results for the fiscal years ended january 31 , 2019 and 2018 is as follows : replace_table_token_3_th as a result of the sale of ibc ( see note 23 ) , the chief operating decision maker ( “ codm ” ) , mr. wirth , ceo of the trust , has determined that the trust operations are comprised of one reportable segment , hotel operations & corporate overhead ( continuing operations ) segment that has ownership interest in three hotel properties with an aggregate of 267 suites in arizona and new mexico . the trust has a concentration of assets in the southwest united states and the southern arizona market . prior to the sale of ibc , the trust had previously determined that its operations were comprised of two reportable segments , a hotel operations & corporate overhead segment , and the ibc hospitality segment serving 2,000 unrelated hotel properties . in connection with the sale of ibc , the historical financial information presented in this form 10-k reflects this change with ibc being reported as discontinued operation . the trust has its hotel investments in the southwest region of the united states . the codm does not review assets by geographical region ; therefore , no income statement or balance sheet information by geographical region is provided . revenue – continuing operations : for the twelve months ended january 31 , 2019 , we had total revenue of approximately $ 6,169,000 compared to approximately $ 5,566,000 for the twelve months ended january 31 , 2018 , an increase of approximately $ 603,000. in the prior fiscal years ended january 31 , 2018 and 2017 , we made significant improvements to our yuma , arizona and tucson , arizona properties which allowed us to increase rates with increased occupancy .
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such payments which are subject to certain limitations , including our operating performance during the postemployment period , represent the fair value of the services rendered and are expensed in such periods . f-12 omnicom group inc. and subsidiaries notes to consolidated financial statements severance . the liability for one-time termination benefits , such as severance pay or benefit payouts , is measured and recognized at fair value in the period the liability was incurred . subsequent changes to the liability are story_separator_special_tag pending business combination on july 27 , 2013 , the company and publicis groupe s.a. ( “ publicis ” ) entered into a business combination agreement ( the “ business combination agreement ” ) pursuant to which the company and publicis agreed , subject to the terms and conditions of the business combination agreement , to combine their respective businesses ( the “ business combination ” ) . in the business combination , publicis will merge ( the “ publicis merger ” ) with and into publicis omnicom group n.v. , a newly-formed dutch holding company ( “ publicis omnicom group ” or “ holdco ” ) , with publicis omnicom group being the surviving entity in the publicis merger , and immediately after consummation of the publicis merger , a corporation wholly-owned by publicis omnicom group will merge ( the “ omnicom merger ” and together with the publicis merger , the “ mergers ” ) with and into the company , with the company being the surviving corporation in the omnicom merger . in the publicis merger , each issued and outstanding share of publicis will be exchanged for 1.000000 ordinary share of publicis omnicom group . in addition , prior to completion of the publicis merger , publicis intends to declare and pay a special dividend , in cash , in an amount equal to 1.00 per publicis share ( the “ publicis transaction dividend ” ) . in the omnicom merger , each share of common stock of the company will be converted into the right to receive 0.813008 of a publicis omnicom group ordinary share , together with cash in lieu of fractional shares , subject to adjustment to account for certain changes in outstanding shares and certain excluded asset values as set forth in the business combination agreement . similarly , prior to completion of the omnicom merger , the company intends to declare and pay a special cash dividend of $ 2.00 per share of the company 's outstanding common stock ( the “ omnicom transaction dividend ” and , together with the publicis transaction dividend , the “ transaction dividends ” ) , subject to adjustment to account for certain changes in outstanding shares of the parties and certain excluded asset values , in each case as set forth in the business combination agreement , and , if necessary , to equalize the cumulative amount of regular dividends paid by the company after july 27 , 2013 with the cumulative amount of regular publicis dividends paid after july 27 , 2013. however , dividends of up to $ 0.80 per share in the aggregate paid to holders of the company 's common stock in respect of record dates after july 27 , 2013 and before the mergers are not included in this equalization . the payment of the transaction dividends is also subject to applicable law . completion of the transactions contemplated by the business combination agreement ( which include the mergers , the publicis transaction dividend , and the omnicom transaction dividend , collectively , the “ transactions ” ) will require resolution of all open issues , complexities and challenges and will be subject to the satisfaction or waiver , if legally permitted , of certain conditions including ( a ) approval and adoption of the business combination agreement and the omnicom merger by the holders of two-thirds of the outstanding shares of common stock of the company , approval of the cross-border merger terms ( as described in the business combination agreement ) , and the publicis merger by the holders of two-thirds of the voting rights attached to the publicis shares present at a meeting of the publicis shareholders , and the approval of the publicis transaction dividend by the holders of a majority of the voting rights attached to the publicis shares present at a meeting of the publicis shareholders ; ( b ) approval by requisite governmental regulators and authorities , including approvals under applicable competition laws ; ( c ) the listing of the publicis omnicom group ordinary shares on applicable stock exchanges ; ( d ) the absence of any law or order prohibiting the completion of the transactions ; and ( e ) the absence of a material adverse effect on either the company or publicis . therefore , completion of the transactions is unlikely to occur before the third quarter of 2014. the completion of the transactions contemplated by the business combination agreement will have a material effect on our future results of operations and financial position . executive summary we are a strategic holding company . we provide professional services to clients through multiple agencies around the world . on a global , pan-regional and local basis , our agencies provide these services in the following disciplines : advertising , customer relationship management , or crm , public relations and specialty communications . our business model was built and continues to evolve around our clients . while our agencies operate under different names and frame their ideas in different disciplines , we organize our services around our clients . the fundamental premise of our business is that our clients ' specific requirements should be the central focus in how we deliver our services and allocate our resources . this client-centric business model results in multiple agencies collaborating in formal and informal virtual networks that cut across internal organizational structures to deliver consistent brand messages for a specific client and execute against each of our clients ' specific marketing requirements . story_separator_special_tag because we are a service business , we monitor salary and service costs and office and general costs in relation to revenue . 11 salary and service costs tend to fluctuate in conjunction with changes in revenue . salary and service costs increased 3.1 % in 2013 compared to 2012 , reflecting growth in revenue and an increase in employee compensation , including incentive compensation and severance , as well as increases related to changes in the mix of our business during the year . office and general expenses are less directly linked to changes in revenue than salary and service costs . office and general expenses decreased 0.7 % in 2013 compared to 2012 , reflecting our continuing efforts to control the cost structures of our agencies . in the second half of 2013 we incurred $ 41.4 million of expenses in connection with the pending merger with publicis , which are primarily comprised of professional fees . the merger expenses are shown as a separate component of operating expenses and we expect to incur additional merger expenses in 2014 . operating margins decreased to 12.5 % in 2013 from 12.7 % in 2012 and ebita margins decreased to 13.2 % in 2013 from 13.4 % in 2012 . excluding the merger expenses of $ 41.4 million , operating margins for 2013 increased to 12.8 % from 12.7 % in 2012 and ebita margins for 2013 increased to 13.5 % from 13.4 % in 2012 . net interest expense increased to $ 164.4 million in 2013 from $ 144.6 million in 2012 . interest expense increased $ 17.5 million to $ 197.2 million . the increase in interest expense in 2013 is primarily attributable to the issuance of our 3.625 % senior notes due may 1 , 2022 , or the 2022 notes , of which $ 750 million were issued in april 2012 and $ 500 million were issued in august 2012. interest income decreased $ 2.3 million to $ 32.8 million in 2013 . our effective tax rate increased to 34.0 % in 2013 from 31.8 % in 2012 . excluding the income tax effect of the merger expenses of $ 6.5 million , which reflects the estimated impact of the non-deductibility of a significant portion of the merger expenses , our effective tax rate for 2013 was 33.6 % , which is consistent with our expected effective tax rate for 2013 and reflects the full year effect of the reduction in income tax expense resulting from the implementation of the legal reorganization in the asia pacific region , which occurred in the fourth quarter of 2012. net income - omnicom group inc. decreased $ 7.2 million , or 0.7 % , to $ 991.1 million in 2013 from $ 998.3 million in 2012 . the year-over-year decrease in net income - omnicom group inc. is due to the factors described above . diluted net income per common share - omnicom group inc. increased 2.8 % to $ 3.71 in 2013 , compared to $ 3.61 in 2012 due to the factors described above , as well as the impact of the reduction in our weighted average common shares outstanding . the reduction in our weighted average shares outstanding was the result of repurchases of our common stock , net of stock option exercises and shares issued under our employee stock purchase plan and shares issued upon conversion of our convertible notes due june 15 , 2033 , or 2033 notes , and our convertible notes due july 1 , 2038 , or 2038 notes . in connection with the pending merger with publicis , beginning in the third quarter of 2013 we suspended repurchases of our common stock in the open market . excluding the net effect of the merger expenses , net income - omnicom group inc. for 2013 was $ 1,026.0 million and diluted net income per common share - omnicom group inc. was $ 3.84 . see the reconciliation of results of operations to 2013 non-gaap financial measures on page 16 for a description of the non-gaap financial measures discussed above . critical accounting policies the following summary of our critical accounting policies provides a better understanding of our financial statements and the related discussion in this md & a . we believe that the following policies may involve a higher degree of judgment and complexity in their application and represent the critical accounting policies used in the preparation of our financial statements . readers are encouraged to consider this summary together with our financial statements and the related notes , including note 3 , significant accounting policies , for a more complete understanding of the critical accounting policies discussed below . estimates our financial statements are prepared in conformity with u.s. gaap and require us to make estimates and assumptions that affect the amounts of assets , liabilities , revenue and expenses that are reported in the consolidated financial statements and accompanying notes . we use a fair value approach in testing goodwill for impairment and when evaluating our cost-method investments to determine if an other-than-temporary impairment has occurred . actual results could differ from those estimates and assumptions . acquisitions and goodwill we have made and expect to continue to make selective acquisitions . in making acquisitions , the valuation of potential acquisitions is based on various factors , including specialized know-how , reputation , competitive position , geographic coverage and service offerings of the target businesses , as well as our experience and judgment . 12 business combinations are accounted for using the acquisition method and , accordingly , the assets acquired , including identified intangible assets , the liabilities assumed and any noncontrolling interest in the acquired business are recorded at their acquisition date fair values . in circumstances where control is obtained and less than 100 % of an entity is acquired , we record 100 % of the goodwill acquired . acquisition-related costs , including advisory , legal , accounting , valuation and other costs , are expensed as incurred .
| results of operations - 2012 compared to 2011 ( in millions ) : replace_table_token_13_th ebita , which we define as earnings before interest , taxes and amortization of intangible assets , and ebita margin , which we define as ebita divided by revenue , are non-gaap financial measures . we use ebita and ebita margin as additional operating performance measures , which exclude the non-cash amortization expense of acquired intangible assets . the table above reconciles ebita and ebita margin to the u.s. gaap financial measure of operating income for the periods presented . we believe that ebita and ebita margin are useful measures to evaluate the performance of our businesses . non-gaap financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with u.s. gaap . non-gaap financial measures reported by us may not be comparable to similarly titled amounts reported by other companies . revenue revenue in 2012 increased 2.5 % to $ 14,219.4 million from $ 13,872.5 million in 2011 . organic growth increased revenue by $ 561.9 million and acquisitions , net of dispositions , increased revenue by $ 95.0 million . changes in foreign exchange rates reduced revenue by $ 310.0 million . 20 the components of 2012 revenue change in the united states ( “ domestic ” ) and the remainder of the world ( “ international ” ) were ( in millions ) : replace_table_token_14_th the components and percentages are calculated as follows : the foreign exchange impact is calculated by first converting the current period 's local currency revenue using the average exchange rates from the equivalent prior period to arrive at a constant currency revenue ( in this case $ 14,529.4 million for the total column ) . the foreign exchange impact equals the difference between the current period revenue in u.s. dollars and the current period revenue in constant currency ( $ 14,219.4 million less $ 14,529.4 million for the total column ) .
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on june 28 , 2019 , our board of directors declared a quarterly dividend of $ 0.34 per share , or approximately $ 19.2 million , on our class a and class b common stock . the dividend is payable on july 24 , 2019 to shareholders of record on july 10 , 2019. on may 31 , 2019 , we completed the acquisition of certain assets of knewton , inc. ( “ knewton ” ) , included in our publishing segment . knewton is a provider of affordable courseware and adaptive learning technology for an undisclosed amount . on may 30 , 2019 , we amended and restated our existing credit agreement with a ( i ) five-year revolving credit facility in an aggregate principal amount up to $ 1.25 billion , and ( ii ) a five-year term loan a facility consisting of $ 250 million . fourth quarter highlights increase in gaap results : revenue of $ 491.2 million , an increase of 3 % , operating income of $ 80.0 million , an increase of 10 % and diluted eps of $ 1.10 , an increase of 19 % ; non-gaap adjusted results on a constant currency basis : adjusted revenue increase of 7 % , adjusted operating income increase of 14 % , and adjusted eps increase of 19 % ; non-gaap adjusted results on a constant currency basis and excluding the impact from learning house acquisition : adjusted revenue increase of 3 % , adjusted operating income increase of 17 % , and adjusted eps increase of 26 % . story_separator_special_tag style= '' text-align : justify ; '' > index 24 below is a reconciliation of our gaap eps to non-gaap adjusted eps : replace_table_token_6_th on a constant currency basis , adjusted eps decreased 8 % due to lower adjusted operating income . adjusted eps for the year ended april 30 , 2019 was also lower as compared with prior year due to an $ 0.15 per share dilutive impact of the learning house acquisition . segment operating results : replace_table_token_7_th ( a ) due to the retrospective adoption of asu 2017-07 , total net benefits related to defined benefit and other post-employment benefit plans were reclassified from operating and administrative expenses to interest and other income ( expense ) . the amount for the year ended april 30 , 2018 for the research segment was $ 4.2 million . refer to note 2 , `` summary of significant accounting policies , recently issued , and recently adopted accounting standards , '' for more information . ( b ) adjusted to exclude fx impact and restructuring charges . revenue : research revenue for the year ended april 30 , 2019 increased $ 2.9 million , or flat as compared with prior year . on a constant currency basis , revenue increased 3 % , compared with prior year , primarily due to continued strong growth in publication volumes for open access , particularly hybrid journals . gross profit : gross profit for the year ended april 30 , 2019 decreased 1 % compared with prior year and , on a constant currency basis , increased 2 % . this was due to higher revenues , partially offset by higher costs of sales , primarily due to increased royalty costs . index 25 gross profit margin was 72.9 % compared with prior year of 73.5 % . on a constant currency basis , gross profit margin would have been 73 % . contribution to profit : contribution to profit decreased 5 % to $ 258.9 million for the year ended april 30 , 2019 as compared with the prior year . on a constant currency basis and excluding restructuring charges , contribution to profit decreased 1 % as compared with prior year . this decrease was due to higher operating costs partially offset by higher gross profit . the higher operating costs include additional resources in editorial to support increased journal publishing of $ 11.2 million , increased costs related to advertising and marketing of $ 3.0 million , and sales resources of $ 2.5 million , which were partially offset by lower administrative costs . society partnerships for calendar year 2019 , 17 new society contracts were signed , with combined annual revenue of approximately $ 5.4 million , and 4 society contracts were not renewed with combined annual revenue of approximately $ 1.8 million . projekt deal in the third quarter of 2019 , we completed a new agreement with a national consortium representing all 700 german academic institutions . this new three-year agreement provides those german libraries and their researchers with both subscriptions access and open access publishing . we expect to generate modestly more revenue from this new arrangement and the opportunity to grow revenue through higher publishing volumes . replace_table_token_8_th ( a ) due to the retrospective adoption of asu 2017-07 , total net benefits related to defined benefit and other post-employment benefit plans were reclassified from operating and administrative expenses to interest and other income ( expense ) . the amount for the year ended april 30 , 2018 for the publishing segment was $ 2.3 million . refer to note 2 , `` summary of significant accounting policies , recently issued , and recently adopted accounting standards , '' for more information . ( b ) adjusted to exclude fx impact and restructuring charges , and in the year ended april 30 , 2018 , a publishing brand impairment charge was also excluded . revenue : publishing revenue decreased 7 % to $ 574.2 million on a reported basis , and 6 % on a constant currency basis as compared with prior year . the decrease was primarily due to a decline in education publishing and stm and professional publishing due to a continued shift in market demand for print products . this decline was partially offset by an increase in volume of test preparation and certification product offerings and an increase in wileyplus mainly due to the timing of revenue recognition . story_separator_special_tag under the new accounting policy , these costs are included in cost of sales whereas they were previously included in operating and administrative expenses on the consolidated statements of income . the amount reclassified for the year ended april 30 , 2018 and 2017 was $ 45.8 million and $ 40.0 million , respectively . refer to “ change in accounting policy ” in note 2 , “ summary of significant accounting policies , recently issued , and recently adopted accounting standards , ” for more information on the accounting policy change and note 4 , “ acquisition , ” for more information related to the acquisition of learning house . index 28 operating and administrative expenses : operating and administrative expenses for the year ended april 30 , 2018 increased 1 % to $ 956.8 million , but decreased 1 % on a constant currency basis as compared with prior year due to the following : lower technology costs in the current year of $ 18 million associated with our erp implementation and other reductions in outsourcing and system development consulting costs ; a one-time pension settlement charge in the prior year related to changes in our retiree and long-term disability plans of $ 9 million ; and savings from operational excellence initiatives and restructuring activities . the factors were partially offset by : one-time benefits in the prior year related to the changes in our retiree and long-term disability plans of $ 4 million and a life insurance recovery of $ 2 million ; a full year of costs in the year ended april 30 , 2018 associated with the atypon acquisition , which resulted in an incremental impact of $ 9 million ; an increase in strategy consultation costs in the current year of $ 7 million ; and an impairment charge in the current year related to one of our publishing brands of $ 4 million . restructuring and related charges : beginning in the year ended april 30 , 2013 , we initiated a program ( the “ restructuring and reinvestment program ” ) to restructure and realign its cost base with current and anticipated future market conditions . we are targeting a majority of the cost savings achieved to improve margins and earnings , while the remainder will be reinvested in high-growth digital business opportunities . in the years ended april 30 , 2018 and 2017 , we recorded pre-tax restructuring charges of $ 29 million and $ 13 million , respectively , related to this program . these charges are reflected in restructuring and related charges on the consolidated statements of income and summarized in the following table : replace_table_token_10_th the credits in other activities in 2018 mainly reflect changes in estimates for previously accrued restructuring charges related to facility lease reserves . other activities for the year ended april 30 , 2017 , reflect facility relocation and lease impairment related costs . amortization of intangibles : amortization of intangibles for the year ended april 30 , 2018 declined 3 % to $ 48 million , or 5 % on a constant currency basis compared with prior year . the decrease was a result of the completion of amortization of certain acquired intangible assets . interest expense : interest expense for the year ended april 30 , 2018 decreased $ 4 million to $ 13 million on a reported and constant currency basis . this decrease was due to lower average debt balances outstanding , partially offset by a higher average effective borrowing rate . foreign exchange transaction ( losses ) gains : we reported foreign exchange transaction losses of $ 13 million for the year ended april 30 , 2018 compared to gains of $ 0.4 million in the prior year . the losses in t he year ended april 30 , 2018 were primarily due to the impact of the change in average foreign exchange rates as compared to the u.s. dollar on our intercompany and third-party accounts receivable and payable balances . index 29 provision for income taxes : the following table summarizes the effective tax rate for the years ended april 30 , 2018 and 2017 : replace_table_token_11_th on december 22 , 2017 , the u.s. government enacted comprehensive federal tax legislation originally known as the tax cuts and jobs act of 2017 ( the `` tax act '' ) . in december 2017 , the sec staff issued staff accounting bulletin no . 118 , income tax accounting implications of the tax cuts and jobs act ( `` sab 118 '' ) , which allowed us to record provisional amounts related to the effect of the tax act during a measurement period not to extend beyond one year of the enactment date . as the tax act was passed in december 2017 , and ongoing guidance and accounting interpretation were expected over the 12 months following enactment , we considered the accounting of the transition tax , deferred tax re-measurements , and other items to be provisional due to the forthcoming guidance and our ongoing analysis of final data and tax positions . the effective tax rate was lower in the year ended april 30 , 2018 as compared with the year ended april 30 , 2017 due to the net tax benefit from non-recurring items in the tax act and the effect of the german tax litigation in the year ended april 30 , 2017 as described below . estimated non-recurring items in the tax act reduced our income tax expense by approximately $ 25 million ( $ 0.43/share ) or a reduction in our effective tax rate of 11.7 percentage points for the year ended april 30 , 2018. excluding the effect of the tax act , the rate was 21.9 % for the year ended april 30 , 2018. the rate excluding the benefit from the non-recurring items in the tax act was lower than the u.s. statutory rate for the year ended april 30 , 2018 , primarily due to lower rates applicable to non-u.s. earnings .
| results of operations fiscal year 2019 as compared to fiscal year 2018 summary results revenue : revenue for the year ended april 30 , 2019 was flat at $ 1,800 million , as compared with prior year . on a constant currency basis , revenue increased 2 % as compared with prior year . this increase was primarily due to the following : the incremental impact of the acquisition of learning house on november 1 , 2018 , which contributed $ 31.5 million of revenue , increased revenue in our research segment primarily driven by open access ; and to a lesser extent , licensing , reprints , backfiles , and other offerings ; and , increased revenue in all of our solutions segment businesses , excluding the impact of learning house . these increases were offset by declines in publishing print product sales . refer to note 4 , “ acquisition , ” for more information related to the acquisition of learning house . see the “ segment operating results ” below for additional details on each segment 's revenue and contribution to profit performance . cost of sales : cost of sales for the year ended april 30 , 2019 increased $ 23.7 million , or 4 % , as compared with prior year . on a constant currency basis , cost of sales increased 6 % . this increase was primarily due to the following factors : the incremental impact of learning house , primarily due to marketing and employment related costs , an increase in legacy education services business marketing costs of $ 8.1 million primarily due to increased investments to support revenue growth ; index 22 higher royalty costs of $ 6.6 million ; and , to a lesser extent , higher employment costs of $ 3.4 million . these increases were offset by lower inventory costs of $ 5.8 million primarily due to lower publishing print sales .
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an entity should disclose sufficient information to enable users of financial statements to understand the nature , amount , timing , and uncertainty of revenue and story_separator_special_tag overview ubiquiti networks develops high performance networking technology for service providers and enterprises . our technology platforms focus on delivering highly-advanced and easily deployable solutions that appeal to a global customer base in underserved and underpenetrated markets . our differentiated business model has enabled us to break down traditional barriers such as high product and network deployment costs and offer solutions with disruptive price-performance characteristics . this differentiated business model , combined with our innovative proprietary technologies , has resulted in an attractive alternative to traditional high touch , high-cost providers , allowing us to advance the market adoption of our platforms for ubiquitous connectivity . we offer a broad and expanding portfolio of networking products and solutions for service providers and enterprises . our service provider product platforms provide carrier-class network infrastructure for fixed wireless broadband , wireless backhaul systems and routing . our enterprise product platforms provide wireless lan infrastructure , video surveillance products , and machine-to-machine communication components . we believe that our products are highly differentiated due to our proprietary software protocol innovation , firmware expertise , and hardware design capabilities . this differentiation allows our portfolio to meet the demanding performance requirements of video , voice and data applications at prices that are a fraction of those offered by our competitors . as a core part of our strategy , we have developed a differentiated business model for marketing and selling high volumes of carrier and enterprise-class communications platforms . our business model is driven by a large , growing and highly engaged community of service providers , distributors , value added resellers , systems integrators and corporate it professionals , which we refer to as the ubiquiti community . the ubiquiti community is a critical element of our business strategy as it enables us to drive : rapid customer and community driven product development . we have an active , loyal community built from our customers that we believe is a sustainable competitive advantage . our solutions benefit from the active engagement between the ubiquiti community and our development engineers throughout the product development cycle , which eliminates long and expensive multistep internal processes and results in rapid introduction and adoption of our products . this approach significantly reduces our development costs and time to market . scalable sales and marketing model . we do not currently have , nor do we plan to hire , a direct sales force , but instead utilize the ubiquiti community to drive market awareness and demand for our products and solutions . this community-propagated viral marketing enables us to reach underserved and underpenetrated markets far more efficiently and cost-effectively than is possible through traditional sales models . leveraging the information transparency of the internet allows customers to research , evaluate and validate our solutions with the ubiquiti community and via third party web sites . this allows us to operate a scalable sales and marketing model and effectively create awareness of our brand and products . word of mouth referrals from the ubiquiti community generate high quality leads for our distributors at relatively little cost . self-sustaining product support . the engaged members of the ubiquiti community have enabled us to foster a large , cost efficient , highly-scalable and , we believe , self-sustaining mechanism for rapid product support and dissemination of information . by reducing the cost of development , sales , marketing and support we are able to eliminate traditional business model inefficiencies and offer innovative solutions with disruptive price performance characteristics to our customers . 30 for the years ended june 30 , 2014 , 2013 and 2012 , our revenue was $ 572.5 million , $ 320.8 million and $ 353.5 million , respectively . in the same periods , we generated a net income of $ 176.9 million , $ 80.5 million and $ 102.6 million , respectively . in this annual report on form 10-k we refer to the fiscal years ended june 30 , 2014 , 2013 and 2012 as fiscal 2014 , fiscal 2013 and fiscal 2012 , respectively . key components of our results of operations and financial condition revenues our revenues are derived principally from the sale of networking hardware and management tools . in addition , while we do not sell maintenance and support separately , because we have historically included it free of charge in many of our arrangements , we attribute a portion of our systems revenues to this implied post-contract customer support ( “ pcs ” ) . we classify our revenues into two primary product categories , service provider technology and enterprise technology . service provider technology includes our airmax , edgemax and airfiber platforms , as well as embedded radio products and other 802.11 standard products including base stations , radios , backhaul equipment and customer premise equipment ( “ cpe ” ) . additionally , service provider technology includes antennas and other products in the 2.0 to 6.0ghz spectrum and miscellaneous products such as mounting brackets , cables and power over ethernet adapters . enterprise technology includes the company 's unifi , mfi and unifi video platforms . we sell our products and solutions globally to service providers and enterprises primarily through our extensive network of distributors , and , to a lesser extent , original equipment manufacturers , or oems , and direct customers . sales to distributors accounted for 99 % , 98 % and 98 % of our revenues in the years ended june 30 , 2014 , 2013 and 2012 , respectively . other channel partners , such as resellers and oems , largely accounted for the balance of our revenues . we sell our products without any right of return . cost of revenues our cost of revenues is comprised primarily of the costs of procuring finished goods from our contract manufacturers and chipsets that we consign to certain of our contract manufacturers . story_separator_special_tag for our sales , these criteria are met at the time the products are transferred to the customer 's shipping agent . our arrangements with customers do not include provisions for cancellation , returns , inventory swaps or refunds that would significantly impact recognized revenues . we record amounts billed to distributors for shipping and handling costs as revenues . we classify shipping and handling costs incurred by us as cost of revenues . deposit payments received from distributors in advance of recognition of revenues are included in current liabilities on our balance sheet and are recognized as revenues when all the criteria for recognition of revenues are met . our multi-element arrangements generally include two deliverables . the first deliverable is the hardware and software essential to the functionality of the hardware device delivered at the time of sale . the second deliverable is the implied right to pcs included with the purchase of certain products . pcs is the right to receive , on a when and if available basis , future unspecified software upgrades and features relating to the product 's essential software as well as bug fixes , email and telephone support . 32 we use a hierarchy to determine the allocation of revenues to the deliverables . the hierarchy is as follows : ( i ) vendor-specific objective evidence of fair value ( “ vsoe ” ) , ( ii ) third-party evidence of selling price ( “ tpe ” ) , and ( iii ) best estimate of the selling price ( “ besp ” ) . ( i ) vsoe generally exists only when a company sells the deliverable separately and is the price actually charged by the company for that deliverable . generally we do not sell the deliverables separately and , as such , do not have vsoe . ( ii ) tpe can be substantiated by determining the price that other parties sell similar or substantially similar offerings . we do not believe that there is accessible tpe evidence for similar deliverables . ( iii ) besp reflects our best estimates of what the selling prices of elements would be if they were sold regularly on a stand-alone basis . we believe that besp is the most appropriate methodology for determining the allocation of revenues among the multiple elements . we have allocated revenues between these two deliverables using the relative selling price method which is based on the besp for all deliverables . revenues allocated to the delivered hardware and the related essential software are recognized at the time of sale provided the other conditions for recognition of revenues have been met . revenues allocated to the pcs are deferred and recognized on a straight-line basis over the estimated life of each of these devices which currently is two years . all costs of revenues , including estimated warranty costs , are recognized at the time of sale . costs for research and development and sales and marketing are expensed as incurred . if the estimated life of the hardware product should change , the future rate of amortization of the revenues allocated to pcs would also change . our process for determining besp for deliverables involves multiple factors that may vary depending upon the unique facts and circumstances related to each deliverable . for pcs , we believe our network operators and service providers would be reluctant to pay for such services separately . this view is primarily based on the fact that unspecified upgrade rights do not obligate us to provide upgrades at a particular time or at all , and do not specify to network operators and service providers which upgrades or features will be delivered . we believe that the relatively low prices of our products and our network operators , and service providers ' price sensitivity would add to their reluctance to pay for pcs . therefore , we have concluded that if we were to sell pcs on a stand-alone basis , the selling price would be relatively low . key factors considered by us in developing the besp for pcs include reviewing the activities of specific employees engaged in support and software development to determine the amount of time that is allocated to the development of the undelivered elements , determining the cost of this development effort , and then adding an appropriate level of gross profit to these costs . inventory and inventory valuation our inventories are primarily finished goods and , to a lesser extent , raw materials , which we have consigned to our contract manufacturers . our inventories are stated at the lower of actual cost ( computed on a first-in , first-out basis ) , or market value . market value is based upon an estimated average selling price reduced by the estimated costs of disposal . the determination of market value involves numerous judgments including estimating average selling prices based upon recent sales , industry trends , existing customer orders , and seasonal factors . should actual market conditions differ from our estimates , our future results of operations could be materially affected . we reduce the value of our inventory for estimated obsolescence or lack of marketability by the difference between the cost of the affected inventory and the estimated market value . write-downs are not reversed until the related inventory has been subsequently sold or scrapped . the valuation of inventory also requires us to estimate excess and obsolete inventory . the determination of excess or obsolete inventory is estimated based on a comparison of the quantity and cost of inventory on hand to our forecast of customer demand . customer demand is dependent on many factors and requires us to use significant judgment in our forecasting process . we also make assumptions regarding the rate at which new products will be accepted in the marketplace and at which customers will transition from older products to newer products .
| results of operations comparison of years ended june 30 , 2014 and 2013 replace_table_token_5_th revenues revenues increased $ 251.6 million , or 78 % , from $ 320.8 million in fiscal 2013 to $ 572.5 million in fiscal 2014 . we believe the overall increase in revenues in fiscal 2014 was primarily driven by increased adoption of our service provider and enterprise technologies . additionally , during fiscal 2013 we believe we experienced lost sales due to the proliferation of counterfeit versions of our products , which also created customer uncertainty regarding the authenticity of their potential purchases . we believe these factors contributed to a buildup in channel inventory with our distributors , further impacting our revenues during our fiscal 2013 . in both fiscal 2014 and fiscal 2013 , flytec computers inc. represented 13 % of our revenues . no other distributor or customer represented more than 10 % of our revenues in fiscal 2014 or fiscal 2013 . revenues by product type replace_table_token_6_th service provider technology revenues increased $ 165.3 million , or 58 % , primarily due to continued expansion of core infrastructure build-outs in our wireless markets . additionally , we believe we experienced significant lost sales during fiscal 2013 due to the proliferation of counterfeit versions of our products as discussed above , which also created customer uncertainty regarding the authenticity of their potential purchases . 35 enterprise technology revenues increased $ 86.4 million , primarily due to product expansion and further adoption of our unifi technology platform . revenues by geography we have determined the geographical distribution of our product revenues based on our customers ' ship-to destinations . a majority of our sales are to distributors who in turn sell to resellers or directly to end customers , which may be different countries than the initial ship-to destination .
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cautionary note regarding forward-looking statements this annual report on form 10-k , including management 's discussion and analysis of financial condition and results of operations and quantitative and qualitative disclosures about market risk contains forward-looking statements within the meaning of section 21e of the exchange act of 1934 and section 27a of the securities act concerning , among other things , the prospects of , and developments and business strategies for , vasco and our operations , including the development and marketing of certain new products and services and the anticipated future growth in certain markets in which we currently market and sell our products and services or anticipate selling and marketing our products and services in the future . these forward-looking statements ( 1 ) are identified by use of terms and phrases such as expect , believe , will , anticipate , emerging , intend , plan , could , may , estimate , should , objective , goal , possible , potential and similar words and expressions , but such words and phrases are not the exclusive means of identifying them , and ( 2 ) are subject to risks and uncertainties and represent our present expectations or beliefs concerning future events . vasco cautions that the forward-looking statements are qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements . these risks , uncertainties and other factors have been described in greater detail in this annual report on form 10-k and include , but are not limited to , ( a ) risks of general market conditions , including currency fluctuations and the unprecedented uncertainties resulting from the current turmoil in world economic and financial markets , ( b ) risks inherent to the computer and network security industry , including rapidly changing technology , evolving industry standards , increasing numbers of patent infringement claims , changes in customer requirements , price competitive bidding , and changing government regulations , and ( c ) risks specific to vasco , including , demand for our products and services , competition from more established firms and others , pressures on price levels and our historical dependence on relatively few products , certain suppliers and certain key customers . thus , the results that we actually achieve may differ materially from any anticipated results included in , or implied by these statements . general the following discussion is based upon our consolidated results of operations for the years ended december 31 , 2010 , 2009 and 2008 ( percentages in the discussion are rounded to the closest full percentage point ) and should be read in conjunction with our consolidated financial statements included elsewhere in this annual report on form 10-k. we design , develop , market and support open standards-based hardware and software security systems that manage and secure access to information assets . we also design , develop , market and support patented strong user authentication products and services for e-business and e-commerce . our products enable secure financial transactions to be made over private enterprise networks and public networks , such as the internet . our strong user authentication is delivered via our hardware and software digipass security products ( collectively digipasses ) , most of which incorporate an electronic signature capability , which further protects the integrity of electronic transactions and data transmissions . some of our digipasses are compliant with the europay mastercard visa ( emv ) standard and are compatible with mastercard 's and visa 's chip authentication program ( cap ) . some of our digipass units comply with the initiative for open authentication ( oath ) . as evidenced by our current customer base , our products are purchased by companies and , depending on the business application , are distributed to either their employees or their customers . those customers may be other businesses or , as an example in the case of internet banking , our customer banks ' corporate and retail customers . 31 our target market is any business process that uses some form of electronic interface , particularly the internet , where the owner of that process is at risk if unauthorized users can gain access to its process and either obtain proprietary information or execute transactions that are not authorized . our products can not only increase the security associated with accessing the business process , thereby reducing the losses from unauthorized access , but also , in many cases , can reduce the cost of the process itself by automating activities that were previously performed manually . in the fourth quarter of 2010 , we announced the availability of our dps product offering . dps is our cloud-based authentication platform . dps will enable application hosts to deploy strong two-factor authentication quickly with minimal upfront costs . users will benefit from the added security of strong two-factor authentication available on an increasing number of internet sites and applications . we expect those applications to include b2b applications , b2e applications ( e.g. , employees of companies logging into third party applications operated in the cloud ) , and b2c applications . while there were no revenues generated from this product in 2010 , we believe dps has the potential for significant future growth as it will make two-factor authentication more affordable and readily available to users and applications markets . in january 2011 , we completed the diginotar acquisition . the acquisition expands the technological breadth of our product line by expanding our abilities to offer pki technology throughout the product line . story_separator_special_tag accordingly , assets and liabilities are translated into u.s. dollars using current exchange rates as of the balance sheet date . revenues and expenses are translated at average exchange rates prevailing during the year . translation adjustments arising from differences in exchange rates generated other comprehensive loss of $ 3,747 in 2010 , other comprehensive income of $ 559 in 2009 and other comprehensive loss of $ 2,512 in 2008. these amounts are included as a separate component of stockholders ' equity . the functional currency for both our subsidiaries in switzerland and singapore is the u.s. dollar . gains and losses resulting from foreign currency transactions are included in the consolidated statements of operations as other non-operating income/expense . in 2010 , we reported $ 225 of foreign exchange transaction losses compared to foreign exchange gains of $ 835 in 2009 and foreign exchange losses of $ 580 in 2008 . 33 revenue revenue by geographic regions : we classify our sales by customers ' location in four geographic regions : 1 ) emea , which includes europe , the middle east and africa ; 2 ) the united states , which for our purposes includes sales in canada ; 3 ) asia pacific ; and 4 ) other countries , including australia , latin america and central asia . the breakdown of revenue in each of our major geographic areas was as follows : replace_table_token_5_th 2010 compared to 2009 total revenue in 2010 increased $ 6,268 or 6 % from 2009. the increase in total revenue was primarily attributable to an increase in products sold to the banking market , both hardware and non-hardware , and an increase in non-hardware products sold to the enterprise and application security market , partially offset by the strengthening of the u.s. dollar as compared to the euro , as noted above , and a decrease in hardware products sold to the enterprise and application security market . please see the discussion below under revenue by target market for additional information regarding the changes in revenue from the banking market and the enterprise and application security market . revenue generated in emea for the full-year 2010 was $ 139 or less than 1 % lower in 2010 than in 2009. the decrease was primarily attributable to a decline of approximately 1 % in the banking market , partially offset by a 2 % increase in revenue from the enterprise and application security markets . we estimate that the change in currency rates reduced revenues in emea by $ 2,282 compared to 2009. had currency exchange rates in 2010 remained unchanged from 2009 , revenues in emea would have been approximately 3 % higher than in full-year 2009. revenue generated in united states for the full-year 2010 was $ 2,536 or 34 % higher in 2010 than in 2009. revenue was approximately 42 % higher in the banking market and 30 % higher in the enterprise and application security markets than in full-year 2009. the u.s. market continues to defer the adoption of two factor authentication for retail internet banking applications . revenue generated in asia pacific for the full-year 2010 was $ 1,368 or 14 % higher in 2010 than in 2009. revenue was approximately 25 % higher in the banking market and 26 % lower in the enterprise and application security markets than in full-year 2009. the decline in revenue from the enterprise and application security market in asia pacific was primarily attributable to large orders shipped in 2009 that were not repeated or replaced by new orders in 2010. we believe the region offers substantial opportunities for future growth as our sales office in japan , opened in 2007 , matures and the two-factor authentication market in china expands . revenue generated in other countries for the full-year 2010 was $ 2,503 or 21 % higher in 2010 than in 2009. revenue in other countries was approximately 23 % higher in the banking market and 12 % higher in the enterprise and application security markets . as noted above , the average exchange rate for the u.s. dollar was approximately 16 % weaker than the australian dollar in 2010 compared to 2009 and we estimate that the change 34 in currency rates increased revenues in other countries by $ 591 compared to 2009. we expect that revenue from other countries will be more volatile than our other regions given the earlier stage of development of the authentication market in those countries . vasco , however , plans to continue to invest in new markets based on our estimates of the market 's demand for strong user authentication . given the relatively small size of the revenue in regions other than emea , the results may vary substantially year-to-year on both an absolute and on a percentage basis depending upon the timing of the receipt and delivery of a large new order or the completion of a large rollout . we believe that the variability in results will lessen as we develop a larger base of banking customers and further develop our distribution channel for the enterprise and application security market . 2009 compared to 2008 total revenue in 2009 decreased $ 31,282 or 24 % from 2008. the decrease in total revenue was primarily attributable to a decline in products sold to the banking market , both hardware and non-hardware , a decline in non-hardware products sold to the enterprise and application security market and the strengthening of the u.s. dollar as compared to the euro , as noted above , partially offset by an increase in hardware products sold to the enterprise and application security market . revenue generated in emea for the full-year 2009 was $ 16,678 or 19 % lower in 2009 than in 2008. the decrease was primarily attributable to factors noted above .
| general and administrative expenses 2010 compared to 2009 consolidated general and administrative expenses for the year ended december 31 , 2010 were $ 18,538 , an increase of $ 2,355 or 15 % , from the $ 16,183 reported for 2009. the increase in general and administrative expenses was primarily attributable to increased professional fees and higher cash compensation , non-cash compensation , depreciation and recruiting expenses , partially offset by the benefit from the changes in currency rates and lower provisions for uncollectible accounts receivable . we estimate that the strengthening of the u.s. dollar to other currencies , primarily the euro and australian dollar , reduced general and administrative expenses by approximately $ 430 in 2010 compared to 2009 . 41 the average full-time general and administrative employee headcount increased 13 % to 53 in 2010 from 47 in 2009. at year-end 2010 , 2009 and 2008 , the company employed 57 , 46 and 47 general and administrative employees , respectively . 2009 compared to 2008 consolidated general and administrative expenses for the year ended december 31 , 2009 were $ 16,183 , a decrease of $ 54 or less than 1 % , from the $ 16,237 reported for 2008. the decrease in general and administrative expenses was primarily attributable to the benefit from the reduction of the accruals for long-term incentive plans , the benefit from the changes in currency rates , lower travel , recruiting and professional fees related to cost containment actions , partially offset by the increased compensation expenses related to increased headcount , increased depreciation related to prior year investments in systems and increased software licensing costs , also related to prior year investments in systems .
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forward looking statements statements included in this management 's discussion and analysis of financial condition and results of operations and elsewhere in this report that do not relate to present or historical conditions are forward-looking statements within the meaning of that term in section 27a of the securities act of 1933 , as amended , and in section 21e of the securities exchange act of 1934 , as amended . additional oral or written forward-looking statements may be made by us from time to time , and forward-looking statements may be included in documents that are filed with the sec . forward-looking statements involve risks and uncertainties that could cause our results or outcomes to differ materially from those expressed in the forward-looking statements . forward-looking statements may include , without limitation , statements relating to our plans , strategies , objectives , expectations and intentions and are intended to be made pursuant to the safe harbor provisions of the private securities litigation reform act of 1995. words such as believes , forecasts , intends , possible , expects , estimates , anticipates , or plans and similar expressions are intended to identify forward-looking statements . among the important factors on which such statements are based are assumptions concerning the state of the united states economy and the local markets in which our portfolio companies operate , the state of the securities markets in which the securities of our portfolio companies could be traded , liquidity within the united states financial markets , and inflation . forward-looking statements are also subject to the risks and uncertainties described under the caption risk factors contained in part i , item 1a . of this annual report . there may be other factors not identified that affect the accuracy of our forward-looking statements . further , any forward-looking statement speaks only as of the date when it is made and , except as required by law , we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances . new factors emerge from time to time that may cause our business not to develop as we expect , and we can not predict all of them . overview currently , we are an internally managed investment company that lends to and invests in small companies often concurrently with other investors . we have elected to be treated as a business development company ( bdc ) under the investment company act of 1940 , as amended ( the 1940 act ) . as a bdc , we are required to comply with certain regulatory requirements . we have historically made the majority of our investments through our wholly-owned subsidiary , rand capital sbic , inc. ( rand sbic ) , which operates as a small business investment company ( sbic ) and has been licensed by the u.s. small business administration ( sba ) since 2002. rand sbic was approved for an additional $ 6.0 million in new sba leverage commitments during 2018. our principal investment objective has historically been to achieve long-term capital appreciation on our equity investments while maintaining a current cash flow from our debenture and pass-through equity instruments to fund our operating expenses . therefore , we invest in a variety of financial instruments to provide a current return on a portion of the investment portfolio . the equity features contained in our investment portfolio are structured to realize capital appreciation over the long-term and typically do not generate current income in the form of dividends or interest . we have historically made initial investments of $ 500,000 to $ 1,000,000 directly in companies through equity or in debt or loan instruments and frequently provided follow-on investments during our investment tenure . the debt instruments generally have a maturity of not more than five years and usually have detachable equity warrants . interest may be paid currently or deferred , based on the investment structure negotiated . 17 we may exit investments through the maturation of a debt security or when a liquidity event takes place , such as the sale , recapitalization , or initial public offering of a portfolio company . the method and timing of the disposition of our portfolio investments can be critical to the realization of maximum total return . we generally expect to dispose of our equity securities through private sales of securities to other investors or through an outright sale of the portfolio company or a merger . we anticipate our debt investments will be repaid with interest and hope to realize further appreciation from the warrants or other equity type instruments we receive in connection with the investment . we fund new investments and operating expenses through existing cash balances , investment returns , and interest and principal payments from our portfolio companies in january 2019 , we entered into a stock purchase agreement to sell approximately 8.3 million shares of our common stock to east asset management , llc ( east ) for $ 25 million in cash and portfolio assets . the portfolio assets will be income-producing instruments that were originated in the last 48 months . additionally , a new entity , rand capital management , llc ( rcm ) , will be established as an external management company and will be retained by rand capital to be its investment advisor . rcm will have the same management team that is currently at rand . the sale and issuance of common stock pursuant to the stock purchase agreement as well as the externalization of the management structure are subject to shareholder and other regulatory approvals . following the closing of the above-described transactions ( the transactions ) and contingent upon meeting certain tax-related conditions , we intend to elect to become a regulated investment company ( ric ) for u.s. federal tax purposes . story_separator_special_tag debt investments are defined as debt financings that include one or more equity features such as conversion rights , stock purchase warrants , and or stock purchase options . a financing may also be categorized as a debt financing if it is accompanied by the direct purchase of an equity interest in the portfolio company . we utilize several approaches to determine the fair value of an investment . the main approaches are : loan and debt securities are valued at cost when it is representative of the fair value of the investment or sufficient assets or liquidation proceeds are expected to exist from a sale of a portfolio company at its estimated fair value . however , they may be valued at an amount other than cost given the carrying interest rate versus the related inherent portfolio risk of the investment . a loan or debt instrument may be reduced in value if it is judged to be of poor quality , collection is in doubt or insufficient liquidation proceeds exist . equity securities may be valued using the asset approach , market approach or income approach. the asset approach involves estimating the liquidation value of the portfolio company 's assets . this approach values the equity at the value remaining after the portfolio company pays of its debt and loan balances and its outstanding liabilities . the market approach uses observable prices and other relevant information generated by similar market transactions . it may include the use of market multiples derived from a set of comparables to assist in pricing the investment . additionally , we adjust valuations if a subsequent significant equity financing has occurred that includes a meaningful portion of the financing by a sophisticated , unrelated new investor . the income approach employs a cash flow and discounting methodology to value an investment . asc 820 classifies the inputs used to measure fair value into the following hierarchy : level 1 : quoted prices in active markets for identical assets or liabilities , used in our valuation at the measurement date . level 2 : quoted prices for similar assets or liabilities in active markets , or quoted prices for identical or similar assets or liabilities in markets that are not active , or other observable inputs other than quoted prices . level 3 : unobservable and significant inputs to determining the fair value . financial assets are categorized based upon the level of judgment associated with the inputs used to measure their fair value . any changes in estimated fair value are recorded in the statement of operations as net change in unrealized depreciation on investments. under the valuation policy , we value unrestricted publicly traded companies , categorized as level 1 investments , at the average closing bid price for the last three trading days of the reporting period . there were no level 1 or level 2 investments as of december 31 , 2018. in the valuation process , we value restricted securities , categorized as level 3 investments , using information from these portfolio companies , which may include : audited and unaudited statements of operations , balance sheets and operating budgets ; current and projected financial , operational and technological developments of the portfolio company ; current and projected ability of the portfolio company to service its debt obligations ; 20 the current capital structure of the business and the seniority of the various classes of equity if a deemed liquidation event were to occur ; pending debt or capital restructuring of the portfolio company ; current information regarding any offers to purchase the investment , or recent fundraising transactions ; current ability of the portfolio company to raise additional financing if needed ; changes in the economic environment which may have a material impact on the operating results of the portfolio company ; internal circumstances and events that may have an impact ( both positive and negative ) on the operating performance of the portfolio company ; qualitative assessment of key management ; contractual rights , obligations or restrictions associated with the investment ; and other factors deemed relevant by our management to assess valuation . the valuation may be reduced if a portfolio company 's performance and potential have deteriorated significantly . if the factors that led to a reduction in valuation are overcome , the valuation may be readjusted . equity securities equity securities may include preferred stock , common stock , warrants and limited liability company membership interests . the significant unobservable inputs used in the fair value measurement of our equity investments are earnings before interest , taxes and depreciation and amortization ( ebitda ) and revenue multiples , where applicable , the financial and operational performance of the business , and the senior equity preferences that may exist in a deemed liquidation event . standard industry multiples may be used when available ; however , our portfolio companies are typically small and in early stages of development and these industry standards may be adjusted to more closely match the specific financial and operational performance of the portfolio company . due to the nature of certain investments , fair value measurements may be based on other criteria , which may include third party appraisals . significant changes to the unobservable inputs , such as variances in financial performance from expectations , may result in a significantly higher or lower fair value measurement . significant changes in any of these unobservable inputs may result in a significantly higher or lower fair value estimate . another key factor used in valuing equity investments is a significant recent arms-length equity transaction with a sophisticated non-strategic unrelated new investor entered into by the portfolio company . the terms of these equity transactions may not be identical to the equity transactions between the portfolio company and us , and the impact of the difference in transaction terms on the market value of the portfolio company may be difficult or impossible to quantify .
| results of operations investment income our principal investment objective is to achieve long-term capital appreciation on our equity investments while maintaining a current cash flow from our debenture and pass-through equity instruments to fund expenses . therefore , we invest in a variety of financial instruments to provide a current return on a portion of the investment portfolio . comparison of the years ended december 31 , 2018 and 2017 replace_table_token_11_th investment income increased 45 % , or $ 652,172 , from $ 1,454,782 for the year ended december 31 , 2017 to $ 2,106,954 for the year ended december 31 , 2018. the total investment income that is received on a current basis for the year ended december 31 , 2018 is received from 9 portfolio companies . this contrasts with the 11 portfolio companies generating current income for the year ended december 31 , 2017. interest from portfolio companies interest from portfolio companies was approximately 30 % higher during the year ended december 31 , 2018 versus the same period in 2017 due to the fact that we have originated more income-producing debt investments in the last year . the new debt instruments were originated from knowledgevision systems , inc. ( knowledgevision ) , tech 2000 , inc. ( tech 2000 ) , genicon inc. ( genicon ) and several other portfolio companies . in addition , during 2018 the empire genomics loans were modified and resulted in a recording of interest that had previously not been accrued of approximately $ 91,000. this amount was capitalized into the loan balance as part of the debt modification and is non-recurring . the following investments are on non-accrual status : g-tec natural gas systems ( g-tec ) and a portion of the mercantile adjustment bureau , llc ( mercantile ) outstanding loan balances .
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a detailed review of the company 's fiscal 2019 performance compared to fiscal 2018 appears below under “ results of operations ” and “ liquidity and capital resources. ” a detailed review of the company 's fiscal 2018 performance compared to fiscal 2017 appears under “ results of operations ” and “ liquidity and capital resources ” in exhibit 99.1 to the company 's registration statement on form 10 , as amended and filed with the sec on january 7 , 2019. introduction the distribution on march 19 , 2019 , the company became a standalone publicly traded company through the pro rata distribution by twenty-first century fox , inc. ( now known as tfcf corporation ) ( “ 21cf ” ) of all of the issued and outstanding common stock of fox to 21cf stockholders ( other than holders that were subsidiaries of 21cf ) ( the “ distribution ” ) in accordance with the amended and restated distribution agreement and plan of merger , dated as of june 20 , 2018 , by and between 21cf and 21cf distribution merger sub , inc. following the distribution , 354,328,270 and 266,173,651 shares of the company 's class a common stock , par value $ 0.01 per share ( the “ class a common stock ” ) , and class b common stock , par value $ 0.01 per share ( the “ class b common stock ” and , together with the class a common stock , the “ common stock ” ) , respectively , began trading independently on the nasdaq global select market . in connection with the distribution , the company entered into the separation and distribution agreement , dated as of march 19 , 2019 ( the “ separation agreement ” ) , with 21cf , which effected the internal restructuring ( the “ separation ” ) whereby 21cf transferred to fox a portfolio of 21cf 's news , sports and broadcast businesses , including fox news media ( consisting of fox news and fox business ) , the fox network , fox sports , fox television stations , and sports cable networks fs1 , fs2 , fox deportes and big ten network ( collectively , the “ fox business ” ) , and certain other assets , and fox assumed from 21cf the liabilities associated with such businesses and certain other liabilities . the separation and the distribution were effected as part of a series of transactions contemplated by the amended and restated merger agreement and plan of merger , dated as of june 20 , 2018 ( the “ 21cf disney merger agreement ” ) , by and among 21cf , the walt disney company ( “ disney ” ) and certain subsidiaries of disney , pursuant to which , among other things , 21cf became a wholly-owned subsidiary of disney . pursuant to the 21cf disney merger agreement , immediately prior to the distribution , the company paid to 21cf a dividend in the amount of $ 8.5 billion ( the “ dividend ” ) . the final determination of the taxes in respect of the separation and the distribution for which the company is responsible pursuant to the 21cf disney merger agreement and a prepayment of the estimated taxes in respect of divestitures ( collectively , the “ transaction tax ” ) was $ 6.5 billion . following the distribution , on march 20 , 2019 the company received a cash payment in the amount of $ 2.0 billion from disney , which had the net effect of reducing the dividend the company paid to 21cf . the transaction tax included a prepayment of the company 's share of the estimated tax liabilities resulting from the anticipated divestitures by disney of certain assets , principally the fox sports regional sports networks . this prepayment was in the amount of approximately $ 700 million and is subject to adjustment in the future , when the actual amounts of the tax liabilities are reported on the federal income tax returns of disney or a subsidiary of disney . as a result of the separation and the distribution , which was a taxable transaction for which the estimated tax liability of $ 5.8 billion was included in the transaction tax paid by the company , fox obtained a tax basis in its assets equal to their respective fair market values . this will result in estimated annual tax deductions of approximately $ 1.5 billion , principally over the next 15 years related to the amortization of the additional tax basis . this amortization is estimated to reduce the company 's annual cash tax liability by $ 370 million per year at the current combined federal and state applicable tax rate of 25 % . such estimates are subject to revisions , which could be material , based upon the occurrence of future events including , among other things , a refund of the prepayment discussed above . in connection with the separation , the company entered into several agreements that govern certain aspects of the company 's relationship with 21cf and disney following the separation . these include the separation agreement , a tax matters agreement , a transition services agreement , as well as agreements relating to intellectual property licenses , employee matters , commercial arrangements and a studio lot lease ( see note 1 — description of business and basis of 29 presentation to the accompanying financial statements of fox under the heading “ the distribution ” for additional information ) . basis of presentation prior to the distribution , the company 's combined financial statements were prepared on a standalone basis , derived from the consolidated financial statements and accounting records of 21cf . the company 's financial statements as of june 30 , 2018 and for the years ended june 30 , 2018 and 2017 are presented on a combined basis as the company was not a separate consolidated group prior to the distribution . story_separator_special_tag the fox studios lot , located in los angeles , california , provides television and film production services along with office space , studio operation services and includes all operations of the facility . cable network programming and television the cable network programming and television industries continue to evolve rapidly , with changes in technology leading to alternative methods for the delivery and storage of digital content . these technological advancements have driven changes in consumer behavior and have empowered consumers to seek more control over when , where and how they consume content . content owners are increasingly delivering their content directly to consumers over the internet and innovations in distribution platforms have enabled consumers to view internet-delivered content on televisions and portable devices . these changes in technologies and consumer behavior have contributed to declines in the number of subscribers to traditional mvpd services , and these declines are expected to continue and possibly accelerate in the future . at the same time , expenditures by advertisers are affected by technologies that allow users to view programming from a remote location or on a time-delayed basis and provide users the ability to fast-forward , rewind , pause and skip programming and advertisements . furthermore , the pricing and volume of advertising may be affected by shifts in spending from more traditional media and toward digital and mobile offerings , which can deliver targeted advertising more promptly , or toward newer ways of purchasing advertising . given these changes in technology and consumption habits , the company believes its strength in “ appointment-based ” content provides the company with a strategic advantage . fox differentiates itself from its competitors by focusing on audiences at meaningful scale watching premium content in real time and by attracting sales from advertising customers who want to reach larger audiences within specified time parameters . as the share of live news and sports consumption has increased across television viewing overall from approximately 23 % of all live viewership in calendar 2014 to approximately 30 % in calendar 2018 , fox has strategically built one of the most-followed news and sports platforms in the country . real-time consumption of live news and sports programming has increased approximately 9 % from 2014 to 2018. fox 's franchises are leaders in these growing categories , generating strong demand from both advertisers and traditional and digital mvpds . as viewers increasingly move toward ad-free or delayed viewing , we believe the scale of our live audiences and premium nature of the content we deliver across our channels increasingly differentiate us from our competitors . audiences engage with fox 's content in real-time and , as a result , our offerings have become more valuable to distributors and advertisers , leading to higher revenues for fox . in addition , we have expanded the distribution of our premium content across digital mvpds . nearly all of our networks are offered in all major digital mvpd services and we are cultivating direct interactions between fox brands and consumers outside of traditional linear television . 31 the company operates in a highly competitive industry and its performance is dependent , to a large extent , on the impact of changes in consumer behavior as a result of new technologies , the sale of advertising on its cable and broadcast networks and television stations , maintenance , renewal and terms of its carriage , affiliation and content agreements and programming rights , the popularity of its content , general economic conditions ( including financial market conditions ) , the company 's ability to manage its businesses effectively , and its relative strength and leverage in the industry . for more information , see item 1 . “ business ” and item 1a . “ risk factors ” included herein . the company 's cable network programming and television segments derive a majority of their revenues from affiliate fees for the transmission of content and advertising sales . for fiscal 2019 , the company generated revenues of $ 11.4 billion , of which approximately 49 % was generated from affiliate fees , 44 % was generated from advertising , and 7 % was generated from other operating activities . affiliate fees primarily include ( i ) monthly subscriber-based license and retransmission consent fees paid by programming distributors that carry our cable networks and our owned and operated television stations ; and ( ii ) fees received from television stations that are affiliated with the fox network . u.s. law governing retransmission consent provides a mechanism for the television stations owned by the company to seek and obtain payment from traditional mvpds who carry the company 's broadcast signals . affiliate fee revenues are net of the amortization of cable distribution investments ( capitalized fees paid to u.s. mvpds typically to facilitate the carriage of a domestic cable network ) . the company defers the cable distribution investments and amortizes the amounts on a straight-line basis over the contract period . traditional mvpds are currently the predominant means of distribution of the company 's program services , while digital mvpds have become an increasingly significant share of overall distribution . revenues are impacted by rate changes , changes in the number of subscribers to the company 's content , changes in the expenditures by advertisers , as well as the impact of state , congressional and presidential elections cycles and of special events impacting advertising revenues , such as the national football league 's ( “ nfl ” ) super bowl , which is broadcast on the fox network on a rotating basis with other networks , major league baseball 's ( “ mlb ” ) world series , and the fédération internationale de football association ( “ fifa ” ) world cup , which occurs every four years ( for each of women and men ) , and other regular and post-season sporting events delivered to consumers on the company 's broadcast television and cable networks .
| results of operations results of operations—fiscal 2019 versus fiscal 2018 the following table sets forth the company 's operating results for fiscal 2019 , as compared to fiscal 2018 : replace_table_token_5_th * * not meaningful overview —the company 's revenues increased 12 % for fiscal 2019 , as compared to fiscal 2018 , due to higher affiliate fee , advertising and other revenues . the increase in affiliate fee revenue was primarily attributable to higher average rates per subscriber across all networks , led by contractual rate increases on existing affiliate agreements and from affiliate agreement renewals . the increase in advertising revenue was primarily due to the broadcast of fox 's inaugural season of nfl thursday night football ( “ tnf ” ) and an additional nfl postseason game on the fox network , higher cyclical political advertising revenue due to the u.s. midterm elections at the fox television stations and higher digital advertising revenue at fox news . the increase in other revenues was primarily due to higher digital content licensing revenue at the fox network . operating expenses increased 13 % for fiscal 2019 , as compared to fiscal 2018 , primarily due to higher sports programming rights amortization and production costs , including the additional nfl games , and the recognition of a write-down of approximately $ 55 million related to entertainment and syndicated programming rights ( see note 5—inventories , net to the accompanying financial statements of fox ) .
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dd & a expense related to the partnership 's producing oil and natural gas properties was $ 114.3 million , $ 102.4 million and $ 102.7 million for the years ended 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 notes thereto presented elsewhere in this annual report . this discussion and analysis contains forward-looking statements that involve risks , uncertainties , and assumptions . actual results may differ materially from those anticipated in these forward-looking statements as a result of a number of factors , including those set forth under “ cautionary note regarding forward-looking statements ” and “ part i , item 1a . risk factors. ” overview we are one of the largest owners of oil and natural gas mineral interests in the united states . our principal business is maximizing the value of our existing portfolio of mineral and royalty assets through active management and expanding our asset base through acquisitions of additional mineral and royalty interests . we maximize value through the marketing of our mineral assets for lease , creative structuring of those leases to encourage and accelerate drilling activity , and selectively participating alongside our lessees on a working-interest basis . our primary business objective is to grow our reserves , production , and cash generated from operations over the long term , while paying , to the extent practicable , a quarterly distribution to our unitholders . on may 6 , 2015 , we completed our initial public offering of 22,500,000 common units representing limited partner interests . our common units trade on the new york stock exchange under the symbol `` bsm . '' our mineral and royalty interests consist of mineral interests in approximately 16.8 million acres , with an average 43.4 % ownership interest in that acreage , npris in 1.9 million acres , and orris in 2.1 million acres . these non-cost-bearing interests include ownership in over 55,728 producing wells . we also own non-operated working interests , a significant portion of which are on positions where we also have a mineral and royalty interest . we recognize oil and natural gas revenue from our mineral and royalty and non-operated working interests in producing wells when the oil and natural gas production from the associated acreage is sold . our other sources of revenue include mineral lease bonus and delay rentals , which are recognized as revenue according to the terms of the lease agreements . recent developments 2017 acquisitions on november 28 , 2017 , we closed on the acquisition of ( i ) certain mineral interests and other non-cost bearing royalty interests from noble energy inc. , noble energy wyco , llc , and rosetta resources operating lp , and ( ii ) one hundred percent ( 100 % ) of the issued and outstanding securities of samedan royalty , llc ( `` samedan '' ) from noble energy us holdings , llc , collectively , the `` noble acquisition . '' the mineral interests and other non-cost bearing royalty interests acquired in the noble acquisition , including interests owned by samedan , include approximately 1.1 million gross ( 140,000 net ) mineral acres , 380,000 gross acres of non-participating royalty interests , and 600,000 gross acres of overriding royalty interests collectively spread over 20 states with significant concentrations in texas , oklahoma , and north dakota . we funded the cash purchase price of the noble acquisition of $ 335 million , before customary post-closing adjustments , with the proceeds from the issuance of $ 300 million of series b cumulative convertible preferred units and $ 35 million of cash from borrowings on our credit facility . see `` recent developments — series b cumulative convertible preferred units '' below for additional information about our series b cumulative convertible preferred units . throughout 2017 , we also closed numerous acquisitions consisting of various mineral and royalty interests in several texas counties . we acquired mineral and royalty interests in east texas prospective for the haynesville and bossier shales for a total of $ 4.8 million in cash and $ 45.7 million in our common units through acquisitions of assets previously owned by angelina county lumber company . we also acquired mineral and royalty interests in the delaware basin for $ 30.8 million in cash and $ 12.0 million in common units , as well as additional mineral and royalty interests in east texas for $ 55.3 million in cash and $ 14.0 million in our common units , and mineral and royalty interests in the anadarko basin for $ 0.4 million in cash . 59 put option related to noble acquisition by acquiring 100 % of the issued and outstanding securities of samedan , now namp holdings , llc , we acquired a 100 % interest in comin-termin , llc , now namp gp , llc ( `` holdings '' ) , comin 1989 partnership lllp , now namp 1 , lp ( `` comin '' ) , and temin 1987 partnership lllp , now namp 2 , lp ( `` temin '' ) . pursuant to certain co-ownership agreements , various co-owners hold undivided beneficial ownership interests in 47.34 % and 44.39 % of the minerals interests held of record by holdings and temin , respectively . based on the terms of the co-ownership agreements , the co-owners each have an unconditional option to require comin or temin , as applicable , to purchase their beneficial ownership interest in the mineral interests held of record by holdings or temin , as applicable , at any time within 30 days of receiving such repurchase notice . the purchase price of the beneficial ownership interest shall be based on an evaluation performed by comin or temin , as applicable , in good faith . as of december 31 , 2017 , we had not received notice from any co-owner to exercise their repurchase option , and as such , no liability was recorded . story_separator_special_tag convertible preferred units , and at any time during the 90-day period beginning on each readjustment date at a redemption price payable wholly in cash equal to the issue price plus any accrued and unpaid distributions on the applicable series b cumulative convertible preferred units . business environment the information below is designed to give a broad overview of the oil and natural gas business environment as it affects us . commodity prices and demand oil and natural gas prices have been historically volatile based upon the dynamics of supply and demand . the eia forecasts that wti oil prices will average approximately $ 58.00 per bbl in both 2018 and 2019. during the year ended december 31 , 2017 , the wti oil spot price reached a low of $ 42.48 per bbl on june 21 , 2017 but rebounded to a high of $ 60.46 per bbl on december 29 , 2017. the eia forecasts that the henry hub spot natural gas price will average $ 3.20 per mmbtu for 2018 and $ 3.08 per mmbtu for 2019. during the year ended december 31 , 2017 , henry hub spot natural gas prices ranged from a high of $ 3.71 per mmbtu on january 2 , 2017 to a low of $ 2.44 per mmbtu on february 27 , 2017. to manage the variability in cash flows associated with the projected sale of our oil and natural gas production , we use various derivative instruments , which have recently consisted of fixed-price swap contracts . the following table reflects commodity prices at the end of each quarter presented : replace_table_token_27_th 1 source : eia rig count as we are the operator of record on only three properties , drilling on our acreage is dependent upon the exploration and production companies that lease our acreage . in addition to drilling plans that we seek from our operators , we also monitor rig counts in an effort to identify existing and future leasing and drilling activity on our acreage . 61 the following table shows the rig count at the close of each quarter presented : replace_table_token_28_th 1 source : baker hughes incorporated natural gas storage a substantial portion of our revenue is derived from sales of oil production attributable to our interests ; however , the majority of our production is natural gas . natural gas prices are significantly influenced by storage levels throughout the year . accordingly , we monitor the natural gas storage reports regularly in the evaluation of our business and its outlook . historically , natural gas supply and demand fluctuates on a seasonal basis . from april to october , when the weather is warmer and natural gas demand is lower , natural gas storage levels generally increase . from november to march , storage levels typically decline as utility companies draw natural gas from storage to meet increased heating demand due to colder weather . in order to maintain sufficient storage levels for increased seasonal demand , a portion of natural gas production during the summer months must be used for storage injection . the portion of production used for storage varies from year to year depending on the demand from the previous winter and the demand for electricity used for cooling during the summer months . despite anticipated rising production , the eia forecasts that inventories will conclude the withdrawal season , which is the end of march 2018 , at 1,429 bcf , or 17 % below the five-year average . the eia expects inventories to build slightly over the five-year average to a projected 3,861 bcf at the end of october 2018 ; in 2019 , inventories are expected to be about 6 % lower on average than 2018 levels . the following table shows natural gas storage volumes by region at the close of each quarter presented : replace_table_token_29_th 1 source : eia 62 how we evaluate our operations we use a variety of operational and financial measures to assess our performance . among the measures considered by management are the following : volumes of oil and natural gas produced ; commodity prices including the effect of hedges ; and adjusted ebitda , distributable cash flow , and distributable cash flow after net working interest capital expenditures . volumes of oil and natural gas produced in order to track and assess the performance of our assets , we monitor and analyze our production volumes from the various basins and plays that comprise our extensive asset base . we also regularly compare projected volumes to actual reported volumes and investigate unexpected variances . commodity prices factors affecting the sales price of oil and natural gas the prices we receive for oil , natural gas , and ngls vary by geographical area . the relative prices of these products are determined by the factors affecting global and regional supply and demand dynamics , such as economic conditions , production levels , availability of transportation , weather cycles , and other factors . in addition , realized prices are influenced by product quality and proximity to consuming and refining markets . any differences between realized prices and nymex prices are referred to as differentials . all of our production is derived from properties located in the united states . oil . the substantial majority of our oil production is sold at prevailing market prices , which fluctuate in response to many factors that are outside of our control . nymex light sweet crude oil , commonly referred to as wti , is the prevailing domestic oil pricing index . the majority of our oil production is priced at the prevailing market price with the final realized price affected by both quality and location differentials . the chemical composition of crude oil plays an important role in its refining and subsequent sale as petroleum products . as a result , variations in chemical composition relative to the benchmark crude oil , usually wti , will result in price adjustments , which are often referred to as quality differentials .
| results of operations year ended december 31 , 2017 compared to year ended december 31 , 2016 the following table shows our production , revenue , and operating expenses for the periods presented : replace_table_token_31_th 1 as a mineral-and-royalty-interest owner , we are often provided insufficient and inconsistent data on ngl volumes by our operators . as a result , we are unable to reliably determine the total volumes of ngls associated with the production of natural gas on our acreage . accordingly , no ngl volumes are included in our reported production ; however , revenue attributable to ngls is included in our natural gas revenue and our calculation of realized prices for natural gas . revenue total revenue for the year ended december 31 , 2017 increased compared to the year ended december 31 , 2016. production for 2017 averaged 37.0 mboe per day , an increase of 5.3 mboe per day , compared to the corresponding period in 2016. the increase in total revenue from the corresponding period is primarily due to higher realized commodity prices and production volumes , an increase in revenue from our commodity derivative instruments , and higher lease bonus and other income . oil and condensate sales . oil and condensate sales during 2017 were higher than the corresponding period in 2016 due to a significant increase in realized prices . our mineral-and-royalty-interest oil and condensate volumes accounted for 83.1 % and 77.3 % of total oil and condensate volumes for the years ended december 31 , 2017 and 2016 , respectively . our oil and condensate volumes decreased slightly in 2017. natural gas and natural gas liquids sales . natural gas and ngl sales increased for the year ended december 31 , 2017 as compared to 2016. during 2017 , production from new wells in haynesville/bossier and wilcox plays combined with higher natural gas and ngl prices drove the increase in natural gas and ngl sales .
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an analysis of changes in our balance sheets and cash flows and discussion of our financial condition . ● critical accounting estimates . accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts . the following discussion should be read in conjunction with our consolidated financial statements and accompanying notes included elsewhere in this report . the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . the actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this report , particularly under “ part i , item 1a . risk factors , ” and in other reports we file with the sec , specifically our most recent annual report on form 10-k. ” all references to years relate to the calendar year ended december 31 of the particular year . overview our goal is to be a leader in the production of advanced fuels and specialty chemicals and in the acquisition , development and commercialization of innovative technologies that are substitutes for traditional petroleum-based products and non-food feedstock conversion of traditional ethanol and biodiesel plants using our operating ethanol and biodiesel facilities . to fund our operations , since our inception in 2005 we have raised approximately $ 48.9 million through the sale of preferred stock and approximately $ 80 million in debt . we have used these funds to ( i ) construct and operate a biodiesel plant in kakinada , india , ( ii ) construct a glycerin refining and vegetable oil pretreatment facility at our kakinada plant , ( iii ) develop and expand our technology portfolio of proprietary , patented and patent-pending technology , ( iv ) retrofit and operate an ethanol plant in keyes , california , and ( v ) acquire cilion , inc. , the former owner of the keyes , ca plant . going concern uncertainty in connection with their year-end audit of our annual consolidated financial statements , our independent auditors are required to assess whether an emphasis paragraph should be included in their audit report regarding the existence of substantial doubt related to our ability to continue as a going concern . our auditors have issued a report on our consolidated financial statements for the fiscal year ended december 31 , 2012 , which is included with this report on form 10-k , that states that the factors discussed in note 2 to the consolidated financial statements raise substantial doubt about our ability to continue as a going concern . as shown in the accompanying consolidated financial statements , the company incurred an operating loss of $ 21,160,672 in 2012 due unfavorable commodity markets at our plant in keyes , california and limited access to fuel markets and working capital in kakinada , india . our cash and cash equivalents balance was $ 290,603 as of december 31 , 2012 , of which $ 184,349 was held in our domestic entities and $ 106,254 was held in offshore subsidiaries . we ended 2012 with limited working capital resources . specifically , we had negative working capital of $ 50,989,754. we will need to raise additional working capital in 2013 in order to achieve our business goals in india and the u.s. 18 back to we also could provide the business with working capital , if we are able to : i ) increase sales from our plant in kakinada , india to either domestic india customers or export customers in europe or the u.s , or ii ) operate the plant in keyes , california at a positive gross profit . however there can be no assurance that we will be successful in achieving either of these objectives or , if successfully implemented , that these initiatives will be sufficient to address our lack of liquidity . if the company is unable to generate sufficient liquidity from its operations to satisfy its obligations , or raise additional cash from debt or equity issuances we could potentially be forced to sell all or a portion of our existing biodiesel facility , ethanol facility or other assets to generate cash to continue our business plan . a continued lack of liquidity from operating our plants in kakinada , india and keyes , california may have a material adverse effect on our liquidity and may result in our inability to continue as a going concern , and or force us to seek relief from creditors through a filing under the u.s. bankruptcy code . our consolidated financial statements do not include any adjustments to the classification or carrying values of our assets or liabilities that might be necessary as a result of the outcome of this uncertainty . north america in the second quarter of 2011 , we successfully completed the retrofit of the keyes , ca ethanol plant and in april 2011 began operating the plant pursuant to a 5-year lease agreement with cilion , inc. the keyes plant is a dry mill ethanol production facility currently utilizing corn as feedstock . in addition , the plant produces high quality wet distillers grains ( wdg ) and a small amount of condensed distillers soluble ( cds ) as byproducts of the ethanol production process , which are sold as a high protein , livestock feed supplements . on july 6 , 2012 , we entered into an agreement and plan of merger with cilion , inc. pursuant to which we acquired cilion for an aggregate of ( a ) $ 16.5 million , ( b ) 20 million shares of aemetis common stock and ( c ) the obligation to pay an additional cash amount of $ 5 million plus interest at the rate of 3 % per annum , which is payable upon the satisfaction by us of certain conditions set forth in the merger agreement . during 2012 , we produced four products at the keyes plant : denatured ethanol , wdg , corn oil and cds . story_separator_special_tag the agreements expire on august 31 , 2013 and december 31 , 2012 , respectively , and are automatically renewed for additional one-year terms . pursuant to these agreements , our marketing costs for ethanol and wdg are less than 2 % of sales . research and development expenses ( r & d ) in 2011 , substantially all of our r & d expenses were attributable to our industrial biotechnology research team in maryland acquired in july 2011 as a result of the acquisition of zymetis , inc. and for the operation and subsequent closing of our facility in butte , mt . in 2011 , certain costs related to establishing a demonstration plant in keyes , ca were included as well . in 2012 , substantially all of our r & d expenses were related to our research and development activities in college park , md . india segment revenue substantially all of our india segment revenues during the years ended december 31 , 2012 and 2011were from sales of biodiesel , npro and glycerin . during the twelve months ended december 31 , 2012 , we sold 4,127 metric tons of biodiesel and 2,318 metric tons of refined glycerin compared to 8,636 metric tons of biodiesel and 772 tons of crude glycerin during the twelve months ended december 31 , 2011. in 2011 , we purchased 1,000 metric tons of refined glycerin , of which 772 metric tons were resold in 2011 to develop a market for refined glycerin in advance of the completion of our glycerin refining unit . during 2012 , we commissioned our pre-treatment unit , began producing and sold 7,039 metric tons of processed nrpo to customers . during the portion of the year , we were able to refine crude palm oil into nrpo at a more attractive margin than converting stearin into biodiesel . during the early months of 2011 , nrpo prices increased to the point where biodiesel production was uneconomical . as a result , we resold 588 metric tons of the feedstock we held in inventory rather than producing biodiesel . 20 back to cost of goods sold cost of goods sold consists primarily of feedstock oil , chemicals , direct costs ( principally labor and labor related costs ) , and factory overhead . depending upon the costs of these inputs in comparison to the sales price of biodiesel and glycerin , our gross margins may vary from positive to negative . factory overhead includes direct and indirect costs associated with the plant , including the cost of repairs and maintenance , consumables , maintenance , on-site security , insurance , depreciation and inbound freight . we purchase nrpo , a non-edible feedstock , for our biodiesel unit from neighboring natural oil processing plants at a discount to refined palm oil . nrpo is received by truck and title passes when the nrpo is received at our facility . credit terms vary by vendor ; however , we generally receive 15 days of credit on the purchases . we purchase crude glycerin in the international market on letters of credit or advance payment terms . sales , marketing and general administrative expenses ( sg & a ) sg & a expenses consist of employee compensation , professional services , travel , depreciation , taxes , insurance , rent and utilities , including licenses and permits , penalties , and sales and marketing fees . pursuant to an operating agreement with secunderabad oils limited , we receive operational support and working capital . we compensate secunderabad oils limited with a percentage of the profits and losses generated from operations . payments of interest are identified as interest income while payments of profit and losses are identified as compensation for the operational support component of this agreement . we therefore include the portion of profit or losses paid to secunderabad oils limited as a component of sg & a and our sg & a component will vary based on the profits earned by operations . in addition , we market our biodiesel and glycerin through our internal sales staff , commissioned agents and brokers . commissions paid to agents are included as a component of sg & a . research and development expenses ( r & d ) our india segment has no research and development activities . story_separator_special_tag margin-right : 0pt '' > north america . the increase in sg & a in the year ended december 31 , 2012 reflects the full year of operation of the keyes , ca plant compared to the initial start of the keyes , ca plant in april 2011. labor expenses of approximately $ 2.9 million related to operation of the keyes plant were incurred during the year ended december 31 , 2012 compared to approximately $ 2.3 million during the year ended december 31 , 2011. marketing fees of approximately $ 2.4 million were incurred during the year ended december 31 , 2012 in connection with sales of ethanol and wdg compared to approximately $ 2.0 million during the year ended december 31 , 2011. india . our single largest expense in sg & a is the operational support fees paid to secunderabad oils limited . these fees are computed as a percentage of operating profits . for the years ended december 31 , 2012 and 2011 , we incurred approximately $ 108,000 and $ 115,000 , respectively in operational support fees . in addition , during 2011 a period of no production necessitated the reclassification of $ 282,000 in cost of goods sold to sg & a , partially offset by approximately $ 223,000 in higher 2012 spending primarily from higher volume of sales related expenses and higher reclass of outward bound freight to cost of goods sold of approximately $ 106,000 . 22 back to other income/expense other income ( expense ) consisted of the following items : ● interest expense is attributable to debt facilities acquired by the company , our subsidiaries universal biofuels pvt .
| results of operations year ended december 31 , 2012 compared to year ended december 31 , 2011 revenues our revenues are derived primarily from sales of ethanol and wdg in north america and biodiesel and glycerin in india . replace_table_token_4_th north america . the increase in revenues in the north america segment for the year ended december 31 , 2012 reflects the operation of the keyes , ca plant for a full year compared to 9 months in 2011. for the year ended december 31 , 2012 , we generated approximately 76 % of revenues from sales of ethanol and 22 % of revenues from sales of wdg and 2 % of revenues from corn oil and syrup sales compared to 82 % of revenues from sales of ethanol and 18 % of revenues from sales of wdg for the year ended december 31 , 2011. for the twelve months ended december 31 , 2012 , plant operations averaged 96 % of nameplate capacity compared to 101 % for the nine months of operations in 2011 due to a decision by management to slow down production during the last quarter of 2012 in response to a low margin environment . india . the increase in revenues in the india segment for the year ended december 31 , 2012 reflects ( i ) a decrease in the amount of biodiesel produced and sold as a result of consistent sales into the domestic market during the year ended december 31 , 2012 compared to two large international sales ( $ 6.9 million ) in the second half of the year ended december 31 , 2011 , ( ii ) stronger sales of refined glycerin as a result of the completion and commencement of operations of the refined glycerin unit ; and ( iii ) sales of natural refined palm oil ( nrpo ) as a result of the completion and commencement of operations of the natural oil refining unit .
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our current activities are focused on the evaluation and development of our current acreage position to maximize the value of our primarily oil and liquids rich resource potential in our core areas of operations and identifying potential expansion opportunities in those areas , specifically the mississippian lime . during 2016 , we earned approximately 24,248 net ( 45,440 gross ) prospective acres through various farm-in agreements and plan to continue to utilize such agreements in the future . for 2017 , we plan to allocate substantially all of our drilling and completions capital budget to development activities in the mississippian lime area based on the stronger economic returns expected from these assets in the current commodity price and cost environment . as of december 31 , 2016 , our properties consisted of approximately 225,000 net acres of leasehold , with 846 gross productive wells , 68 % of which we operate , and in which we held an average working interest of approximately 76 % . as of december 31 , 2016 , our estimated net proved reserves were 176,988 mmboe , of which 56 % was oil or ngls and 39 % was proved developed . for the successor period and predecessor period , our properties had aggregate net daily production of approximately 24,971 boe/d and 29,816 boe/d , respectively . on april 21 , 2015 , we closed on the sale of certain of our oil and gas properties in beauregard and calcasieu parishes , louisiana , for approximately $ 44.0 million , before customary post-closing adjustments . we have no proved reserves in the gulf coast ( or state of louisiana ) as of december 31 , 2016 or 2015. as discussed in `` note 3. fresh start accounting '' in the notes to the consolidated financial statements set forth in part iv , item 15 of this annual report on form 10-k , upon our emergence from the chapter 11 cases on october 21 , 2016 , we adopted fresh start accounting as required by us gaap . as a result of the application of fresh start accounting , as well as the effects of the implementation of the plan , our consolidated financial statements on or after october 21 , 2016 , are not comparable with our consolidated financial statements prior to that date . references to `` successor period '' relate to the financial position and results of operations for the period october 21 , 2016 through december 31 , 2016 and references to `` predecessor period '' refer to the financial position and results of operations of the company from january 1 , 2016 through october 20 , 2016 . 55 recent developments emergence from chapter 11 bankruptcy on the petition date , we filed voluntary petitions for reorganization under chapter 11 of the bankruptcy code in the united states bankruptcy court . our chapter 11 cases were jointly administered under the case styled in re midstates petroleum company , inc. , et al. , case no . 16-32237 . on september 28 , 2016 , the bankruptcy court entered the confirmation order , which approved and confirmed the plan . on the effective date , we satisfied the conditions to effectiveness set forth in the confirmation order and in the plan , and the plan therefore became effective in accordance with its terms and we emerged from bankruptcy . plan of reorganization pursuant to the confirmed plan , the significant transactions that occurred upon the effective date were as follows : substantial deleveraging of the balance sheet : the permanent pay-down of $ 81.3 million of our rbl , with a $ 170.0 million exit facility established upon the effective date , ( ii ) the pay-down of $ 60.0 million of our second lien notes in cash , and ( iii ) the conversion into equity of all of our remaining debt junior to the rbl ; credit facility claims : holders of credit facility claims received their pro rata share of approximately $ 81.3 million in cash and the rbl was superseded , pursuant to the plan , by the exit facility , as further described below ; second lien notes claims : holders of second lien notes claims received their pro rata share of ( i ) 96.25 % of the reorganized equity in the form of common stock and ( ii ) a cash payment of $ 60.0 million ; third lien notes claims : holders of third lien notes claims , pursuant to the second/third lien plan settlement , received their pro rata share of 2.5 % of the reorganized equity in the form of common stock and warrants to acquire 4,411,765 shares of common stock at a strike price of $ 24.00 per common share with an expiration date 42 months after the effective date ; unsecured claims : unsecured notes claims and the holders of other general unsecured claims received their pro rata share of 1.25 % of reorganized equity in the form of common stock and warrants to acquire 2,213,789 shares of common stock at a strike price of $ 46.00 per common share with an expiration date 42 months after the effective date ; existing equity : all existing equity interests were extinguished and existing equity holders did not receive any consideration in respect of their equity interests ; new equity : on the effective date , we issued 24,687,500 shares of common stock of the reorganized equity . on november 9 , 2016 , we issued an additional 294,967 shares of common stock of the reorganized equity pursuant to the plan . we will issue 17,533 additional common shares , with respect to general unsecured claims , pursuant to the plan in a future distribution . the total authorized reorganized capital stock consists of 250,000,000 shares of common stock and 50,000,000 shares of preferred stock ; exit facility : our rbl , which was redetermined with a borrowing base of $ 170.0 million in april 2016 , was superseded , pursuant to the plan , by the exit facility . story_separator_special_tag predecessor period for the predecessor period , our natural gas volumes sold were 78,963 mcf/d , comprised of 68,107 mcf/d from our mississippian lime operations and 10,856 mcf/d from our anadarko basin assets . year ended december 31 , 2015 as compared to the year ended december 31 , 2014 the increase in natural gas volumes sold was attributable to an increase of 12,664 mcf/d of production volumes from our mississippian lime assets , partially offset by decreases of 2,009 mcf/d in production from our anadarko basin assets and 1,366 mcf/d from our gulf coast assets . expenses replace_table_token_22_th lease operating and workover lease operating expenses represent costs incurred to bring oil and gas out of the ground and to the market , together with the daily costs incurred to maintain our producing properties . such costs also include natural gas treating expenses and the handling and disposal of produced water as well as maintenance and repair expenses related to our oil and gas properties . lease operating expenses include both a portion of costs that are fixed in nature , such as infrastructure costs and compressor 64 rental costs , as well as variable costs resulting from additional wells and production , such as chemicals and electricity . as production increases , our average lease operating expense per barrel of oil equivalent is typically reduced because fixed costs do not increase proportionately with production . workover expense includes major remedial operations on a completed well to restore , maintain , or improve a well 's production and is closely correlated to the levels of workover activity . because workover projects are pursued on an as needed basis and are not regularly scheduled , workover expense is not necessarily comparable from period to period . successor period for the successor period , our lease operating and workover expenses were $ 15.3 million at a cost of $ 8.52 per boe . lease operating and workover expenses for the successor period were impacted by weather disruptions , which lowered production and increased costs during the period . predecessor period for the predecessor period , our lease operating and workover expenses were $ 52.8 million at a cost of $ 6.02 per boe . year ended december 31 , 2015 as compared to the year ended december 31 , 2014 the decrease in lease operating expense is primarily related to the dequincy divestiture in the second quarter of 2015. the increase in workover expenses during the year is due to increased production optimization projects , primarily in the anadarko basin . total lease operating and workover expenses increased for the year ended december 31 , 2015 , while the per unit amount remained unchanged at $ 6.79 per boe . gathering and transportation gathering and transportation costs are incurred for the movement of natural gas to the contractual delivery point . for the successor period , predecessor period and the years ended december 31 , 2015 and 2014 , these costs relate to the amended gas transportation , gathering and processing contract which commenced during the third quarter of 2013 in our mississippian lime assets . successor period for the successor period , our gathering and transportation expenses were $ 3.2 million at a cost of $ 1.78 per boe . predecessor period for the predecessor period , our gathering and transportation expenses were $ 14.4 million at a cost of $ 1.64 per boe . year ended december 31 , 2015 as compared to the year ended december 31 , 2014 the increase in gathering and transportation costs was primarily attributable to a 13.6 % increase in natural gas production volumes for the year ended december 31 , 2015. severance and other taxes severance taxes are paid on produced oil and gas based on a percentage of revenues from products sold at market prices or at fixed rates established by federal , state , or local taxing authorities . we attempt to take full advantage of all credits and exemptions in our various taxing jurisdictions . in general , the severance taxes we pay correlate to the changes in oil and gas revenues . ad valorem taxes 65 are property taxes assessed based on the value of property and are also included in this expense category . replace_table_token_23_th successor period for the successor period , our severance and other tax expenses were $ 1.3 million or 2.7 % of sales . severance tax was $ 1.1 million or 2.3 % of sales during the successor period . predecessor period for the predecessor period , our severance and other tax expenses were $ 5.2 million or 2.8 % of sales . severance tax was $ 4.1 million or 2.2 % of sales during the predecessor period . year ended december 31 , 2015 as compared to the year ended december 31 , 2014 the decrease in severance taxes was primarily due to lower realized pricing in the 2015 period and the sale of our louisiana ( or gulf coast ) properties which had higher effective severance tax rates than our mississippian lime and anadarko basin properties . ad valorem taxes decreased due to a significant decrease in the value of our proved oil and gas reserves from 2014 to 2015. depreciation , depletion and amortization ( `` dd & a '' ) under the full cost accounting method , we capitalize costs within a cost center and systematically expense those costs on a unit of production basis based on proved oil and natural gas reserve quantities . we calculate depletion on the following types of costs : ( i ) all capitalized costs , other than the cost of investments in unproved properties which remain to be evaluated , less accumulated amortization ; ( ii ) estimated future expenditures to be incurred in developing proved reserves ; and ( iii ) estimated dismantlement and abandonment costs , net of any associated salvage value . successor period for the successor period , our dd & a expenses were $ 13.0 million at a cost of $ 7.22 per boe .
| results of operations oil , ngls and natural gas revenue oil , ngls and natural gas our revenues are derived from the sale of oil and natural gas production , as well as the sale of ngls that are extracted from our high btu content natural gas . our oil and gas revenues do not include the effects of derivatives , and may vary significantly from period to period as a result of changes in production volumes or commodity prices . prices for oil , ngls and natural gas fluctuate widely and affect : the amount of our cash flows available for capital expenditures ; our ability to borrow and raise additional capital ; the quantity of oil , ngls and natural gas we can economically produce ; and our revenues and profitability . 57 average market prices for oil and ngls decreased significantly in the last part of 2014 and continue to remain depressed compared to previous highs . for a description of factors that may impact future commodity prices , please read `` risk factorsrisks related to the oil and natural gas industry and our business . '' the following table sets forth information regarding our oil , natural gas and ngl revenues for the successor period , predecessor period and the years ended december 31 , 2015 and 2014 ( in thousands ) : replace_table_token_16_th oil , natural gas and ngl pricing the following table sets forth information regarding average realized sales prices for the successor period , predecessor period and the years ended december 31 , 2015 and 2014 : replace_table_token_17_th crude oil prices the majority of our crude oil production is sold at prevailing market prices with an adjustment for transportation and quality . the market pricing for oil fluctuates in response to many factors that are outside of our control such as supply and demand fluctuations , pipeline and refinery outages , weather patterns and global events and economics .
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this md & a provides additional information about our operations , current developments , financial condition , cash flows and results of operations . throughout the md & a , we refer to various notes to our consolidated financial statements which appear in item 8 of this 2017 form 10-k , and the information contained in such notes is incorporated by reference into the md & a in the places where such references are made . story_separator_special_tag style= '' font-family : arial ; font-size:10pt ; '' > our commercial industries reporting units operating results declined in 2016 versus our expectations , including a weak fourth quarter 2016. in performing our annual impairment test during the fourth quarter of 2016 , we determined that the carrying value of the commercial industries reporting unit exceeded its fair value by 53 % , which resulted in a goodwill impairment of $ 935 million . this has been presented as goodwill impairment , a separate line item in the consolidated statements of income ( loss ) . refer to note 6 – goodwill and intangible assets , net , in the consolidated financial statements for additional information . health enterprise charge in february 2017 , we determined that it was not probable that the new york medicaid management information system ( ny mmis ) project would be completed . as a result of this determination , we recorded a pre-tax charge ( ny mmis charge ) of $ 161 million ( $ 98 million after-tax ) in the fourth quarter of 2016. the charge included $ 83 million for the write-off of contract receivables which were recorded as a reduction of revenue and $ 78 million recorded in cost of services including $ 36 million for wind-down costs , $ 28 million related to the non-cash charge for the impairment of software and $ 14 million for the write-off of deferred contract set-up and transition costs and other related assets and liabilities . significant 2015 actions health enterprise charge in 2015 , we determined that we would not fully complete the he platform implementation projects in california and montana . however , we would continue to process medicaid claims using existing legacy systems in those states , thus providing uninterrupted service for the states ' healthcare providers and constituents . as a result of this determination , we recorded a pre-tax he charge of $ 389 million ( $ 237 million after-tax ) . the charge included $ 116 million for the write-off of contract receivables ( primarily non-current ) , $ 34 million related to the non-cash impairment of the he software and deferred contract set-up transition costs and $ 23 million for other related assets and liabilities . the remainder of the charge was primarily related to settlement costs including payments to subcontractors resulting in cash outflows in future periods . of the $ 389 million charge , $ 116 million was recorded as a reduction to revenue and the remaining $ 273 million recorded to cost of services . this development resulted from the government healthcare strategy change announced in july 2015 , regarding our decision to focus our future he implementations on current medicaid customers and to discontinue investment in and sales of our integrated eligibility system . this resulted in a pre-tax non-cash software platform impairment charge of $ 146 million ( $ 89 million after-tax ) . conduent inc. 2017 annual report 28 critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( u.s. gaap ) requires us to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and notes thereto . in preparing our consolidated financial statements , we have made our best estimates and judgments of certain amounts included in the consolidated financial statements giving due consideration to materiality . however , application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and , as a result , actual results could differ from these estimates . senior management has discussed the development and selection of the critical accounting policies , estimates and related disclosures included herein with the audit committee of the board of directors . we consider these as critical to understanding our consolidated financial statements , as their application places the most significant demands on management 's judgment , since financial reporting results rely on estimates of the effects of matters that are inherently uncertain . in instances where different estimates could have reasonably been used , we disclose the impact of these different estimates on our operations . in certain instances , the accounting rules are prescriptive ; therefore , it would not have been possible to reasonably use different estimates . changes in assumptions and estimates are reflected in the period in which they occur . the impact of such changes could be material to our results of operations and financial condition in any quarterly or annual period . specific risks associated with these critical accounting policies are discussed throughout the md & a , where such policies affect our reported and expected financial results . for a detailed discussion of the application of these and other accounting policies , refer to note 1 – basis of presentation and summary of significant accounting policies in the consolidated financial statements . revenue recognition application of the various accounting principles in u.s. gaap related to the measurement and recognition of revenue requires us to make judgments and estimates . complex arrangements with nonstandard terms and conditions may require significant contract interpretation to determine the appropriate accounting . refer to note 1 – basis of presentation and summary of significant accounting policies — revenue recognition in the consolidated financial statements for additional information regarding our revenue recognition policies . a significant portion of our revenue is recognized based on objective criteria that do not require significant estimates or uncertainties . story_separator_special_tag for internal-use software , the appropriate amortization period is based on estimates of our ability to utilize the software on an ongoing basis . to assess the recoverability of capitalized software costs , we consider estimates of future revenue , costs and cash flows . such estimates require assumptions about future cash inflows and outflows , and are primarily based on the historical experience and expectations regarding future revenues . a significant change in an estimate related to one or more software products could result in a material change to our results of operations . refer to note 5 – land , buildings , equipment and software , net in the consolidated financial statements for additional information regarding capitalized software costs . conduent inc. 2017 annual report 30 held for sale we classify assets as held for sale in the period when the following conditions are met : ( i ) management , having the authority to approve the action , commits to a plan to sell the asset ( disposal group ) ; ( ii ) the asset ( disposal group ) is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets ( disposal group ) ; ( iii ) an active program to locate a buyer and other actions required to complete the plan to sell the asset ( disposal group ) have been initiated ; ( iv ) the sale of the asset ( disposal group ) is probable , and transfer of the asset ( disposal group ) is expected to qualify for recognition as a completed sale within one year , except if events or circumstances beyond our control extend the period of time required to sell the asset ( disposal group ) beyond one year ; ( v ) the asset ( disposal group ) is being actively marketed for sale at a price that is reasonable in relation to its current fair value ; and ( vi ) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn . a long-lived asset ( disposal group ) that is classified as held for sale is initially measured at the lower of its carrying value or fair value less any costs to sell . any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met . conversely , gains are not recognized on the sale of a long-lived asset ( disposal group ) until the date of sale . the fair value of a long-lived asset ( disposal group ) less any costs to sell is assessed each reporting period it remains classified as held for sale and any subsequent changes are reported as an adjustment to the carrying value of the asset ( disposal group ) , as long as the new carrying value does not exceed the carrying value of the asset at the time it was initially classified as held for sale . upon determining that a long-lived asset ( disposal group ) meets the criteria to be classified as held for sale , the company reports the assets and liabilities of the disposal group in the line items assets held for sale and liabilities held for sale , respectively , in the consolidated balance sheets . in the fourth quarter of 2017 , management approved the disposal through sale of certain assets and businesses , which is a mix of both commercial industries and public sectors . this action was taken as a result of our evaluation of these businesses as they represent businesses in markets or with services that we did not see as strategic or core . as of december 31 , 2017 , these businesses qualified as assets held for sale . during the year ended december 31 , 2017 , we reclassified $ 757 million to assets held for sale and $ 169 million to liabilities held for sale , as we have an active program to locate buyers for these businesses and we expect these businesses to be sold within one year . intangible assets the fair values of identifiable intangible assets are primarily estimated using an income approach . these estimates include market participant assumptions and require projected financial information , including assumptions about future revenue growth and costs necessary to facilitate the projected growth . other key inputs include assumptions about technological obsolescence , customer attrition rates , brand recognition , the allocation of projected cash flows to identifiable intangible assets and discount rates . we regularly review intangible assets with finite lives for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable . factors we consider important which could trigger an impairment review include the following : significant underperformance relative to historical or projected future operating results ; significant changes in the manner of our use of the acquired assets or the strategy for our overall business ; and significant negative industry or economic trends . when we determine that the carrying value of intangibles and long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of potential impairment , we assess whether an impairment has occurred based on whether net book value of the assets exceeds the related projected undiscounted cash flows from these assets . we consider a number of factors , including past operating results , budgets , economic projections , market trends and product development cycles in estimating future cash flows . differing estimates and assumptions as to any of the factors described above could result in a materially different impairment charge , if any , and thus materially different results of operations . goodwill goodwill is not amortized but rather tested for impairment annually , or more frequently , if an event or circumstance indicates that impairment may have been incurred .
| overview with revenues of $ 6.0 billion , we are a leading provider of business process services with expertise in transaction-intensive processing , analytics and automation . we serve as a trusted business partner in both the front office and back office , enabling personalized , seamless interactions on a massive scale that improve end-user experience . headquartered in florham park , new jersey , we , have a team of approximately 90,000 people as of december 31 , 2017 , who serves customers in 31 countries . in 2017 , 12 % of our revenue was generated outside the u.s. our reportable segments correspond to how we organize and manage the business and are aligned to the industries in which our clients operate . beginning in 2017 , in an effort to better reflect how we manage our business , we changed our reporting segments to align the healthcare business based upon customer focus between commercial industries and public sector . commercial industries - our commercial industries segment provides business process services and customized solutions to clients in a variety of industries . across the commercial industries segment , we deliver end-to-end business-to-business and business-to-customer services that enable our clients to optimize their key processes . our multi-industry competencies include transaction processing , customer experience , human resource management , omni-channel communications and finance and accounting services . public sector - our public sector segment provides government-centric business process services to u.s. federal , state and local and foreign governments for transportation , public assistance , program administration , transaction processing and payment services . other includes our government he medicaid platform business , where we are limiting our focus to maintaining systems for our current clients ; our education business inclusive of our student loan business , which is in runoff ; and inter-segment eliminations .
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we currently do not expect asu 2016-12 story_separator_special_tag forward looking statements the following “ management 's discussion and analysis of financial condition and results of operations ” contains forward-looking statements which relate to future events or future financial performance and involve known and unknown risks , uncertainties and other factors that may cause actual results , levels of activity , performance or achievements to be materially different from those expressed or implied by these forward-looking statements . the reader is urged to carefully consider these risks and factors , including those listed under item 1a , “ risk factors. ” in some cases , the reader can identify forward-looking statements by terminology such as “ may ” , “ anticipates ” , “ believes ” , “ estimates ” , “ predicts ” , or the negative of these terms or other comparable terminology . these statements are only predictions . actual events or results may differ materially . these forward-looking statements relate only to events as of the date on which the statements are made and the company undertakes no obligation , other than any imposed by law , to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . executive overview our operations are organized , managed and classified into four reportable business segments : grain , ethanol , plant nutrient , and rail . each of these segments is based on the nature of products and services offered . prior to 2018 , we reported the retail operations as a fifth reportable business segment even though it did not meet the quantitative thresholds for segment disclosures . as previously disclosed , we closed the retail business during 2017 , and accordingly have recast the prior results for this segment within the other category , which also includes other corporate level costs not attributable to an operating segment . the agricultural commodity-based business is one in which changes in selling prices generally move in relationship to changes in purchase prices . therefore , increases or decreases in prices of the agricultural commodities that the business deals in will have a relatively equal impact on sales and cost of sales and a much less significant impact on gross profit . as a result , changes in sales for the period may not necessarily be indicative of the overall performance of the business and more focus should be placed on changes to gross profit . grain group the grain group 's performance reflects a decrease in storage income which was partially offset by year on year growth in the food ingredient business and risk management services . additionally , our earnings from affiliates have improved significantly year over year . the group continues to refine its portfolio and sold four of its tennessee locations . we also announced the acquisition of the remaining equity of ltg , which was finalized in january 2019. total grain storage capacity , including temporary pile storage , is approximately 141 million bushels as of december 31 , 2018 and 150 million bushels as of december 31 , 2017 . this decrease in capacity is a result of the sale of four tennessee locations in 2018. grain inventories on hand at december 31 , 2018 were 109.4 million bushels , a de minimis amount of which were stored for others . this compares to 113.8 million bushels on hand at december 31 , 2017 , of which 1.0 million bushels were stored for others . 19 the group will focus on integration of the ltg business , growth of originations , risk management services and the food ingredient business while monitoring continuing trade wars which could cause more volatility in the market . ethanol group the ethanol group 's results reflect higher sales volumes of ethanol and related co-products with the albion expansion operating for the full year , better corn to ethanol yields , and improved ddg values . as we move into 2019 , we expect the similar pressures that we experienced in 2018 with margins continuing to be impacted by high industry production and inventory levels . construction of our new bio-refinery continues on budget and we expect production to begin mid-year . volumes shipped for the years ended december 31 , 2018 and 2017 were as follows : replace_table_token_6_th the above table shows only shipped volumes that flow through the company 's revenues . total ethanol , ddg , and corn oil production by the unconsolidated llcs is higher . however , the portion of this volume that is sold directly to their customers is excluded here . plant nutrient group the plant nutrient group 's results improved year-over-year results in all business lines with the exception of specialty products . primary nutrient tons were relatively flat but experienced significant margin improvement . an increase in specialty tons was not enough to overcome the decrease in margin for these products . the group focused on cost reduction which helped strengthen results as they work to overcome continued margin compression on specialty products . total storage capacity at our wholesale nutrient and farm center facilities was approximately 488 thousand tons for dry nutrients and approximately 515 thousand tons for liquid nutrients at december 31 , 2018 , which is similar to the prior year . looking ahead , the group expects to be impacted by low margins , especially in specialty nutrients . while primary nutrient prices have strengthened , we do not anticipate significant appreciation in 2019. the group will remain focused on increasing sales and operational efficiency . tons shipped by product line ( including sales and service tons ) for the years ended december 31 , 2018 and 2017 were as follows : replace_table_token_7_th rail group the rail group 's results were lower than the prior year . story_separator_special_tag sales and merchandising revenues increased $ 163.5 million . this was driven by a 39 % increase in ethanol gallons sold , a portion of which is attributable to the albion plant expansion . cost of sales and merchandising revenues increased $ 164.0 million due to an increase in sales volume . despite higher volumes , higher input costs and lower ddg values caused gross profit to decrease $ 0.4 million . operating , administrative and general expenses increased $ 2.0 million in 2017 compared to the same period in 2016 , primarily as a result of the write-off of a potential capital project . equity in earnings of affiliates decreased $ 6.3 million due to lower results from the unconsolidated ethanol llcs . these results were primarily driven by low ethanol and ddg margins . the decrease was also driven by our merging taei with and into tame in the first quarter . prior to this transaction , the noncontrolling interest in taei was attributed 33 % of the gains and losses of tame recorded by the company in its equity in earnings of affiliates . with a 33 % direct ownership in tame now , our share of gains and losses recorded in equity in earnings of affiliates will decrease , with a correlated decrease in income attributable to noncontrolling interests . plant nutrient group replace_table_token_16_th operating results for the plant nutrient group declined $ 59.3 million when comparing 2017 and 2016 results . sales and merchandising revenues decreased $ 73.4 million . approximately 64 % of the decrease is due to a 30 % decrease in farm center tons sold as a result of the sales of our farm center locations in florida in the first quarter of 2017 and iowa in the first quarter of 2016 and a 6 % decrease in average sales prices for all remaining farm center locations . a 6 % decrease in average sale prices in the wholesale business accounts for the majority of the remaining decrease . cost of sales and merchandising revenues decreased $ 55.9 million , for the same reasons . as such , gross profit decreased by $ 17.5 million . margins remain tight due to competitive pressures , excess nutrient supply in the wholesale and farm center businesses , and lower crop prices . operating , administrative , and general expenses decreased $ 13.5 million from full year 2016. the largest driver was a $ 8.1 million decrease in labor and benefits , much of it relating to the sale of farm center locations in florida in the first quarter of 2017 and the sale of the farm center locations in iowa in the first quarter of 2016. smaller reductions were also realized in a number of other categories as part of our overall cost control efforts . the group recognized goodwill impairment charges of $ 59.1 million after experiencing several periods of compressed margins and lower sales volumes , as well as anticipated unfavorable operating conditions in the nutrient market for some time . the group recognized a $ 2.3 million asset impairment in 2016 associated with the closure of a cob facility . other income increased $ 1.4 million compared to fiscal 2016 primarily as a result of a $ 4.7 million gain on the sale of farm center locations in florida in the first quarter of 2017. this increase was partially offset by a $ 1.8 million legal settlement , net of insurance recoveries , in the third and fourth quarters of 2017 . 26 rail group replace_table_token_17_th operating results for the rail group declined $ 7.6 million in 2017 compared to the full year 2016 results . sales and merchandising revenues increased $ 8.5 million . revenue from car sales increased by $ 11.0 million due to a higher volume of car sales and repair and other revenue increased $ 2.0 million as a result of revenue generated by new shops . these increases were partially offset by a $ 4.5 million decrease in leasing revenues due to average utilization of 85.0 % in 2017 and 87.8 % in 2016 , as well as a 2 % decrease in lease rates compared to the prior year . cost of sales and merchandising revenues increased $ 11.9 million due to an $ 11.0 million increase in car sales and $ 0.8 million related to higher leasing costs . as a result of these factors , rail gross profit decreased $ 3.5 million compared to 2016. operating expenses increased by $ 4.3 million , largely due to higher labor and benefit costs from opening new repair shops . interest expense increased due to higher rates and more debt resulting from purchases in 2017. other replace_table_token_18_th sales and merchandising revenues decreased $ 86.4 million while cost of sales and merchandising revenues decreased $ 57.7 million . these decreases were due to lower volumes as a result of the closure of the retail business during the second quarter of 2017. additionally , inventory liquidation markdowns caused a significant decrease in margins leading to a $ 28.6 million decrease in gross profit in 2017. operating , administrative and general expenses decreased by $ 16.8 million as a result of the mid-year retail closure and a reduction in information technology costs . this decrease was partially offset by one-time exit charges of $ 11.5 million , most of which was for severance costs . other income increased $ 10.0 million primarily from gains on the sale of three store properties and fixtures . income taxes income tax benefit of $ 63.1 million was provided at 307.6 % . in 2016 , income tax expense of $ 6.9 million was provided at 32.3 % . the higher effective tax rate in 2017 relative to the loss before income taxes was due primarily to the us enacted tax cuts and jobs act , also commonly referred to as “ us tax reform ” and non-deductible goodwill impairment charges .
| operating results the following discussion focuses on the operating results as shown in the consolidated statements of operations with a separate discussion by segment . additional segment information is included in note 14 to the company 's consolidated financial statements in item 8. replace_table_token_8_th comparison of 2018 with 2017 grain group replace_table_token_9_th 21 operating results for the grain group improved $ 13.8 million compared to full year 2017 results . sales and merchandising revenues decreased $ 669.5 million compared to 2017 which was largely offset by a decrease in cost of sales and merchandising revenues of $ 668.0 million for a decrease in gross profit of $ 1.5 million . the adoption of asc 606 led to a decrease in revenue of $ 688.3 million and an equal offsetting decrease to cost of sales related primarily to a change in treatment of grain origination transactions that are now shown net versus gross . gross profit is down slightly due to the divestiture of certain tennessee locations , however the remaining locations had a gross profit increase of $ 2.4 million , much of which is due to corn and soybean space income . operating , administrative and general expenses decreased $ 1.8 million compared to full year 2017 results . this is primarily due to a decrease in operating costs as a result of the sale of certain tennessee locations . however , this decrease was partially offset by a $ 2.2 million increase in costs as the group continued its erp implementation at several locations , as well as an increase in depreciation , utilities and other direct costs . the grain group recorded asset impairment charges relating to the tennessee assets of $ 1.6 million and $ 10.9 million in 2018 and 2017 , respectively .
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we recorded the $ 22.0 million payment as revenue during the year ended december 31 , 2018. verastem is obligated to pay us royalties on worldwide net sales of licensed products ranging from the mid-single digits to the high-single digits , a portion of which we are obligated to share with takeda as described below . the royalty obligation will continue on a product-by-product and country-by-country basis until the latest to occur of ( i ) the last-to-expire patent right covering the applicable licensed product 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 related notes included elsewhere in this report . some of the information contained in this discussion and analysis and set forth elsewhere in this report , 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 section titled “ risk factors ” in part i , item 1a of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are an innovative biopharmaceutical company dedicated to developing novel medicines for people with cancer . we combine proven scientific expertise with a passion for developing novel small molecule drugs that target disease pathways for potential applications in oncology . we are focusing on advancing ipi-549 , an orally administered , clinical-stage , immuno-oncology product candidate that selectively inhibits the enzyme phosphoinositide-3-kinase-gamma , or pi3k-gamma . we believe ipi-549 is the only selective inhibitor of pi3k-gamma being investigated in clinical trials . we have worldwide development and commercialization rights to ipi-549 , subject to certain success-based milestone payment obligations to our licensor , takeda pharmaceutical company limited , or takeda , as described in more detail under part i. business overview— alliances , collaborations , and other arrangements , takeda . 73 initiated in 2019 , enrollment has commenced in each of the clinical trials currently investigating ipi-549 in solid tumors : mario-275 ( ipi-549-02 ) . ma crophage r eprogramming in i mmuno- o ncology-275 , or mario-275 , is a global , randomized phase 2 study designed to evaluate the effect of adding ipi-549 to nivolumab , also known as opdivo ® , in approximately 160 checkpoint-naïve advanced urothelial cancer , or uc , patients whose cancer has progressed or recurred following treatment with platinum-based chemotherapy . nivolumab is an immune checkpoint inhibitor therapy commercialized by bristol-myers squibb company , or bms , that targets programmed death receptor 1 , or pd-1 , a checkpoint protein that helps regulate the body 's immune system . we entered into a clinical supply agreement in november 2018 with bms under which bms has agreed to supply nivolumab for our use in mario-275 . based on a retrospective analysis of bms 's approval study , checkmate-275 , uc patients who had high baseline levels of myeloid-derived suppressor cells , or mdscs , had a shorter overall survival when treated with nivolumab as a single agent . data from our ongoing phase 1/1b study mario-1 , described below , have demonstrated that treatment with the combination of ipi-549 and nivolumab is associated with a reduction in blood mdsc levels . we believe that adding ipi-549 to nivolumab can potentially improve outcomes for patients with urothelial cancer . mario-275 patients are enrolled into either the combination arm , evaluating ipi-549 plus nivolumab , or the monotherapy arm , evaluating nivolumab plus placebo , at a ratio of two to one ( combination arm to monotherapy arm ) . patients who progress on the monotherapy arm of the study will have the opportunity to cross over to the combination arm . the primary objective of mario-275 is to compare the overall response rate of mdsc-high patients in the combination arm to mdsc-high patients in the monotherapy arm . the study design will also allow us to evaluate the benefit of ipi-549 to all patients , regardless of mdsc status , and the benefit of ipi-549 to those patients who progress on the monotherapy arm of the study and choose to cross over to the combination arm . we expect to complete enrollment for mario-275 in 2020. mario-3 ( ipi-549-03 ) . mario-3 is a multi-arm phase 2 study designed to evaluate ipi-549 in the front-line setting for triple negative breast cancer , or tnbc , and front-line renal cell carcinoma , or rcc . one cohort of the study is evaluating ipi-549 in combination with atezolizumab , also known as tecentriq ® , and nab-paclitaxel , also known as abraxane ® , in 60 patients with front-line tnbc . the second cohort is evaluating ipi-549 in combination with atezolizumab and bevacizumab , also known as avastin ® , in 30 patients with front-line rcc . in recent studies investigating atezolizumab and nab-paclitaxel combination therapy in front-line pd-l1 positive tnbc patients and investigating atezolizumab and bevacizumab in front-line rcc patients , complete response rates were less than 10 % . mario-3 is intended to evaluate whether ipi-549 can improve upon the response rates of these combination therapies in patients with unmet needs . we expect to complete enrollment for and provide initial data from mario-3 in 2020. we entered into a clinical supply agreement with f. hoffmann-la roche ltd. , or roche , in march 2019 under which roche has agreed to supply atezolizumab for our use in mario-3 . arcus collaboration trial ( nct03719326 ) . a phase 1/1b collaboration study being conducted by arcus biosciences , inc. , or arcus , is designed to evaluate a novel triple-combination regimen of ipi-549 in combination with ab928 , arcus 's dual adenosine receptor antagonist , and liposomal doxorubicin chemotherapy , also known as doxil ® , in up to 40 patients with previously treated , advanced tnbc . story_separator_special_tag our research and development expense has historically consisted primarily of the following : compensation of personnel associated with research and development activities ; clinical testing costs , including payments made to contract research organizations ; 75 costs of combination and comparator drugs used in clinical studies ; costs of manufacturing product candidates for preclinical testing and clinical studies ; costs associated with the licensing of research and development programs ; preclinical testing costs , including costs of toxicology studies ; fees paid to external consultants ; fees paid to professional service providers for independent monitoring and analysis of our clinical trials ; costs for collaboration partners to perform research and development activities , including development milestones for which a payment is due when achieved ; depreciation of equipment ; and allocated costs of facilities . general and administrative expense general and administrative expense primarily consists of compensation of personnel in executive , finance , accounting , legal and intellectual property , information technology infrastructure , corporate communications , corporate development and human resources functions . other costs include facilities costs not otherwise included in research and development expense and professional fees for legal and accounting services . royalty expense royalty expense is recorded when incurred and represents the expense associated with amounts owed to third parties as a result of royalty revenue recognized and the amounts owed by us to takeda in relation to sale of future royalties . other income and expense other income and expense typically consists of interest earned on cash , cash equivalents and available-for-sale securities , gain or loss on sale of property and equipment and interest expense . critical accounting policies and significant judgments and estimates the following discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make judgments , estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . on an ongoing basis , we evaluate our estimates , including those related to cumulative revenue related to variable consideration , accrued expenses , estimates of future net royalty payments used in the calculation of our liability related to the sale of future royalties , and assumptions in the valuation of stock-based compensation . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . actual results could differ from those estimates . differences between actual and estimated results have not been material and have been adjusted in the period they become known . we believe that the following accounting policies and estimates are most critical to understanding and evaluating our reported financial results . please refer to note 2 to our consolidated financial statements included in this report for a description of our significant accounting policies . revenue recognition to date , all our revenue has been generated under collaboration agreements , including payments to us of upfront license fees , funding or reimbursement of research and development efforts , milestone payments if specified objectives are achieved , and or royalties on product sales . 76 effective january 1 , 2018 , we adopted financial accounting standards board accounting standard codification topic 606 , revenue from contracts with customers , or asc 606. the standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services . the standard allows for two transition methods - full retrospective , in which the standard is applied to each prior reporting period presented , or modified retrospective , in which the cumulative effect of initially applying the standard is recognized at the date of initial adoption . we elected the modified retrospective approach and applied it to contracts not completed at the date of adoption . therefore , comparative prior periods have not been adjusted . the adoption of the standard did not have a material impact on our financial position and results of operations when applied to our out-licensing arrangements . see note 11 of the notes to our consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data , ” of this annual report on form 10-k for additional details on these arrangements . the principles in the new standard are applied using a five-step model : 1 ) identify the customer contract ; 2 ) identify the contract 's performance obligations ; 3 ) determine the transaction price ; 4 ) allocate the transaction price to the performance obligations ; and 5 ) recognize revenue when or as a performance obligation is satisfied . we evaluate all promised goods and services within a customer contract and determine which of those are separate performance obligations . this evaluation includes an assessment of whether the good or service is capable of being distinct and whether the good or service is separable from other promises in the contract . when a performance obligation is satisfied , we recognize as revenue the amount of the transaction price , excluding estimates of variable consideration that are constrained , that is allocated to that performance obligation . for contracts that contain variable consideration , such as milestone payments , we estimate the amount of variable consideration by using either the expected value method or the most likely amount method . in making this assessment , we evaluate factors such as the clinical , regulatory , commercial and other risks that must be overcome to achieve the milestone . each reporting period we re-evaluate the probability of achievement of such milestones and any related constraints . we will include variable consideration , without constraint , in the transaction price to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved .
| results of operations the following table summarizes our results of operations for the years ended december 31 , 2019 and 2018 , in thousands , together with the change in each item as a percentage . replace_table_token_1_th revenue collaboration revenue during the year ended december 31 , 2019 consisted of $ 2.0 million of revenue related to the milestone payment for pellepharm , inc. 's initiation of a phase 3 study investigating ipi-926 , or patidegib , in patients with gorlin syndrome , a rare genetic disease that leads to the chronic formation of multiple basal cell carcinomas , as this milestone payment is variable consideration that became unconstrained following initiation of the study . collaboration revenue during the year ended december 31 , 2018 consisted of $ 22.0 million of revenue related to a payment from verastem inc. , or verastem , upon approval by the u.s. food and drug administration , or fda , of duvelisib for the treatment of adult patients with relapsed or refractory chronic lymphocytic leukemia or small lymphocytic lymphoma after at least two prior therapies , as well as adult patients with relapsed or refractory follicular lymphoma after at least two prior systemic therapies . royalty revenue consisted of approximately $ 1.0 million for the year ended december 31 , 2019 related to royalties from verastem on net sales of duvelisib . a portion of royalties received from verastem is owed to mundipharma international corporation limited , or mundipharma , and purdue pharmaceutical products l.p. , or purdue . we refer to such portion as the trailing mundipharma royalties ( see note 11 of the notes to our consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data , ” of this annual report on form 10-k ) . we and healthcare royalty partners iii , l.p. , or hcr , entered into a purchase and sale agreement in march 2019 , or the hcr agreement .
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consolidated results of operations — other general and administrative expenses general and administrative expenses include expenses related to corporate staff functions and initiatives , executive management , finance , legal , human resources and information systems , as well as global development costs . general and administrative expenses increased $ 21 million , or 11 % , in 2017 from 2016 primarily due to severance costs related to workforce reductions associated with a major restructuring program , increased professional fees and increased business development activity . general and administrative expenses decreased $ 2 million , or 1 % , in 2016 from 2015 with no material drivers . interest expense interest expense increased $ 36 million , or 3 % , in 2017 from 2016 primarily due to a $ 30 million increase at andes sbu , driven by lower capitalized interest in 2017 due to cochrane plant starting commercial operations in the second half of 2016. interest expense decreased $ 11 million , or 1 % in 2016 from 2015 primarily due to a decrease in debt balance at the parent company and us sbu , partially offset by higher interest expense due to mong duong assets being placed in service , which ended the interest capitalization period at the eurasia sbu . interest income interest income decreased $ 1 million in 2017 from 2016 with no material drivers . interest income decreased $ 11 million , or 4 % , in 2016 from 2015 primarily due to prior year recognition of accumulated interest on vat balances at the andes sbu and lower short term investment balances at the brazil sbu in 2016 , partially offset by higher interest income recognized on the financing element of the service concession arrangement at mong duong in the eurasia sbu , which became fully operational in april 2015. loss on extinguishment of debt loss on extinguishment of debt was $ 68 million for the year ended december 31 , 2017 primarily related to losses of $ 92 million , $ 20 million , and $ 9 million on debt extinguishments at the parent company , aes gener , and ipalco , respectively . the loss was partially offset by a gain on early retirement of debt at alicura of $ 65 million . loss on extinguishment of debt was $ 13 million for the year ended december 31 , 2016 . this loss was primarily related to losses of $ 14 million recognized on debt extinguishment at the parent company . loss on extinguishment of debt was $ 182 million for the year ended december 31 , 2015 . this loss was primarily related to losses of $ 105 million , $ 22 million , and $ 19 million recognized on debt extinguishments at the parent company , ipl , and the dominican republic , respectively . 71 other income and expense other income increased $ 56 million , or 88 % , in 2017 from 2016 primarily due to the favorable impact at brazil sbu as a result of the settlement of legal proceeding at aes uruguaiana related to ypf 's breach of the parties ' gas supply agreement in 2017. other income decreased $ 20 million , or 24 % , in 2016 from 2015 primarily due to gains on early contract termination in 2015. other expense decreased $ 22 million , or 28 % , in 2017 from 2016 primarily due to the 2016 recognition of a full allowance on a non-trade receivable in the mcac sbu as a result of payment delays . this decrease was partially offset by the 2017 loss on disposal of assets at dpl as a result of the decision to close the coal-fired and diesel-fired generating units at stuart and killen on or before june 1 , 2018 and the write-off of water rights in the andes sbu for projects that are no longer being pursued . other expense increased $ 55 million in 2016 from 2015 primarily due to the 2016 recognition of a full allowance on a non-trade receivable in the mcac sbu as a result of payment delays . see note 18 — other income and expense included in item 8.— financial statements and supplementary data of this form 10-k for further information . gain ( loss ) on disposal and sale of businesses loss on disposal and sale of businesses was $ 52 million for the year ended december 31 , 2017 primarily due to the $ 49 million and $ 33 million loss on sale of kazakhstan chps and hydroelectric plants , respectively , partially offset by the recognition of a $ 23 million gain related to the expiration of a contingency at masinloc . gain on disposal and sale of businesses was $ 29 million for the year ended december 31 , 2016 primarily due to the $ 49 million gain on sale of dpler , partially offset by the $ 20 million loss on the deconsolidation of u.k. wind . gain on disposal and sale of businesses was $ 29 million for the year ended december 31 , 2015 primarily due to the $ 22 million gain on sale of armenia mountain . goodwill impairment expense there were no goodwill impairments for the years ended december 31 , 2017 or 2016 . goodwill impairment expense was $ 317 million for the year ended december 31 , 2015 due to a goodwill impairment at dp & l . see note 8 — goodwill and other intangible assets included in item 8.— financial statements and supplementary data of this form 10-k for further information . asset impairment expense asset impairment expense decreased $ 559 million , or 51 % , in 2017 from 2016 mainly driven by the prior year us sbu impairment of $ 859 million at dpl , partially offset by a $ 121 million impairment in the current year at laurel mountain as a result of a decline in forward pricing . story_separator_special_tag net income ( loss ) from discontinued operations net loss from discontinued operations was $ 629 million for the year ended december 31 , 2017 primarily due to the after-tax loss on deconsolidation of eletropaulo of $ 611 million recognized in the fourth quarter of 2017. the remaining loss was due to a loss contingency recognized by our equity affiliate , partially offset by the income from operations of eletropaulo prior to the date of deconsolidation . net loss from discontinued operations was $ 968 million for the year ended december 31 , 2016 due to the sale of sul , partially offset by the income from operations of eletropaulo . the loss includes an after-tax loss on the impairment of sul of $ 382 million recognized in the second quarter of 2016 and an additional after-tax loss on the sale of sul of $ 737 million recognized upon disposal in october 2016. there was no significant loss from operations related to the sul discontinued business . net income from discontinued operations was $ 80 million for the year ended december 31 , 2015 primarily due to the income from operations of eletropaulo . there was no significant loss from operations related to the sul discontinued business . see note 21 — discontinued operations included in item 8.— financial statements and supplementary data of this form 10-k for further information . net income attributable to noncontrolling interests and redeemable stock of subsidiaries net income attributable to noncontrolling interests and redeemable stock of subsidiaries increased $ 148 million , or 70 % , in 2017 from 2016 primarily due to : asset impairment at buffalo gap i and ii in 2016. net income attributable to noncontrolling interests and redeemable stock of subsidiaries decreased $ 153 million , or 42 % , in 2016 from 2015 primarily due to : lower earnings at tietê , asset impairments at buffalo gap i and ii . these decreases were offset by : lower asset impairment at buffalo gap iii in 2015. net income ( loss ) attributable to the aes corporation net loss attributable to the aes corporation increased $ 31 million , or 3 % , in 2017 compared to 2016 as a result of : impact due to u.s. tax reform law enacted on december 22 , 2017 ; current year losses on sale of kazakhstan chps and hydroelectric plants ; current year loss on deconsolidation of eletropaulo ; current year impairments at laurel mountain , kazakhstan chps and hydroelectric plants and kilroot ; and higher loss on extinguishment of debt . these increases were partially offset by : 74 prior year impairments at dpl ; prior year loss from discontinued operations as a result of the sale of sul ; higher margin at our mcac sbu ; the favorable impact of the ypf legal settlement at aes uruguaiana ; and higher gains on foreign currency transactions . net income attributable to the aes corporation decreased $ 1.4 billion , to a loss of $ 1.1 billion in 2016 compared to income of $ 306 million in 2015 as result of : impairments and loss on sale at discontinued businesses ; higher impairment expense on long lived assets ; lower operating margins at our us , brazil and eurasia sbus ; lower equity in earnings of affiliates due to the 2015 restructuring at guacolda ; and lower gains on foreign currency derivatives . these decreases were partially offset by : lower effective tax rate ; lower debt extinguishment expense ; and absence of goodwill impairment expense . sbu performance analysis segments we are organized into five market-oriented sbus : us ( united states ) , andes ( chile , colombia , and argentina ) , brazil , mcac ( mexico , central america , and the caribbean ) , and eurasia ( europe and asia ) . in february 2018 , we announced a reorganization as a part of our ongoing strategy to simplify our portfolio , optimize our cost structure , and reduce our carbon intensity . the evaluation of the impact this reorganization will have on our segment reporting structure is still ongoing . non-gaap measures adjusted operating margin , adjusted ptc , adjusted eps , and free cash flow are non-gaap supplemental measures that are used by management and external users of our consolidated financial statements such as investors , industry analysts and lenders . for the year ending december 31 , 2017 , the company changed the definition of adjusted operating margin , adjusted ptc and adjusted eps to exclude ( a ) associated benefits and costs due to acquisitions , dispositions , and early plant closures ; including the tax impact of decisions made at the time of sale to repatriate sales proceeds ; ( b ) costs directly associated with a major restructuring program , including , but not limited to , workforce reduction efforts , relocations , and office consolidation ; and ( c ) tax benefit or expense related to the enactment effects of 2017 u.s. tax law reform . we have excluded from our adjusted financial results costs associated with non-recurring restructuring initiatives to simplify the organization and improve efficiency . these restructuring initiatives would result in significant incremental costs above normal operations and the inclusion of such costs would result in a lack of comparability in our results of operations and could be misleading to investors . the company amended its adjusted eps definition to exclude the specific enactment effects of the transformational u.s. tax reform enacted on december 22 , 2017. such effects include a one-time transition tax on foreign earnings and the remeasurement of deferred tax assets and liabilities to the lower corporate tax rate . as permitted by the sec in sab 118 , the company recorded provisional amounts for these effects in its 2017 income from continuing operations . changes in our estimates of these enactment effects may occur in future periods .
| maritza ppa review — the dg comp continues to review whether maritza 's ppa with nek is compliant with the european commission 's state aid rules . although no formal investigation has been launched by dg comp to date , maritza has engaged in discussions with the dg comp case team and representatives of bulgaria to discuss the agency 's review . in the near term , maritza expects that it will engage in discussions with bulgaria to attempt to reach a negotiated resolution concerning dg comp 's review . the anticipated discussions could involve a range of potential outcomes , including but not limited to termination of the ppa and payment of some level of compensation to maritza . any negotiated resolution would be subject to mutually acceptable terms , lender consent , and dg comp approval . at this time , we can not predict the outcome of the anticipated discussions between maritza and bulgaria , nor can we predict how dg comp might resolve its review if the discussions fail to result in an agreement concerning the review . maritza believes that its ppa is legal and in compliance with all applicable laws , and it will take all actions necessary to protect its interests , whether through negotiated agreement or otherwise . however , there can be no assurances that this matter will be resolved favorably ; if it is not , there could be a material adverse impact on maritza 's and the company 's respective financial statements . alto maipo alto maipo has experienced construction difficulties which have resulted in increased projected costs over the original $ 2 billion budget . these overages led to a series of negotiations with the intention of restructuring the project 's existing financial structure and obtaining additional funding . on march 17 , 2017 , aes gener completed a legal and financial restructuring of alto maipo .
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related services . in the united states , we ( 1 ) are the general partner and own limited partner interests in a retail propane marketing and distribution business ; ( 2 ) own and operate natural gas and electric distribution utilities ; and ( 3 ) own and operate an energy marketing , midstream infrastructure , storage , natural gas gathering , natural gas production , electricity generation and energy services business . in europe , we market and distribute propane and other liquefied petroleum gases ( “ lpg ” ) and market energy products and services . we refer to ugi and its consolidated subsidiaries collectively as “ the company , ” “ we ” or “ us . ” we conduct a domestic propane marketing and distribution business through amerigas partners , l.p. ( “ amerigas partners ” ) . amerigas partners is a publicly traded limited partnership that conducts a national propane distribution business through its principal operating subsidiary amerigas propane , l.p. ( “ amerigas olp ” ) . amerigas partners and amerigas olp are delaware limited partnerships . ugi 's wholly owned second-tier subsidiary , amerigas propane , inc. ( the “ general partner ” ) , serves as the general partner of amerigas partners and amerigas olp . story_separator_special_tag management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) discusses our results of operations for fiscal 2018 , fiscal 2017 and fiscal 2016 , and our financial condition . md & a should be read in conjunction with our items 1 & 2 , “ business and properties , ” our item 1a , “ risk factors , ” and our consolidated financial statements in item 8 below including “ segment information ” included in note 21 to consolidated financial statements . because most of our businesses sell or distribute energy products used in large part for heating purposes , our results are significantly influenced by temperatures in our service territories , particularly during the peak heating-season months of october through march . accordingly , our results of operations , after adjusting for the effects of gains and losses on derivative instruments not associated with current period transactions as further discussed below under “ non-gaap financial measures - adjusted net income attributable to ugi and adjusted diluted earnings per share , ” are significantly higher in our first and second fiscal quarters . ugi management uses “ adjusted net income attributable to ugi corporation ” and “ adjusted diluted earnings per share , ” both of which are financial measures not in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) , when evaluating ugi 's overall performance . management believes that these non-gaap measures provide meaningful information to investors . adjusted net income attributable to ugi corporation excludes ( 1 ) net after-tax gains and losses on commodity and certain foreign currency derivative instruments not associated with current-period transactions and ( 2 ) other significant discrete items that management believes affect the comparison of period-over-period results ( as such items are further described below ) . ugi does not designate its commodity and certain foreign currency derivative instruments as hedges under gaap . volatility in net income attributable to ugi corporation as determined in accordance with gaap can occur as a result of gains and losses on commodity and certain foreign currency derivative instruments not associated with current-period transactions . these gains and losses result principally from recording changes in unrealized gains and losses on these derivative instruments . however , because these derivative instruments economically hedge anticipated future purchases or sales of energy commodities or , in the case of certain foreign currency derivatives , reduce volatility in anticipated future earnings associated with our foreign operations , we expect that such gains and losses will be largely offset by gains or losses on anticipated future energy commodity transactions or mitigate the volatility in anticipated future earnings associated with our european operations . for further information , see “ non-gaap financial measures - adjusted net income attributable to ugi and adjusted diluted earnings per share ” below and note 21 to consolidated financial statements . executive overview net income attributable to ugi corporation by business unit ( gaap ) replace_table_token_7_th ( a ) fiscal 2018 net income attributable to ugi corporation by business unit reflects the impacts of the tcja in the u.s. , and ugi international 's fiscal 2018 and fiscal 2017 net income also reflects the impacts of tax legislation in france . see “ impact of tax reform ” below and note 6 to consolidated financial statements . ( b ) corporate & other includes net after-tax gains on commodity derivative instruments not associated with current-period transactions of $ 68.1 million , $ 51.2 million and $ 29.9 million in fiscal 2018 , fiscal 2017 and fiscal 2016 , respectively . corporate & other also includes after-tax unrealized gains ( losses ) on certain foreign currency derivative instruments of $ 19.6 million and $ ( 13.9 ) million in fiscal 2018 and fiscal 2017 , respectively . see note 21 to consolidated financial statements for a discussion of amounts included in corporate & other . fiscal 2018 financial review our fiscal 2018 operating results reflect temperatures based upon heating degree days that were normal , or slightly warmer than normal , in each of our business units ' service territories . compared to fiscal 2017 , average temperatures in our domestic business units were significantly colder , while temperatures in our ugi international business in europe were slightly warmer . after two 34 consecutive years of significantly warmer-than-normal weather in the u.s. , the return of more normal weather in fiscal 2018 enabled us to demonstrate the earnings potential of our existing businesses and our recent acquisitions and investments . our fiscal 2018 net income attributable to ugi also reflects the enactment of the tcja . story_separator_special_tag although these remeasurement adjustments decreased our income tax expense and increased our gaap net income , we have eliminated these remeasurement adjustments from our non-gaap adjusted results . 35 in addition to the remeasurement adjustments related to our u.s. and french income tax assets and liabilities , our income tax expense for fiscal 2018 was further reduced by approximately $ 52.1 million ( equal to $ 0.30 per diluted share ) principally as a result of our lower fiscal 2018 blended u.s. income tax rate of 24.5 % compared to 35 % previously . however , the impact of this decrease in income taxes was partially offset by the after-tax reduction in ugi utilities ' revenues resulting from a may 2018 papuc order . in accordance with this order , ugi utilities reduced its revenues by $ 24.1 million , and established an associated regulatory liability , related to $ 17.1 million ( equal to $ 0.10 per diluted share ) of tax benefits resulting from the change in the federal tax rate from 35 % to 21 % for the period january 1 , 2018 through june 30 , 2018. after adjusting for this reduction in ugi utilities ' revenues , the impact of the tcja increased fiscal 2018 earnings ( excluding the remeasurement effects previously mentioned ) by $ 35.0 million ( equal to $ 0.20 per diluted share ) . this fiscal 2018 current-period benefit from the tcja in the u.s. was reduced by a modest $ 0.6 million increase in fiscal 2018 current-period income taxes in france resulting from the higher fiscal 2018 french income tax rate . in addition to the requirement to establish a regulatory liability for the tax benefits resulting from the tcja for the period january 1 , 2018 to june 30 , 2018 , the papuc also ordered each regulated utility currently not in a general base rate case proceeding to reduce their rates through a reconcilable negative surcharge applied to bills rendered on or after july 1 , 2018. the negative surcharge will remain in place until the effective date of new rates established in the utility 's next general base rate proceeding . this negative surcharge effectively offsets the effects of the tcja on income taxes at ugi utilities until such effects are considered in future rate proceedings . the impact of the negative surcharge on net income for the period july 1 , 2018 to september 30 , 2018 , was not material . for further information on the tcja , the december 2017 french finance bills , the regulatory impacts on ugi utilities resulting from the tcja and the actions of the papuc , see notes 6 and 8 to consolidated financial statements . strategic initiatives during fiscal 2018 , we continued to make significant strategic and operational progress in support of our long-term goals . amerigas propane continued to drive costs out of the business through operating efficiencies , the application of technology solutions , and organizational management initiatives . through continued expansion and enhancement of technology initiatives , amerigas propane continued to reduce distribution costs and optimize delivery routing to increase the efficiency of its distribution model . amerigas propane experienced a significant increase in the number of customer accounts registered for online capabilities and has developed and deployed other technology-enabled methods to communicate with customers . volumes from the ace cylinder program in fiscal 2018 were the highest on record reflecting an increase in the number of retail locations including locations offering 24/7 automated self-service vending machines , and the national account program 's performance in fiscal 2018 benefited from double-digit volume growth due in large part to more normal winter weather and customer growth . during fiscal 2018 , ugi international completed the integration of finagaz acquired in may 2015 on time , achieving higher-than-expected synergies . in addition , ugi international integrated three smaller businesses acquired in late fiscal 2017 and early fiscal 2018 , including lpg distribution businesses in sweden and italy as well as dvep , a leading energy marketer in the netherlands . in addition , ugi international centralized its european supply and commodity hedging functions in france , continued to build-out its cylinder distribution model including vending machines and expansion of retail chain customers , and executed the start-up of a natural gas marketing business in the united kingdom . we also made significant progress on the implementation of the newly enacted european data privacy regulation , the global data protection regulation , across our european operations . during fiscal 2018 , midstream & marketing acquired a midstream gas gathering system , texas creek , which included 60 miles of natural gas gathering lines , and acquired the endless mountain natural gas gathering system . both of these gathering systems operate in the marcellus shale in northern pennsylvania . midstream & marketing also acquired a 44 megawatt natural gas turbine adding capacity to the hunlock site . in addition to these and other strategic asset acquisitions , midstream & marketing completed the steelton lng storage and vaporization unit , which is an important component of satisfying growing peak-day demand , and achieved several important milestones on the penneast pipeline project including receipt of the ferc certificate of public convenience and necessity in january 2018. ugi utilities added over 14,000 new residential and commercial heating customers during fiscal 2018 with conversions accounting for the majority of the additions . in january , ugi utilities filed a base rate request for the electric division . new rates for electric utility went into effect in late october 2018. ugi utilities continued to invest in its distribution system deploying nearly $ 340 million in capital , including approximately $ 185 million for replacement and betterment , and received regulatory approval for the merger of ugi utilities ' three utility companies effective october 1 , 2018. during fiscal 2018 , ugi utilities also completed the design of unite phase 2 , its enterprise resource planning ( “ erp ” ) system , and made substantial progress on the build phases of the project .
| consolidated results net income attributable to ugi corporation by business unit : replace_table_token_17_th ( a ) includes net after-tax losses of $ 9.6 million and $ 7.9 million from extinguishments of debt in fiscal 2017 and fiscal 2016 , respectively . ( b ) fiscal 2017 includes beneficial impact of a $ 29.0 million adjustment to net deferred income tax liabilities associated with a change in french income tax rate , the release of a $ 7.6 million valuation allowance against future uses of foreign tax credit carryforwards and an income tax settlement refund of $ 6.7 million , plus interest , in france . ( c ) includes after-tax integration expenses associated with finagaz of $ 26.2 million and $ 17.3 million in fiscal 2017 and fiscal 2016 , respectively . ( d ) includes net after-tax gains on commodity derivative instruments not associated with current-period transactions of $ 51.2 million and $ 29.9 million in fiscal 2017 and fiscal 2016 , respectively . fiscal 2017 also includes $ 13.9 million of after-tax unrealized losses on certain foreign currency derivative instruments . ( e ) fiscal 2017 includes a $ 7.1 million after-tax loss from the impairment of a cost basis investment . n.m. — variance is not meaningful . replace_table_token_18_th ( a ) total margin represents total revenues less total cost of sales . total margin for fiscal 2017 and fiscal 2016 excludes net pre-tax gains of $ 31.1 million and $ 66.1 million , respectively , on commodity derivative instruments not associated with current-period transactions . ( b ) partnership operating and administrative expenses in fiscal 2017 include a $ 7.5 million environmental accrual associated with the site of a former mgp obtained in a prior-year acquisition ( see note 15 to consolidated financial statements ) . ( c ) partnership adjusted ebitda should not be considered as an alternative to net income ( as an indicator of operating performance ) and is not a measure of performance or financial condition under gaap .
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discontinued operations the company completed the sale of its majority owned subsidiary , tridien medical , inc. ( `` tridien `` ) during the third quarter of 2016 , the sale of its majority owned subsidiary camelbak products , llc ( `` camelbak `` ) in the third quarter of 2015 and the sale of its majority owned subsidiary , american furniture manufacturing , inc. ( `` afm `` or `` american furniture `` ) , during the fourth quarter of 2015. the results of operations story_separator_special_tag this item 7 contains forward-looking statements . forward-looking statements in this annual report on form 10-k are subject to a number of risks and uncertainties , some of which are beyond our control . our actual results , performance , prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements . additional risks of which we are not currently aware or which we currently deem immaterial could also cause our actual results to differ , including those discussed in the sections entitled “ forward-looking statements ” and “ risk factors ” included elsewhere in this annual report . overview compass diversified holdings , a delaware statutory trust , was incorporated in delaware on november 18 , 2005. compass group diversified holdings , llc , a delaware limited liability company , was also formed on november 18 , 2005. in accordance with the trust agreement , the trust is sole owner of 100 % of the trust interests ( as defined in the llc agreement ) of the company and , pursuant to the llc agreement , the company has outstanding , the identical number of trust interests as the number of outstanding shares of the trust . sostratus llc owns all of our allocation interests . the company is the operating entity with a board of directors and other corporate governance responsibilities , similar to that of a delaware corporation . the trust and the company were formed to acquire and manage a group of small and middle-market businesses headquartered in north america . we characterize small and middle market businesses as those that generate annual cash flows of up to $ 60 million . we focus on companies of this size because we believe that these companies are more able to achieve growth rates above those of their relevant industries and are also frequently more susceptible to efforts to improve earnings and cash flow . in pursuing new acquisitions , we seek businesses with the following characteristics : north american base of operations ; stable and growing earnings and cash flow ; maintains a significant market share in defensible industry niche ( i.e. , has a “ reason to exist ” ) ; solid and proven management team with meaningful incentives ; low technological and or product obsolescence risk ; and a diversified customer and supplier base . our management team 's strategy for our subsidiaries involves : utilizing structured incentive compensation programs tailored to each business in order to attract , recruit and retain talented managers to operate our businesses ; regularly monitoring financial and operational performance , instilling consistent financial discipline , and supporting management in the development and implementation of information systems to effectively achieve these goals ; assisting management in their analysis and pursuit of prudent organic cash flow growth strategies ( both revenue and cost related ) ; identifying and working with management to execute attractive external growth and acquisition opportunities ; and forming strong subsidiary level boards of directors , including independent directors , to supplement management in their development and implementation of strategic goals and objectives . based on the experience of our management team and its ability to identify and negotiate acquisitions , we believe we are well- positioned to acquire additional attractive businesses . our management team has a large network of approximately 2,000 deal intermediaries to whom it actively markets and who we expect to expose us to potential acquisitions . through this network , as well as our management team 's active proprietary transaction sourcing efforts , we typically have a substantial pipeline of potential acquisition targets . in consummating transactions , our management team has , in the past , been able to successfully navigate complex situations surrounding acquisitions , including corporate spin-offs , transitions of family-owned businesses , management buy-outs and reorganizations . we believe the flexibility , creativity , experience and expertise of our management team in structuring transactions provides us with a strategic advantage by allowing us to consider non-traditional and complex transactions tailored to fit a specific acquisition target . in addition , because we intend to fund acquisitions through the utilization of our revolving credit facility , we do not expect to be subject to delays in or conditions by closing acquisitions that would be typically associated with transaction specific financing , as is typically the case in such acquisitions . we believe this advantage is a powerful one and is highly unusual in the marketplace for acquisitions in which we operate . 76 initial public offering and company formation on may 16 , 2006 , we completed our initial public offering of 13,500,000 shares of the trust at an offering price of $ 15.00 per share ( the “ ipo ” ) . subsequent to the ipo the company 's board of directors engaged our manager to externally manage the day-to-day operations and affairs of the company , oversee the management and operations of the businesses and to perform those services customarily performed by executive officers of a public company . from may 16 , 2006 through december 31 , 2017 , we purchased seventeen businesses ( each of our businesses is treated as a separate operating segment ) and disposed of seven businesses . story_separator_special_tag during the second quarter of 2017 , our board of directors declared a distribution to the holders of the allocation interests of $ 25.8 million in connection with the sale event of fox . the profit allocation payment was made during the quarter ended june 30 , 2017. trust preferred share issuance on june 28 , 2017 , the trust issued 4,000,000 7.250 % series a trust preferred shares ( the `` series a preferred shares '' ) for gross proceeds of $ 100.0 million , or $ 96.4 million net of underwriters ' discount and issuance costs . 2017 distributions common shares - for the 2017 fiscal year we declared distributions to our common shareholders totaling $ 1.44 per share . preferred shares - for the 2017 fiscal year we declared distributions to our preferred shareholders totaling $ 1.067 per share on our series a preferred shares . subsequent events acquisition of foam fabricators in january 2018 , we entered into an agreement to acquire foam fabricators , inc. ( “ foam fabricators ” ) for a purchase price of $ 247.5 million ( excluding working capital and certain other adjustments upon closing ) . headquartered in scottsdale , arizona , foam fabricators is a leading designer and manufacturer of custom molded protective foam solutions and oem components made from expanded polymers such as expanded polystyrene ( eps ) and expanded polypropylene ( epp ) . founded in 1957 , the foam fabricators operates 13 state-of-the-art molding and fabricating facilities across north america . foam fabricators provides products to a variety of end-markets , including appliances and electronics , pharmaceuticals , health and wellness , automotive , and building products . for the trailing twelve months ended november 30 , 2017 , foam fabricators reported net revenue of approximately $ 126 million . the acquisition of foam fabricators closed on february 15 , 2018 , with the company funding the acquisition through a draw on our 2014 revolving credit facility . acquisition of rimports in january 2018 , our sterno business entered into an agreement to acquire rimports , inc. ( `` rimports '' ) for a purchase price of approximately $ 145 million , excluding working capital and other adjustments upon closing , plus a potential earn-out of up to $ 25 million based on future financial performance of rimports . rimports is a manufacturer and distributor of branded and private label scented , wickless candle products used for home decor and fragrance . headquartered in provo , utah , rimports offers an extensive line of ceramic wax warmers , scented wax cubes , essential oils and diffusers through the mass retail channel . for the trailing twelve months ended november 30 , 2017 , rimports reported net revenue of $ 155.4 million . the acquisition of rimports closed on february 26 , 2018 , with the company funding the acquisition through a draw on our 2014 revolving credit facility . 2018 outlook middle market deal flow remained steady in 2017 relative to 2016 , in part due to continued attractive valuations for sellers . high valuation levels continue to be driven by the availability of debt capital with favorable terms and financial and strategic buyers seeking to deploy available equity capital . we remain focused on marketing the company 's attractive ownership and management attributes to potential sellers of middle market businesses and intermediaries . in addition , we continue to pursue opportunities for add-on acquisitions by certain of our existing subsidiary companies , which can be particularly attractive from a strategic perspective . the areas of focus for 2018 , which are generally applicable to each of our businesses , include : achieving sales growth through a combination of new product development , increasing distribution and international expansion ; taking market share , where possible , in each of our niche market leading companies , generally at the expense of less well capitalized competitors ; striving for excellence in supply chain management , manufacturing and technological capabilities ; 79 continuing to pursue expense reduction and cost savings in lower margin business lines or in response to lower production volume ; continuing to grow through disciplined , strategic acquisitions and rigorous integration processes ; and driving free cash flow through increased net income and effective working capital management , enabling continued investment in our businesses , strategic acquisitions , and distributions to our shareholders . 80 results of operations we were formed on november 18 , 2005 and acquired our existing businesses ( segments ) as follows : may 16 , 2006 march 31 , 2010 september 16 , 2010 march 5 , 2012 august 26 , 2014 advanced circuits liberty safe ergobaby arnold clean earth october 10 , 2014 july 10 , 2015 august 31 , 2016 june 2 , 2017 sterno manitoba harvest 5.11 crosman fiscal years 2017 , 2016 and 2015 each represent a full year of operating results included in our consolidated results of operations for six of our businesses . we acquired crosman in june 2017 , 5.11 in august 2016 , and manitoba harvest in july 2015. in the following results of operations , we provide ( i ) our actual consolidated results of operations for the years ended december 31 , 2017 , 2016 and 2015 , which includes the historical results of operations of each of our businesses ( operating segments ) from the date of acquisition and ( ii ) comparative historical results of operations for each of our businesses on a stand-alone basis ( “ results of operations – our businesses ” ) , for each of the years ended december 31 , 2017 , 2016 and 2015 , where all years presented include relevant pro-forma adjustments for pre-acquisition periods and explanations where applicable .
| results of operations the table below summarizes the statement of operations for advanced circuits for the fiscal years ending december 31 , 2017 , 2016 and 2015 . 93 replace_table_token_25_th year ended december 31 , 2017 compared to year ended december 31 , 2016 net sales net sales for the year ended december 31 , 2017 were approximately $ 87.8 million compared to approximately $ 86.0 million for the same period in 2016 , an increase of approximately $ 1.7 million or 2.0 % . the increase in net sales during the year ended december 31 , 2017 was due to increased sales in quick-turn production pcbs by approximately $ 1.5 million , long-lead time pcbs by approximately $ 0.5 million , subcontract by approximately $ 0.6 million , and a decrease in promotions by approximately $ 0.4 million . this was partially offset by decreases in assembly by approximately $ 0.3 million and quick-turn small-run pcbs by approximately $ 1.0 million . on a consolidated basis , quick-turn small-run pcbs comprised approximately 20.4 % of gross sales and quick-turn production pcbs represented approximately 33.0 % of gross sales for the twelve months ended december 31 , 2017. quick-turn small-run pcbs comprised approximately 21.8 % of gross sales and quick-turn production pcbs represented approximately 31.8 % of gross sales for the twelve months ended december 31 , 2016. cost of sales cost of sales for the year ended december 31 , 2017 decreased approximately $ 0.1 million compared to the comparable period in 2016. gross profit as a percentage of sales increased 120 basis points during the year ended december 31 , 2017 ( 45.4 % in 2017 compared to 44.2 % in 2016 ) primarily as a result of sales mix .
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the flight support group consists of heico aerospace holdings corp. ( “ heico aerospace ” ) , which is 80 % owned , and heico flight support corp. , which is wholly owned , and their collective subsidiaries , which primarily : designs , manufactures , repairs , overhauls and distributes jet engine and aircraft component replacement parts . the flight support group designs , manufactures , repairs , overhauls and distributes jet engine and aircraft component replacement parts . the parts and services are approved by the federal aviation administration ( “ faa ” ) . the flight support group also manufactures and sells specialty parts as a subcontractor for aerospace and industrial original equipment manufacturers and the united states ( `` u.s. '' ) government . additionally , the flight support group is a leading supplier , distributor , and integrator of military aircraft parts and support services primarily to foreign military organizations allied with the u.s. and a leading manufacturer of advanced niche components and complex composite assemblies for commercial aviation , defense and space applications . further , the flight support group engineers , designs and manufactures thermal insulation blankets and parts as well as removable/reusable insulation systems for aerospace , defense , commercial and industrial applications , manufactures expanded foil mesh for lightning strike protection in fixed and rotary wing aircraft and is a leading distributor of aviation electrical interconnect products and electromechanical parts . the electronic technologies group consists of heico electronic technologies corp. ( “ heico electronic ” ) and its subsidiaries , which primarily : designs and manufactures electronic , microwave and electro-optical equipment , high-speed interface products , high voltage interconnection devices and high voltage advanced power electronics . the electronic technologies group designs , manufactures and sells various types of electronic , microwave and electro-optical equipment and components , including power supplies , laser rangefinder receivers , infrared simulation , calibration and testing equipment ; power conversion products serving the high-reliability military , space and commercial avionics end-markets ; underwater locator beacons used to locate data and voice recorders utilized on aircraft and marine vessels ; electromagnetic interference shielding for commercial and military aircraft operators , electronics companies and telecommunication equipment suppliers ; traveling wave tube amplifiers and microwave power modules used in radar , electronic warfare and on-board jamming and countermeasure systems ; advanced high-technology interface products that link devices such as telemetry receivers , digital cameras , high resolution scanners , simulation systems and test systems to computers ; high voltage energy generators , high voltage 32 index interconnection devices , cable assemblies and wire for the medical equipment , defense and other industrial markets ; high voltage power supplies found in satellite communications , ct scanners and in medical and industrial x-ray systems ; three-dimensional microelectronic and stacked memory products that are principally integrated into larger subsystems equipping satellites and spacecraft ; harsh environment connectivity products and custom molded cable assemblies ; radio frequency ( rf ) and microwave amplifiers , transmitters and receivers used to support military communications on unmanned aerial systems , other aircraft , helicopters and ground-based data/communications systems ; communications and electronic intercept receivers and tuners for military and intelligence applications ; wireless cabin control systems , solid state power distribution and management systems and fuel level sensing systems for business jets and for general aviation , as well as for the military/defense market ; microwave modules , units and integrated sub-systems for commercial and military satellites ; crashworthy and ballistically self-sealing auxiliary fuel systems for military rotorcraft ; and high performance active antenna systems for commercial aircraft , precision guided munitions , other defense applications and commercial uses . our results of operations during each of the past three fiscal years have been affected by a number of transactions . this discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto included herein . for further information regarding the acquisitions discussed below , see note 2 , acquisitions , of the notes to consolidated financial statements . each acquisition was included in our results of operations from the effective acquisition date . in september 2017 , we acquired , through heico electronic , all of the outstanding stock of aeroantenna technology , inc. ( `` aat '' ) . aat designs and produces high performance active antenna systems for commercial aircraft , precision guided munitions , other defense applications and commercial uses . in june 2017 , we acquired , through a subsidiary of the heico flight support corp. , all of the ownership interests of carbon by design ( `` cbd '' ) . cbd is a manufacturer of composite components for uavs , rockets , spacecraft and other specialized applications . the purchase price of cbd was paid using cash provided by operating activities . in april 2017 , we acquired , through a subsidiary of heico flight support corp. , 80.1 % of the equity interests of llp enterprises , llc , which owns all of the outstanding equity interests of the operating units of air cost control ( `` a2c '' ) . a2c is a leading aviation electrical interconnect product distributor of items such as connectors , wire , cable , protection and fastening systems , in addition to distributing a wide range of electromechanical parts . the remaining 19.9 % interest continues to be owned by certain members of a2c 's management team . in january 2016 , we acquired , through heico electronic , all of the limited liability company interests of robertson fuel systems , llc ( `` robertson '' ) . robertson designs and produces mission-extending , crashworthy and ballistically self-sealing auxiliary fuel systems for military rotorcraft . 33 index in december 2015 , we acquired , through a subsidiary of heico electronic , certain assets of a company that designs and manufactures underwater locator beacons used to locate aircraft cockpit voice recorders , flight data recorders , marine ship voyage recorders and other devices which have been submerged under water . story_separator_special_tag actual bad debt expense could differ from estimates made . valuation of inventory inventory is stated at the lower of cost or market , with cost being determined on the first-in , first-out or the average cost basis . losses , if any , are recognized fully in the period when identified . we periodically evaluate the carrying value of inventory , giving consideration to factors such as its physical condition , sales patterns and expected future demand in order to estimate the amount necessary to write down any slow moving , obsolete or damaged inventory . these estimates could vary significantly from actual amounts based upon future economic conditions , customer inventory levels , or competitive factors that were not foreseen or did not exist when the estimated write-downs were made . in accordance with industry practice , all inventories are classified as a current asset including portions with long production cycles , some of which may not be realized within one year . business combinations we allocate the purchase price of acquired entities to the underlying tangible and identifiable intangible assets acquired and liabilities and any noncontrolling interests assumed based on their estimated fair values , with any excess recorded as goodwill . determining the fair value of assets acquired and liabilities and noncontrolling interests assumed requires management 's judgment and often involves the use of significant estimates and assumptions , including assumptions with respect to future cash inflows and outflows , discount rates , asset lives and market multiples , among other items . we determine the fair values of intangible assets acquired generally in consultation with third-party valuation advisors . as part of the agreement to acquire certain subsidiaries , we may be obligated to pay contingent consideration should the acquired entity meet certain earnings objectives subsequent to the date of acquisition . as of the acquisition date , contingent consideration is recorded at fair value as determined through the use of a probability-based scenario analysis approach . under this method , a set of discrete potential future subsidiary earnings is determined using internal estimates based on various revenue growth rate assumptions for each scenario . a probability of likelihood is then assigned to each discrete potential future earnings estimate and the resultant contingent consideration is calculated and discounted using a weighted average discount rate reflecting the credit risk of heico . subsequent to the acquisition date , the fair value of such contingent consideration is measured each reporting period and any changes are recorded to selling , general and administrative ( `` sg & a '' ) expenses within our consolidated statements of operations . changes in either the revenue growth rates , related earnings or the discount rate 36 index could result in a material change to the amount of contingent consideration accrued . as of october 31 , 2017 , 2016 and 2015 , $ 27.6 million , $ 18.9 million and $ 21.4 million of contingent consideration was accrued within our consolidated balance sheets , respectively . during fiscal 2017 , 2016 and 2015 , such fair value measurement adjustments resulted in net increases to sg & a expenses of $ 1.1 million , $ 3.1 million and $ .3 million , respectively . for further information regarding our contingent consideration arrangements , see note 7 , fair value measurements , of the notes to consolidated financial statements . valuation of goodwill and other intangible assets we test goodwill for impairment annually as of october 31 , or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may not be fully recoverable . in evaluating the recoverability of goodwill , we compare the fair value of each of our reporting units to its carrying value to determine potential impairment . if the carrying value of a reporting unit exceeds its fair value , the implied fair value of that reporting unit 's goodwill is to be calculated and an impairment loss is recognized in the amount by which the carrying value of the reporting unit 's goodwill exceeds its implied fair value , if any . the fair values of our reporting units were determined using a weighted average of a market approach and an income approach . under the market approach , fair values are estimated using published market multiples for comparable companies . we calculate fair values under the income approach by taking estimated future cash flows that are based on internal projections and other assumptions deemed reasonable by management and discounting them using an estimated weighted average cost of capital . based on the annual goodwill impairment test as of october 31 , 2017 , 2016 and 2015 , we determined there was no impairment of our goodwill . the fair value of each of our reporting units as of october 31 , 2017 significantly exceeded its carrying value . we test each non-amortizing intangible asset ( principally trade names ) for impairment annually as of october 31 , or more frequently if events or changes in circumstances indicate that the asset might be impaired . to derive the fair value of our trade names , we utilize an income approach , which relies upon management 's assumptions of royalty rates , projected revenues and discount rates . we also test each amortizing intangible asset for impairment if events or circumstances indicate that the asset might be impaired . the test consists of determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows . if the total of the undiscounted future cash flows is less than the carrying amount of those assets , we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets . the determination of fair value requires us to make a number of estimates , assumptions and judgments of underlying factors such as projected revenues and related earnings as well as discount rates . based on the intangible impairment tests conducted , we did not recognize any impairment losses in fiscal 2017 , 2016 and 2015 .
| results of operations the following table sets forth the results of our operations , net sales and operating income by segment and the percentage of net sales represented by the respective items in our consolidated statements of operations ( in thousands ) : replace_table_token_9_th 38 index comparison of fiscal 2017 to fiscal 2016 net sales our net sales in fiscal 2017 increased by 11 % to a record $ 1,524.8 million , as compared to net sales of $ 1,376.3 million in fiscal 2016. the increase in consolidated net sales reflects an increase of $ 63.0 million ( a 12 % increase ) to a record $ 574.3 million in net sales within the etg as well as an increase of $ 91.7 million ( a 10 % increase ) to a record $ 967.5 million in net sales within the fsg . the net sales increase in the etg resulted from organic growth of 7 % as well as net sales of $ 23.3 million contributed by our fiscal 2017 and 2016 acquisitions . the etg 's organic growth is mainly attributed to increased demand for our space , aerospace and other electronics products resulting in net sales increases of $ 14.7 million , $ 12.6 million and $ 9.3 million , respectively . the net sales increase in the fsg reflects net sales of $ 49.0 million contributed by our fiscal 2017 acquisitions as well as organic growth of 5 % . the fsg 's organic growth is principally attributed to increased demand and new product offerings within our aftermarket replacement parts and repair and overhaul parts and services product lines , resulting in net sales increases of $ 39.8 million and $ 19.1 million , respectively . these increases were partially offset by $ 16.2 million of lower organic net sales from our specialty products product line principally related to certain aerospace , industrial and defense products .
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the company employs approximately 16,200 individuals worldwide . the company made the following management changes in 2015 as part of its succession planning program . on may 5 , 2015 the board of directors appointed , effective june 1 , 2015 , kevin a. poyck , rodd r. ruland and darrin s. wegman group presidents for its lighting , construction and energy , and commercial and industrial businesses , respectively , which businesses together form the company 's electrical segment . the newly appointed group presidents were overseen by mr. gary n. amato , executive vice president , hubbell electrical segment , until his retirement , effective december 31 , 2015. in december 2015 the board of directors appointed maria r. lee , vice president , treasurer and investor relations , effective january 1 , 2016. ms. lee previously held the position of vp , corporate strategy and investor relations and was appointed following the retirement of james h. biggart , jr. , vp , treasurer , effective december 31 , 2015. the company 's reporting segments consist of the electrical segment and the power segment . results for 2015 , 2014 and 2013 by segment are included under “ segment results ” within this management 's discussion and analysis . the company is focused on growing profits and delivering attractive returns to our shareholders by executing a business plan focused on the following key initiatives : revenue growth , price realization , productivity improvements and capital deployment . as part of our revenue growth initiative , we remain focused on expanding market share through new product introductions and more effective utilization of sales and marketing efforts across the organization . in addition , we continue to assess opportunities to expand sales through acquisitions of businesses that fill product line gaps or allow for expansion into new markets . price realization and productivity improvements are key areas of focus for our company . productivity programs impact virtually all functional areas within the company by rationalizing our manufacturing footprint and activities through restructuring actions , reducing or eliminating waste and improving processes . we continue to expand our efforts surrounding global product and component sourcing and supplier cost reduction programs . value engineering efforts , product transfers and the use of lean process improvement techniques are expected to continue to increase manufacturing efficiency . in addition , we continue to build upon the benefits of our enterprise resource planning system across all functions and have also implemented a sustainability program across the organization . material costs are approximately two-thirds of our cost of goods sold therefore volatility in this area can significantly impact profitability . our goal is to have pricing and productivity programs that offset material and other inflationary cost increases as well as pay for investments in key growth areas . reclassification of common stock on december 23 , 2015 , the company completed the reclassification of its dual-class common stock into a single class of common stock ( the “ reclassification ” ) . the reclassification , among other benefits , simplified the company 's capital structure , better aligned voting rights with economic interests of all shareholders , and has eliminated the ability of the louie e. roche trust and the harvey hubbell trust ( collectively , the “ trusts ” ) , which , prior to the reclassification , collectively owned 3,488,460 shares of the company 's class a common stock , par value $ 0.01 per share ( the “ class a common stock ” ) , representing approximately 49 % of class a common stock then outstanding , and approximately 36 % of the total voting power of the company 's shareholders , to effectively prevent the approval of any matter that comes before the shareholders that requires , under connecticut law , the approval of holders of two-thirds of the company 's outstanding common stock . following the filing of the amended and restated certificate of incorporation of the company with the secretary of the state of connecticut , the reclassification became effective at 11:59 p.m. on december 23 , 2015 ( the `` effective time '' ) , at which time ( i ) each holder of class a common stock as of immediately prior to the effective time became entitled to receive cash in the amount of $ 28.00 for each share of class a common stock held ( `` class a cash consideration '' ) and ( ii ) each share of class a common stock issued and outstanding immediately prior to the effective time and each share of class b common stock of the company , par value $ 0.01 per share ( the `` class b common stock '' ) , issued and outstanding immediately prior to the effective time was reclassified into one share of common stock of the company , par value $ 0.01 per share and having one vote per share upon all matters brought before any meeting of the shareholders ( the `` common stock '' ) . 18 hubbell incorporated - form 10-k trading in the class a common stock and class b common stock ceased after markets closed on december 23 , 2015 and trading in the company 's single class of common stock commenced on the new york stock exchange on december 24 , 2015 , under the ticker `` hubb '' . the aggregate amount of the class a cash consideration paid in connection with , and at the time of , the reclassification was $ 200.7 million . the company has accounted for the reclassification by adjusting the company 's capital stock accounts . the par value of the class a common stock and the class b common stock has been reclassified to common stock par value . paid-in capital of the class a common stock is zero at the time of the reclassification and , therefore , the full amount of the class a cash consideration paid in the reclassification has been applied as a reduction to retained earnings . story_separator_special_tag adjusted total other expense , adjusted net income attributable to hubbell and adjusted earnings per diluted share exclude restructuring and related costs as well as reclassification costs . management uses these adjusted measures when assessing the performance of the business . 20 hubbell incorporated - form 10-k the following table reconciles our adjusted financial measures to the directly comparable gaap financial measure ( in millions , except per share amounts ) : replace_table_token_6_th the following table reconciles our restructuring costs to our restructuring and related costs for 2015 and 2014 ( in millions ) : replace_table_token_7_th of the $ 38.9 million of restructuring and related costs incurred in 2015 , $ 32.8 million is recorded in the electrical segment and $ 6.1 million is recorded in the power segment . all of the restructuring and related costs in 2014 were recorded in the electrical segment . hubbell incorporated - form 10-k 21 2015 compared to 2014 net sales net sales for the year ended 2015 were $ 3.4 billion , an increase of one percent over 2014 . acquisitions added three percentage points to net sales in 2015 , offset by the impact of foreign currency translation which reduced net sales by two percentage points . organic volume was flat as net sales growth in our power segment and in our electrical segment products in the non-residential and residential construction markets was offset by lower organic net sales of our electrical segment products in the energy-related and industrial markets , primarily our harsh and hazardous products . cost of goods sold as a percentage of net sales , cost of goods sold increased to 67.8 % for 2015 compared to 67.0 % in 2014 . the increase was primarily due to higher restructuring and related costs in 2015 as compared to 2014 , contributing approximately 60 basis points to the increase , unfavorable product and business mix , and the unfavorable impact of foreign exchange , partially offset by the favorable net impact of price and material costs as well as productivity in excess of cost inflation . gross profit the gross profit margin for 2015 declined to 32.2 % compared to 33.0 % in 2014 . excluding restructuring and related costs , the adjusted gross profit margin was 32.9 % in 2015 as compared to 33.1 % in 2014. the decrease in the adjusted gross margin is primarily due to unfavorable product and business mix , and the unfavorable impact of foreign exchange , partially offset by the favorable net impact of price and material costs as well as productivity in excess of cost inflation . selling & administrative expenses s & a expense increased four percent compared to 2014 primarily due to the addition of s & a expense of acquired businesses and higher restructuring and related costs in 2015 as compared to 2014 . as a percentage of net sales , s & a expense increased to 18.2 % in 2015 compared to 17.6 % in 2014 . excluding restructuring and related costs , adjusted s & a expense as a percentage of net sales increased to 17.8 % in 2015 compared to 17.6 % in 2014. the increase in adjusted s & a expense is primarily due to acquired businesses with relatively higher s & a as a proportion of net sales in the near-term post-acquisition . operating income operating income decreased eight percent in 2015 to $ 474.6 million and operating margin declined by 140 basis points to 14.0 % . excluding restructuring and related costs , adjusted operating income decreased two percent and the adjusted operating margin was 15.1 % in 2015 compared to 15.6 % in 2014. adjusted operating income and the adjusted operating margin decreased primarily due to unfavorable product and business mix , and the unfavorable impact of foreign exchange , partially offset by the favorable net impact of price and material costs as well as productivity in excess of cost inflation . total other expense in 2015 , total other expense was $ 56.0 million compared to $ 31.9 million in 2014 . excluding reclassification costs that were incurred in 2015 , adjusted total other expense was $ 36.3 million in 2015 compared to $ 31.9 million in 2014 and increased primarily due to the write-off of an indemnification asset related to an acquisition . income taxes the full year effective tax rate was 32.6 % in 2015 and was flat as compared to 2014 . in 2015 the effective tax rate increased due to certain costs associated with the reclassification that were not deductible . that increase in the effective tax rate for 2015 was primarily offset by international reorganization actions in the current year as well as certain discrete tax items in 2014. additional information related to the company 's effective tax rate is included in note 12 — income taxes in the notes to consolidated financial statements . net income attributable to hubbell and earnings per diluted share net income attributable to hubbell was $ 277.3 million in 2015 and decreased 14.8 % as compared to 2014 . excluding restructuring and related costs and reclassification costs , adjusted net income attributable to hubbell was $ 321.0 million in 2015 and decreased 2.4 % as compared to 2014. earnings per diluted share in 2015 decreased 13.1 % compared to 2014 . adjusted earnings per diluted share declined slightly in 2015 as compared to 2014 due to lower adjusted operating income , partially offset by the impact of a lower average number of diluted shares outstanding for the year , which declined by approximately 1.2 million as compared to 2014 . segment results electrical segment replace_table_token_8_th net sales in the electrical segment were approximately flat in 2015 compared with 2014 as the contribution of net sales from acquisitions were more than offset by the impact of foreign currency translation and lower organic net sales volume . acquisitions contributed three percentage points to net sales offset by two percentage points due to foreign currency translation and one percentage point due to lower organic volume .
| segment results electrical segment replace_table_token_10_th net sales in the electrical segment increased six percent in 2014 compared with 2013 due to acquisitions and higher organic volume . acquisitions added almost four percentage points and organic volume almost three percentage points to net sales . price realization was positive but not significant and was offset by the impact of negative foreign currency translation . within the segment , electrical systems products net sales increased five percent in 2014 compared to 2013 due to acquisitions and higher organic volume . price realization was positive but not significant and was offset by the impact of negative foreign currency translation . higher organic net sales of electrical systems products was driven by strength in our wiring , connectors and grounding products that support the non-residential and residential construction markets , partially offset by weak demand for our high voltage test equipment and harsh and hazardous products that support the extractive industries . net sales of lighting products increased eight percent in 2014 compared to 2013 due to acquisitions and strong organic volume in the non-residential market , which continued to benefit from increased relight and retrofit renovation project demand , and growth in the residential market . operating income in 2014 was $ 337.9 million , a one percent decrease compared to 2013 , while operating margin declined by 100 basis points to 14.1 % . excluding restructuring and related costs , the operating margin decreased by 80 basis points to 14.3 % due to unfavorable business and product mix and cost inflation in excess of productivity , partially offset by higher organic volume and price realization . operating margin for the year ended 2014 also includes higher warranty and related costs which were incurred in the third quarter of 2014 , and contributed approximately 15 basis points to the decline . acquisitions were 10 basis points dilutive to operating margin .
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the significant accounting policies used in the preparation of the consolidated financial statements are discussed in note 1 to the consolidated financial statements . certain critical accounting policies involve significant judgment by the company 's management , including the use of estimates and assumptions which affect the reported amounts of assets , liabilities , revenues , and expenses . as a result , changes in these estimates and assumptions could significantly affect the company 's financial position and results of operations . the company considers its policies regarding the allowance for loan losses , share-based compensation , and income taxes to be its most critical accounting policies due to the significant degree of management judgment involved . allowance for loan losses the company has developed policies and procedures for assessing the adequacy of the allowance for loan losses that take into consideration various assumptions and estimates with respect to the loan portfolio . the company 's assumptions and estimates may be affected in the future by changes in economic conditions , among other factors . for additional discussion concerning the allowance for loan losses , see “ credit quality ” below . share-based compensation the company measures compensation cost for share-based awards at fair value and recognizes compensation over the service period for awards expected to vest . the fair value of restricted stock is based on the number of shares granted and the quoted price of our common stock , and the fair value of stock options is determined using the black-scholes valuation model . the black-scholes model requires the input of highly subjective assumptions , including expected volatility , risk-free interest rate and expected life , changes to which can materially affect the fair value estimate . in addition , the estimation of share-based awards that will ultimately vest requires judgment , and to the extent actual results or updated estimates differ from our current estimates , such amounts will be recorded as a cumulative adjustment in the period that the estimates are revised . the company considers many factors when estimating expected forfeitures , including types of awards , employee class , and historical experience . actual results , and future changes in estimates , may differ substantially from our current estimates . income taxes management uses certain assumptions and estimates in determining income taxes payable or refundable , deferred income tax liabilities and assets for events recognized differently in its financial statements and income tax returns , and income tax expense . determining these amounts requires analysis of certain transactions and interpretation of tax laws and regulations . management exercises considerable judgment in evaluating the amount and timing of recognition of the resulting income tax liabilities and assets . these judgments and estimates are re-evaluated on a periodic basis as regulatory and business factors change . 25 no assurance can be given that either the tax returns submitted by management or the income tax reported on the consolidated financial statements will not be adjusted by either adverse rulings by the u.s. tax court , changes in the tax code , or assessments made by the internal revenue service ( “ irs ” ) or state taxing authorities . the company is subject to potential adverse adjustments , including but not limited to : an increase in the statutory federal or state income tax rates , the permanent non-deductibility of amounts currently considered deductible either now or in future periods , and the dependency on the generation of future taxable income in order to ultimately realize deferred income tax assets . the company adopted fasb asc 740-10 , on april 1 , 2007. under fasb asc 740 , the company includes the current and deferred tax impact of its tax positions in the financial statements when it is more likely than not ( likelihood of greater than 50 % ) that such positions will be sustained by taxing authorities , with full knowledge of relevant information , based on the technical merits of the tax position . while the company supports its tax positions by unambiguous tax law , prior experience with the taxing authority , and analysis that considers all relevant facts , circumstances and regulations , management must still rely on assumptions and estimates to determine the overall likelihood of success and proper quantification of a given tax position . credit quality the company 's delinquency and net charge-off ratios reflect , among other factors , changes in the mix of loans in the portfolio , the quality of receivables , the success of collection efforts , bankruptcy trends and general economic conditions . delinquency is computed on the basis of the date of the last full contractual payment on a loan ( known as the recency method ) and on the basis of the amount past due in accordance with original payment terms of a loan ( known as the contractual method ) . management closely monitors portfolio delinquency using both methods to measure the quality of the company 's loan portfolio and the probability of credit losses . the following table classifies the gross loans receivable of the company that were delinquent on a recency and contractual basis for at least 61 days at march 31 , 2012 , 2011 , and 2010 : replace_table_token_8_th 26 loans are charged off at the earlier of when such loans are deemed to be uncollectible or when six months have elapsed since the date of the last full contractual payment . the company 's charge-off policy has been consistently applied and no significant changes have been made to the policy during the periods reported . management considers the charge-off policy when evaluating the appropriateness of the allowance for loan losses . story_separator_special_tag note 1. summary of significant accounting policies , ” of the consolidated financial statements for the impact of new accounting pronouncements . liquidity and capital resources the company has financed and continues to finance its operations , acquisitions and office expansion through a combination of cash flows from operations and borrowings from its institutional lenders . the company has generally applied its cash flows from operations to fund its increasing loan volume , fund acquisitions , repay long-term indebtedness , and repurchase its common stock . as the company 's gross loans receivable increased from $ 505.8 million at march 31 , 2007 to $ 972.7 million at march 31 , 2012 , net cash provided by operating activities for fiscal years 2012 , 2011 and 2010 was $ 219.4 million , $ 199.8 million and $ 183.6 million , respectively . the company 's primary ongoing cash requirements relate to the funding of new offices and acquisitions , the overall growth of loans outstanding , the repayment or repurchase of long-term indebtedness and the repurchase of its common stock . as of march 31 , 2012 , approximately 12.0 million shares have been repurchased since 1996 for an aggregate purchase price of approximately $ 360.3 million . during fiscal 2012 the company repurchased 2.2 million shares for $ 139.8 million . on may 1 , 2012 , the board of directors authorized the company to repurchase up to $ 50 million of the company 's common stock . this repurchase authorization follows , and is in addition to , similar repurchase authorizations of $ 20 million announced on february 29 , 2012 and $ 25 million announced on february 14 , 2012. after taking into account all shares repurchased through may 29 , 2012 , the company has $ 17.9 million in aggregate remaining repurchase capacity under all of the company 's outstanding repurchase authorizations . see note 20 – subsequent events to the consolidated financial statements . the company believes stock repurchases to be a viable component of the company 's long-term financial strategy and an excellent use of excess cash when the opportunity arises . in addition , the company plans to open approximately 50 branches in the united states , 15 branches in mexico , and evaluate acquisition opportunities in fiscal 2013. expenditures by the company to open and furnish new offices generally averaged approximately $ 25,000 per office during fiscal 2012. new offices have also required from $ 100,000 to $ 400,000 to fund outstanding loans receivable originated during their first 12 months of operation . the company acquired two offices and 23 loan portfolios from competitors in seven states in 21 separate transactions during fiscal 2012. gross loans receivable purchased in these transactions were approximately $ 4.2 million in the aggregate at the dates of purchase . the company believes that attractive opportunities to acquire new offices or receivables from its competitors or to acquire offices in communities not currently served by the company will continue to become available as conditions in local economies and the financial circumstances of owners change . effective may 1 , 2012 , the company amended its existing senior revolving credit facility . as amended , the facility provides for a maximum of $ 483.0 million in borrowings from a syndicate of banks . the credit facility will expire on august 31 , 2014. funds borrowed under the revolving credit facility bear interest at the libor rate plus 3.0 % per annum with a minimum 4.0 % interest rate . at march 31 , 2012 , the effective interest rate on borrowings under the revolving credit facility was 4.0 % . the company pays a commitment fee equal to 0.40 % per annum of the daily unused portion of the revolving credit facility . amounts outstanding under the revolving credit facility may not exceed specified percentages of eligible loans receivable . on march 31 , 2012 , $ 229.3 million was outstanding under this facility , and there was $ 70.7 million of unused borrowing availability under the borrowing base limitations . in connection with the amendment of its revolving credit facility , the company drew $ 50.0 million to prepay , satisfy in full and terminate its junior subordinated note payable with a bank , which was scheduled to mature on september 17 , 2015. funds borrowed under the junior subordinated note payable bore interest at libor plus 4.875 % per annum . at march 31 , 2012 , the interest rate on borrowings under the junior subordinated note payable was 5.1 % . on march 31 , 2012 , $ 50.0 million was outstanding under the junior subordinated note payable . the company 's revolving credit agreement contain a number of financial covenants including minimum net worth and fixed charge coverage requirements . the credit agreement also contain certain other covenants , including covenants that impose limitations on the company with respect to ( i ) declaring or paying dividends or making distributions on or acquiring common or preferred stock or warrants or options ; ( ii ) redeeming or purchasing or prepaying principal or interest on subordinated debt ; ( iii ) incurring additional indebtedness ; and ( iv ) entering into a merger , consolidation or sale of substantial assets or subsidiaries . the company was in compliance with these covenants at march 31 , 2012 and does not believe that these covenants will materially limit its business and expansion strategy . 29 the following table summarizes the company 's contractual cash obligations by period ( in thousands ) : replace_table_token_12_th the company believes that cash flow from operations and borrowings under its revolving credit facility will be adequate for the next twelve months , and for the foreseeable future thereafter , to fund the expected cost of opening or acquiring new offices , including funding initial operating losses of new offices and funding loans receivable originated by those offices and the company 's other
| general the company 's financial performance continues to be dependent in large part upon the growth in its outstanding loans receivable , the maintenance of loan quality and acceptable levels of operating expenses . since march 31 , 2007 , gross loans receivable have increased at a 14.0 % annual compounded rate from $ 505.8 million to $ 972.7 million at march 31 , 2012. the increase reflects both the higher volume of loans generated through the company 's existing offices and the contribution of loans generated from new offices opened or acquired over the period . during this same five-year period , the company has grown from 732 offices to 1,137 offices as of march 31 , 2012. during fiscal 2013 , the company plans to open approximately 50 new offices in the united states and 15 new offices in mexico and also to evaluate acquisitions as opportunities arise . the company 's paradata financial systems subsidiary provides data processing systems to 103 separate finance companies , including the company , and currently supports approximately 1,730 individual branch offices in 44 states and mexico . paradata 's revenue is highly dependent upon its ability to attract new customers , which often requires substantial lead time , and as a result its revenue may fluctuate from year to year . its net revenues from system sales and support amounted to $ 2.3 million , $ 1.9 million and $ 1.8 million in fiscal 2012 , 2011 and 2010 , respectively . paradata 's net revenue to the company will continue to fluctuate on a year to year basis . paradata continues to provide data processing support for the company 's in-house integrated computer system at a substantially reduced cost to the company . 22 the company offers an income tax return preparation and electronic filing program in all but a few of its offices .
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we sell our products to retail accounts , through nike-owned retail stores and internet websites , which we refer to as our “ direct to consumer ” operations , and through a mix of independent distributors , licensees and sales representatives in virtually all countries around the world . our goal is to deliver value to our shareholders by building a profitable global portfolio of branded footwear , apparel , equipment , accessories and service businesses . our strategy is to achieve long-term revenue growth by creating innovative , “ must have ” products , building deep personal consumer connections with our brands , and delivering compelling consumer experiences at retail and online . in addition to achieving long-term , sustainable revenue growth , we continue to strive to deliver shareholder value by driving operational excellence in several key areas : expanding gross margin by : - making our supply chain a competitive advantage ; - reducing product costs through a continued focus on manufacturing efficiency , product design and innovation ; and - delivering innovative , premium products that command higher prices while maintaining a strong consumer price-to-value proposition . improving selling and administrative expense productivity by focusing on investments that drive economic returns in the form of incremental revenue and gross profit , and leveraging existing infrastructure across our portfolio of businesses to eliminate duplicative costs ; improving working capital efficiency ; and deploying capital effectively . through execution of this strategy , our long-term financial goals continue to be : high single-digit revenue growth , mid-teens earnings per share growth , increased return on invested capital and accelerated cash flows , and consistent results through effective management of our diversified portfolio of businesses . over the past ten years , we have achieved or exceeded all of these financial goals . during this time , revenues and earnings per share for nike , inc. , inclusive of both continuing and discontinued operations , have grown 9 % and 15 % , respectively , on an annual compounded basis . our return on invested capital has increased from 18 % to 24 % and we expanded gross margins by approximately 260 basis points . on november 15 , 2012 , we announced a two-for-one stock split of both class a and class b common shares . the stock split was in the form of a 100 percent stock dividend payable on december 24 , 2012 to shareholders of record at the close of business december 10 , 2012. common stock began trading at the split-adjusted price on december 26 , 2012. all share numbers and per share amounts presented reflect the stock split . our fiscal 2013 results from continuing operations demonstrated the power of the nike , inc. portfolio to deliver consistent growth in revenues , earnings , and cash returns to shareholders , while investing for long-term growth . despite the ongoing challenges in the global economy , we delivered record revenues and earnings per share in fiscal 2013. our revenues grew 8 % to $ 25.3 billion , net income from continuing operations increased 9 % to $ 2.5 billion , and we delivered diluted earnings per share of $ 2.69 , an 11 % increase from fiscal 2012. earnings before interest and income taxes for continuing operations increased 8 % for fiscal 2013 , driven by revenue growth and improved gross margin , which more than offset higher selling and administrative expense as a percentage of revenue . the increase in revenues was driven by growth across most nike brand geographies , key categories and product types . this growth was primarily fueled by : innovative performance and sportswear products , incorporating proprietary technology platforms such as nike air , lunar , shox , free , flywire , dri-f.i.t , flyknit , nike + , and nike fuel ; deep brand connections to consumers through a category lens , reinforced by investments in endorsements by high profile athletes and teams ( such as the nfl , fc barcelona , michael jordan ) , high impact marketing around global sporting events ( such as the olympics , european football championships and nba finals ) and digital marketing ; and strong category retail presentation online and at nike owned and retail partner stores . revenues also improved for each of our other businesses ( converse , nike golf and hurley ) . our gross margins improved largely due to the positive impact of higher average selling prices , partially offset by higher product input costs , primarily labor cost inflation , and foreign currency headwinds . for fiscal 2013 , the growth of our net income from continuing operations was positively affected by a year-over-year decrease in our effective tax rate . in addition , diluted earnings per share grew at a higher rate than net income due to a 2 % decrease in the weighted average number of diluted common shares outstanding , as a result of share repurchases during fiscal 2013. on may 31 , 2012 , we announced our intention to divest of the cole haan and umbro businesses , which would allow us to better focus our resources on driving growth in the nike , jordan , converse and hurley brands . during the second quarter of fiscal 2013 we completed the sale of certain assets of the umbro brand and recorded a loss on the sale of these assets of $ 107 million , net of tax . during the third quarter of fiscal 2013 we completed the sale of cole haan and recorded a gain on sale of $ 231 million , net of tax . as of may 31 , 2013 the company had substantially completed all transition services related to the sale of both businesses . unless otherwise indicated , the following disclosures reflect the company 's continuing operations ; refer to our “ discontinued operations '' section for additional information regarding our discontinued operations . story_separator_special_tag this impact was partially offset by a reduction in the effective tax rate on operations outside of the united states as a result of changes in geographical mix of foreign earnings . discontinued operations the company continually evaluates its existing portfolio of businesses to ensure resources are invested in those businesses that are accretive to the nike brand and represent the largest growth potential and highest returns . on may 31 , 2012 , the company announced its intention to divest of umbro and cole haan , allowing it to focus its resources on driving growth in the nike , jordan , converse and hurley brands . 22 on february 1 , 2013 , the company completed the sale of cole haan to apax partners for an agreed upon purchase price of $ 570 million and received at closing $ 561 million , net of $ 9 million of purchase price adjustments . the transaction resulted in a gain on sale of $ 231 million , net of $ 137 million in tax expense ; this gain is included in the net income ( loss ) from discontinued operations line item on the consolidated statements of income . beginning november 30 , 2012 , we classified the cole haan disposal group as held-for-sale and presented the results of cole haan 's operations in the net income ( loss ) from discontinued operations line item on the consolidated statements of income . from this date until the sale , the assets and liabilities of cole haan were recorded as assets and liabilities of discontinued operations on the consolidated balance sheets of nike , inc. previously , these amounts were reported in our segment presentation as “ other businesses. ” under the sale agreement , we agreed to provide certain transition services to cole haan for an expected period of 3 to 9 months from the date of sale . we will also license nike proprietary air and lunar technologies to cole haan for a transition period . the continuing cash flows related to these items are not expected to be significant to cole haan and we will have no significant continuing involvement with cole haan beyond the transition services . additionally , preexisting guarantees of certain cole haan lease payments remain in place after the sale ; the maximum exposure under the guarantees is $ 44 million at may 31 , 2013. the fair value of these guarantees is not material . on november 30 , 2012 , we completed the sale of certain assets of umbro to iconix brand group ( “ iconix ” ) for $ 225 million . the results of umbro 's operations and umbro 's financial position are presented as discontinued operations on the consolidated statements of income and balance sheets , respectively . previously , these amounts were reported in our segment presentation as “ other businesses. ” upon meeting the held-for-sale criteria , we recorded a loss of $ 107 million , net of tax , on the sale of umbro . the loss on sale was calculated as the net sales price less the umbro assets of $ 248 million , including intangibles , goodwill , and fixed assets , other miscellaneous charges of $ 22 million , and the release of the associated cumulative translation adjustment of $ 129 million , offset by a $ 67 million tax benefit on the loss . under the sale agreement , we provided transition services to iconix while certain markets were transitioned to iconix-designated licensees . these transition services are substantially complete and we have wound down the remaining operations of umbro . for the year ended may 31 , 2013 , net income ( loss ) from discontinued operations included , for both businesses , the net gain or loss on sale , net operating losses , tax expenses , and approximately $ 20 million in wind down costs . operating segments the company 's reportable operating segments are based on our internal geographic organization . each nike brand geography operates predominantly in one industry : the design , development , marketing and selling of athletic footwear , apparel , and equipment . our reportable operating segments for the nike brand are : north america , western europe , central & eastern europe , greater china , japan , and emerging markets . our nike brand direct to consumer operations are managed within each geographic segment . as part of our centrally managed foreign exchange risk management program , standard foreign currency rates are assigned twice per year to each nike brand entity in our geographic operating segments and certain other businesses . these rates are set approximately nine months in advance of the future selling season based on average market spot rates in the calendar month preceding the date they are established . inventories and cost of sales for geographic operating segments and certain other businesses reflect use of these standard rates to record non-functional currency product purchases into the entity 's functional currency . differences between assigned standard foreign currency rates and actual market rates are included in corporate together with foreign currency hedge gains and losses generated from our centrally managed foreign exchange risk management program . certain prior year amounts have been reclassified to conform to fiscal 2013 presentation . the breakdown of revenues is as follows : replace_table_token_11_th ( 1 ) certain prior year amounts have been reclassified to conform to fiscal 2013 presentation . these changes had no impact on previously reported results of operations or shareholders ' equity . ( 2 ) results have been restated using actual exchange rates in use during the comparative period to enhance the visibility of the underlying business trends by excluding the impact of translation arising from foreign currency exchange rate fluctuations . 23 ( 3 ) corporate revenues primarily consist of certain intercompany revenue eliminations and foreign currency hedge gains and losses related to revenues generated by entities within the nike brand geographic operating segments and certain other businesses but managed through our central foreign exchange risk management program .
| results of operations unless otherwise indicated , the following disclosures reflect the company 's continuing operations . replace_table_token_4_th 18 consolidated operating results revenues replace_table_token_5_th ( 1 ) certain prior year amounts have been reclassified to conform to fiscal 2013 presentation . ( 2 ) results have been restated using actual exchange rates in use during the comparative period to enhance the visibility of the underlying business trends by excluding the impact of translation arising from foreign currency exchange rate fluctuations . ( 3 ) corporate revenues primarily consist of intercompany revenue eliminations and foreign currency revenue-related hedge gains and losses generated by entities within the nike brand geographic operating segments and certain other businesses through our centrally managed foreign exchange risk management program . ( 4 ) references to nike brand wholesale equivalent revenues are intended to provide context as to the total size of our nike brand market footprint if we had no direct to consumer operations . nike brand wholesale equivalent revenues consist of ( 1 ) sales to external wholesale customers and ( 2 ) internal sales from our wholesale operations to our direct to consumer operations which are charged at prices that are comparable to prices charged to external wholesale customers . ( 5 ) others include all other categories and certain adjustments that are not allocated at the category level . 19 fiscal 2013 compared to fiscal 2012 on a currency neutral basis , revenues from our nike , inc. continuing operations grew 11 % for fiscal 2013 , driven by increases in revenues for both the nike brand and our other businesses . every nike brand geography except greater china delivered higher revenues for fiscal 2013. north america contributed 7 percentage points of the increase in nike , inc. revenues , while emerging markets contributed 2 percentage points and western and central and eastern europe each contributed 1 percentage point . greater china ' s results reduced nike , inc. revenue growth by 1 percentage point .
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see story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > resulted from the translation of the balance sheet positions of our international operations , primarily in canada and australia , as of december 31 , 2019 as compared to december 31 , 2018 , and the impact of the strengthening of those foreign currencies against the u.s. dollar as of december 31 , 2019 . the loss in the year ended december 31 , 2018 resulted from the translation of the balance sheet positions of our international operations , primarily in canada and australia , as of december 31 , 2018 as compared to december 31 , 2017 , and the impact of the strengthening of the u.s. dollar against those foreign currencies as of december 31 , 2018 . segment results reportable segment information , including revenues and operating income by type of work , is gathered from each operating unit for the purpose of evaluating segment performance . classification of our operating unit revenues by type of work for segment reporting purposes can at times require judgment on the part of management . our operating units may perform joint projects for customers in multiple industries , deliver multiple types of services under a single customer contract or provide service offerings to various industries . for example , we perform joint trenching projects to install distribution lines for electric power and natural gas customers . our integrated operations and common administrative support for operating units require that certain allocations be made to determine segment profitability , including allocations of shared and indirect costs ( e.g. , facility costs ) , indirect operating expenses ( e.g. , depreciation ) , and general and administrative costs . certain corporate costs are not allocated , including payroll and benefits , employee travel expenses , facility costs , professional fees , acquisition costs , non-cash stock-based compensation , amortization related to intangible assets , asset impairment related to goodwill and intangible assets and change in fair value of contingent consideration liabilities . 38 the following table sets forth segment revenues , segment operating income ( loss ) for the years indicated , as well as the dollar and percentage change from the prior year ( dollars in thousands ) : replace_table_token_6_th electric power infrastructure services segment results the increase in revenues was primarily due to increased customer spending on smaller transmission and distribution services , including increased revenues in the western united states associated with grid modernization and accelerated fire hardening programs . revenues also increased due to growth in our communications operations and $ 140 million was attributable to acquired businesses . these increases were partially offset by lower revenues on the larger transmission project in canada that was substantially completed during the three months ended march 31 , 2019 but was in full construction throughout 2018 ; a $ 51 million decrease in emergency restoration services revenues ; and less favorable foreign currency exchange rates , which negatively impacted revenues by approximately $ 32 million and were primarily attributable to the relationship between the u.s. dollar and the canadian and australian dollars . as referenced in current year financial results and significant operational trends and events , during the year ended december 31 , 2019 , we recognized a $ 79.2 million charge associated with the termination of a telecommunications project in peru , which included a $ 48.8 million reversal of revenues and a $ 30.4 million increase in cost of services . the charge included a reduction of previously recognized earnings on the project , a reserve against a portion of alleged liquidated damages and recognition of estimated costs to complete the project turnover and close out the project . as a result of the contract termination and other factors , we have concluded to pursue an orderly exit of our operations in latin america and have modified our segment disclosures in the above table to separately identify the latin american results . we believe that providing visibility into these results is beneficial to understanding the performance of our ongoing operations . see legal proceedings in note 14 below for additional information involving the termination of the telecommunications project in peru . the increase in segment operating income excluding latin america was primarily attributable to the increase in revenues from smaller transmission and distribution services described above , including increased customer spending on fire hardening programs , as well as growth in our communications operations . the decrease in operating income as a percentage of revenues excluding latin america was primarily attributable to higher operating income for the year ended december 31 , 2018 related to successful execution of the larger transmission project in canada described above and increased revenues from emergency restorations services , which typically yield higher margins due in part to higher equipment utilization and absorption of fixed costs . additionally , operating income for the year ended december 31 , 2019 was negatively impacted due to an increase in unabsorbed costs in canada related to permitting and other delays to the commencement of construction for certain larger transmission projects . pipeline and industrial infrastructure services segment results the increase in revenues was primarily due to approximately $ 165 million in revenues from acquired businesses . also contributing to the increase were increased revenues from smaller pipeline transmission , gas distribution and industrial services , 39 which resulted from increased capital spending by our customers . partially offsetting these increases was a decrease in revenues from larger pipeline transmission projects , the timing of which is highly variable due to potential permitting delays , worksite access limitations related to environmental regulations and seasonal weather patterns . story_separator_special_tag we consider our investment policies related to cash and cash equivalents to be conservative in that we maintain a diverse portfolio of what we believe to be high-quality cash and cash equivalent investments with short-term maturities . we anticipate that our cash and cash equivalents on hand , existing borrowing capacity under our senior secured credit facility , our ability to access capital markets and future cash flows from operations will provide sufficient funds to enable us to meet our debt repayment obligations , fund future operating needs , facilitate our ability to pay any future dividends we declare , grow through acquisitions or strategic investments , and fund planned capital expenditures during 2020. however , our liquidity and capital resources , as well as our access to these sources of funds , can be influenced by adverse conditions in financial markets and economic trends and conditions that impact our results of operations . cash requirements our available commitments and cash and cash equivalents at december 31 , 2019 were as follows ( in thousands ) : december 31 , 2019 total capacity available for revolving loans and letters of credit $ 2,135,000 less : borrowings of revolving loans under our senior secured credit facility 104,885 letters of credit outstanding under our senior secured credit facility 383,800 available commitments under senior secured credit facility for issuing revolving loans or new letters of credit 1,646,315 plus : cash and cash equivalents 164,798 total available commitments under senior secured credit facility and cash and cash equivalents $ 1,811,113 we also had borrowings of term loans under our senior secured credit facility of $ 1.24 billion as of december 31 , 2019 , and we are required to make quarterly principal payments of $ 16.1 million on these loans . our industry is capital intensive , and we expect substantial capital expenditures and commitments under equipment lease and rental arrangements to be needed into the foreseeable future in order to meet anticipated demand for our services . total capital 41 expenditures are expected to be approximately $ 300 million for the year ended december 31 , 2020 . we also continue to evaluate opportunities for stock repurchases under our authorized stock repurchase programs . refer to contractual obligations below for a summary of our future contractual obligations as of december 31 , 2019 and off-balance sheet transactions and contingencies below for a description of certain contingent obligations . although some of these contingent obligations could require the use of cash in future periods , they are excluded from the contractual obligations table because we are unable to accurately predict the timing and amount of any such obligations as of december 31 , 2019. sources and uses of cash in summary , our cash flows for each period were as follows ( in thousands ) : replace_table_token_8_th operating activities cash flow from operating activities is primarily influenced by demand for our services and operating margins but is also influenced by working capital needs associated with the various types of services that we provide . our working capital needs may increase when we commence large volumes of work under circumstances where project costs , primarily labor , equipment and subcontractors , are required to be paid before the associated receivables are billed and collected . accordingly , changes within working capital in accounts receivable , contract assets and contract liabilities are normally related and are typically affected on a collective basis by changes in revenue due to the timing and volume of work performed and variability in the timing of customer billings and payments . additionally , working capital needs are generally higher during the summer and fall months due to increased demand for our services when favorable weather conditions exist in many of our operating regions . conversely , working capital assets are typically converted to cash during the winter months . these seasonal trends can be offset by changes in project timing due to delays or accelerations and other economic factors that may affect customer spending . net cash provided by operating activities during 2019 was favorably impacted by a decrease in cash used for operating assets and liabilities as compared to 2018 , including as a result of the timing and number of contracts that include advance billing terms and or retention balances . net cash used in operating activities during 2019 included our payment of $ 112 million as a result of the exercise of on-demand advance payment and performance bonds in connection with the termination of the large telecommunications project in peru , which is described in further detail in note 14 of the notes to consolidated financial statements in item 8. financial statements and supplementary data . days sales outstanding ( dso ) represents the average number of days it takes revenues to be converted into cash , which management believes is an important metric for assessing liquidity . a decrease in dso has a favorable impact on cash flow from operating activities , while an increase in dso has a negative impact on cash flow from operating activities . dso is calculated by using the sum of current accounts receivable , net of allowance ( which includes retainage and unbilled balances ) , plus contract assets less contract liabilities , divided by average revenues per day during the quarter . dso as of december 31 , 2019 was 81 days , as compared to 74 days as of december 31 , 2018 . the increase in dso was primarily due to the timing of work on larger pipeline transmission projects and the related billing and collection cycles .
| segment results below for additional information and discussion related to segment operating income ( loss ) . selling , general and administrative expenses . the increase was primarily attributable to a $ 29.9 million increase in compensation expenses , largely associated with higher salaries due to increased personnel to support business growth and annual compensation increases ; a $ 23.4 million increase in expenses associated with acquired businesses , including incremental acquisition and integration costs of $ 7.5 million ; and a $ 15.6 million increase in professional fees . also contributing to the increase were a $ 9.6 million increase in information systems-related expenses to support business growth ; a $ 9.3 million increase in deferred compensation expense , which was primarily associated with market value changes ; a $ 7.7 million increase in travel expenses and a $ 4.1 million increase in bad debt expense . these increases were partially offset by a $ 9.1 million increase in net gains on the sale of property and equipment . amortization of intangible assets . the increase was primarily due to increased amortization of intangible assets associated with recently acquired businesses , partially offset by reduced amortization expense from previously acquired intangible assets , as certain of those assets became fully amortized . asset impairment charges . during the fourth quarters of 2019 and 2018 , we recognized $ 13.9 million and $ 49.4 million of asset impairment charges . the 2019 charges primarily related to the winding down and exit of certain oil-influenced operations 37 and assets , the replacement of an internally-developed software application and the planned sale of certain foreign operations and assets , while the 2018 charges primarily related to the winding down of certain oil-influenced operations and assets . change in fair value of contingent consideration liabilities .
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we were formed and commenced operations in late 2011. we are a maryland corporation and completed our initial public offering in may 2012. we have elected and qualified to be taxed as a real estate investment trust ( `` reit '' ) for u.s. federal income tax purposes under the internal revenue code of 1986 , as amended , commencing with our taxable year ended december 31 , 2012. we generally will not be subject to u.s. federal income taxes on our reit taxable income , determined without regard to the deduction for dividends paid and excluding net capital gains , to the extent that we annually distribute all of our reit taxable income to stockholders and comply with various other requirements as a reit . we also operate our business in a manner that will permit us to maintain our exemption from registration under the investment company act of 1940 , as amended ( the `` 1940 act '' ) . we are an “ emerging growth company , ” as defined in the jumpstart our business startups act of 2012 , or the jobs act , and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “ emerging growth companies. ” in addition , section 107 of the jobs act also provides that an “ emerging growth company ” can take advantage of the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act of 1933 , as amended ( the “ securities act ” ) , for complying with new or revised accounting standards . however , we chose to “ opt out ” of such extended transition period , and as a result , we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies . section 107 of the jobs act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable . starting december 31 , 2017 , we will no longer be treated as an `` emerging growth company . '' we could remain an “ emerging growth company ” for up to five years , or until the earliest of ( i ) the last day of the first fiscal year in which our annual gross revenues exceed $ 1.0 billion , ( ii ) the date that we become a “ large accelerated filer ” as defined in rule 12b-2 under the securities exchange act of 1934 , as amended ( the “ exchange act ” ) which would occur if the market value of our common stock that is held by non-affiliates exceeds $ 700 million as of the last business day of our most recently completed second fiscal quarter , or ( iii ) the date on which we have issued more than $ 1.0 billion in non-convertible debt during the preceding three-year period . sale of mortgage banking subsidiary on june 28 , 2016 , we entered into a purchase and sale agreement ( as amended , the “ agreement ” ) with barings real estate advisers llc ( formerly known as cornerstone real estate advisers llc ) , a delaware limited liability company ( the “ buyer ” ) , to sell acre capital holdings llc ( “ trs holdings ” ) , the holding company that owned our mortgage banking subsidiary , acre capital llc ( `` acre capital '' ) . under the terms and subject to the conditions set forth in the agreement , on september 30 , 2016 , the buyer purchased from us all of the outstanding common units of trs holdings ( the “ acre capital sale ” ) . acre capital primarily originated , sold and serviced multifamily and senior-living related loans under programs offered by government-sponsored enterprises and by government agencies . under the terms of the agreement , the buyer paid approximately $ 93 million in cash as consideration for the acre capital sale . we recognized a net gain on the sale of trs holdings of approximately $ 10.2 million . the acre capital sale provides us with additional capital to reinvest in our core business . as a result of the sale of trs holdings , the operations of the mortgage banking segment have been reclassified as discontinued operations in all periods presented . after giving effect to the acre capital sale , we now conduct and manage our business as one operating segment , rather than multiple operating segments ; therefore , we no longer provide segment reporting . below are significant developments during the year presented by quarter : developments during the first quarter of 2016 : 50 acre originated a $ 56.0 million senior mortgage loan on a hotel portfolio located in california . acre originated a $ 25.5 million senior mortgage loan on an office property located in kansas . acre originated a $ 17.0 million mezzanine loan on an office property located in new jersey . acre amended its $ 50.0 million bridge loan warehousing credit and security agreement ( the “ baml facility ” ) with bank of america , n.a . to expand the eligible assets to include loans secured by general and affordable multifamily properties . acre amended its $ 50.0 million secured revolving funding facility ( the “ march 2014 cnb facility ” ) with city national bank to extend the maturity date to march 11 , 2017. developments during the second quarter of 2016 : acre originated a $ 76.0 million senior mortgage loan on a mixed-use property located in new york . acre originated a $ 15.2 million senior mortgage loan on an office property located in california . acre entered into an agreement to sell trs holdings , the holding company that owns acre capital , to barings real estate advisers llc for $ 93 million in cash , subject to certain adjustments . story_separator_special_tag , leasing performance , unit sales and cash flow of the collateral and its ability to cover debt service as well as the residual loan balance at maturity ) ; ( 3 ) property review , which considers current environmental risks , changes in insurance costs or coverage , current site visibility , capital expenditures and market perception ; and ( 4 ) market review , which analyzes the collateral from a supply and demand perspective of similar property types , as well as from a capital markets perspective . such impairment analyses are completed and reviewed by asset management and finance personnel who utilize various data sources , including periodic financial data such as property occupancy , tenant profile , rental rates , operating expenses , and the borrower 's exit plan , among other factors . as of december 31 , 2016 and 2015 , all loans were paying in accordance with their contractual terms . there were no impairments during the years ended december 31 , 2016 , 2015 and 2014 . although we generally hold our target investments as long-term investments , we may occasionally classify some of our investments as held for sale . investments held for sale will be carried at fair value within loans held for sale in our consolidated balance sheets , with changes in fair value recorded through earnings . the fees received are deferred and recognized as part of the gain or loss on sale . at this time , we do not expect to hold any of our investments for trading purposes . changes in market interest rates . with respect to our business operations , increases in interest rates , in general , may over time cause : the interest expense associated with our borrowings to increase , subject to any applicable ceilings ; the value of our mortgage loans to decline ; coupons on our floating rate mortgage loans to reset to higher interest rates ; and to the extent we enter into interest rate swap agreements as part of our hedging strategy where we pay fixed and receive floating interest rates , the value of these agreements to increase . conversely , decreases in interest rates , in general , may over time cause : the interest expense associated with our borrowings to decrease , subject to any applicable floors ; the value of our mortgage loan portfolio to increase , for such mortgages with applicable floors ; 52 coupons on our floating rate mortgage loans to reset to lower interest rates ; and to the extent we enter into interest rate swap agreements as part of our hedging strategy where we pay fixed and receive floating interest rates , the value of these agreements to decrease . credit risk . we are subject to varying degrees of credit risk in connection with our target investments . our manager seeks to mitigate this risk by seeking to originate or acquire investments of higher quality at appropriate prices given anticipated and unanticipated losses , by employing a comprehensive review and selection process and by proactively monitoring originated or acquired investments ( see the performance monitoring methodology above ) . nevertheless , unanticipated credit losses could occur that could adversely impact our operating results and stockholders ' equity . market conditions . we believe that our target investments currently present attractive risk-adjusted return profiles , given the underlying property fundamentals and the competitive landscape for the type of capital we provide . following a dramatic decline in cre lending in 2008 and 2009 , debt capital has become more readily available for select stabilized , high quality assets in certain locations such as gateway cities , but less available for many other types of properties , either because of the markets in which they are located or because the property is undergoing some form of transition . more particularly , many traditional financing products tend to come with limited flexibility , especially with respect to prepayment . consequently , we anticipate a high demand for the type of customized debt financing we provide from borrowers or sponsors who are looking to refinance indebtedness that is maturing in the next two to five years or are seeking shorter-term debt solutions as they reposition their properties . we also envision that demand for financing will be strong for situations in which a property is being acquired with plans to improve the net operating income through capital improvements , leasing , cost savings or other key initiatives and realize the improved value through a subsequent sale or refinancing . we believe that this will result in increased demand for shorter duration and often floating rate products , which we anticipate will increase financing transaction volumes and benefit our deal flow . we believe that increased deal flow will further enhance our ability to be increasingly selective about the assets for which we provide financing . we believe market conditions continue to be favorable for disciplined and scaled direct lending with broad and flexible product offerings . performance of commercial real estate related markets . our business is dependent on the general demand for , and value of , commercial real estate and related services , which are sensitive to economic conditions . demand for multifamily and other commercial real estate generally increases during periods of stronger economic conditions , resulting in increased property values , transaction volumes and loan origination volumes . during periods of weaker economic conditions , multifamily and other commercial real estate may experience higher property vacancies , lower demand and reduced values . these conditions can result in lower property transaction volumes and loan originations . investment portfolio as of december 31 , 2016 , our portfolio totaled 31 loans held for investment , excluding 47 loans that were repaid or sold since inception . such investments are referred to herein as our investment portfolio . as of december 31 , 2016 , the aggregate originated commitment under these loans at closing was approximately $ 1.5 billion and outstanding principal was $ 1.3 billion , excluding non-controlling interests held by third parties .
| results of operations the following table sets forth a summary of our consolidated results of operations for the years ended december 31 , 2016 , 2015 and 2014 ( $ thousands ) : replace_table_token_5_th the following tables set forth select details of our consolidated results of operations from continuing operations for the years ended december 31 , 2016 , 2015 and 2014 ( $ thousands ) : net interest margin replace_table_token_6_th f or the years ended december 31 , 2016 and 2015 , net interest margin wa s approximately $ 45.1 million and $ 50.0 million , respectively . for the years ended december 31 , 2016 and 2015 , interest income from loans held for investment of $ 82.0 million and $ 86.3 million , respectively , was generated by weighted average earning assets of $ 1.3 billion and $ 1.2 billion , respectively , offset by $ 36.9 million and $ 36.3 million , respectively , of interest expense , unused fees and amortization of deferred loan costs . the weighted average borrowings under the secured funding agreements , the secured term loan , the clo and commercial mortgage backed securities ( `` cmbs '' ) securitizations were $ 889.5 million and $ 929.0 million for the years ended december 31 , 2016 and 2015 , respectively . the decrease in net interest margin for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 primarily relates to a $ 4.5 million decrease in interest income from non-controlling interests for the year ended december 31 , 2016 as a result of a $ 36.7 million and a $ 36.0 million prepayment in november 2015 and november 2016 , respectively , on the non-controlling interest investment held by third parties . for the years ended december 31 , 2015 and 2014 , net interest margin was approximately $ 50.0 million and $ 36.9 million , respectively .
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million through its share repurchase program . in 2019 , the company purchased 222,740 shares at a total cost of $ 5.6 million through its share repurchase program . as of december 31 , 2020 , there were 335,780 authorized shares remaining under the program . 16. earnings per share the following table sets forth the computations of basic and diluted earnings per share for the years ended december 31 , 2020 and 2019 : replace_table_token_36_th the year ended december 31,2020 , resulted in a net loss , therefore there was no difference in the weighted average number of common shares for basic and diluted loss per share as the effect of all potentially dilutive shares outstanding was anti-dilutive . diluted weighted average shares outstanding for 2020 exclude anti-dilutive share-based awards totaling 1,232,000 shares at a weighted average price of $ 25.35 . diluted weighted average shares outstanding for 2019 excludes anti-dilutive share-based awards totaling 825,000 shares at a weighted average price of $ 27.98 . unvested restricted stock awards provide holders with dividend rights prior to vesting , however , such rights are forfeitable if the awards do not vest . as a result , unvested restricted stock awards are not participating securities and are excluded from the computation of earnings per share . 17. segment information the company has two reportable segments : north american wholesale operations ( “ wholesale ” ) and north american retail operations ( “ retail ” ) . the company 's chief executive officer , evaluates the performance of the company 's segments based on earnings ( loss ) from operations . therefore , interest income or expense , other income or expense , and income taxes are not allocated story_separator_special_tag general the company designs and markets quality and innovative footwear for men , women and children under a portfolio of well-recognized brand names , including : florsheim , nunn bush , stacy adams , bogs and rafters . inventory is purchased from third-party overseas manufacturers . the majority of foreign-sourced purchases are denominated in u.s. dollars . the company has two reportable segments , north american wholesale operations ( “ wholesale ” ) and north american retail operations ( “ retail ” ) . in the wholesale segment , the company 's products are sold to leading footwear , department , and specialty stores , as well as e-commerce retailers , primarily in the united states and canada . the company also has licensing agreements with third parties who sell its branded apparel , accessories and specialty footwear in the united states , as well as its footwear in mexico and certain markets overseas . licensing revenues are included in the company 's wholesale segment . the company 's retail segment consisted of e-commerce businesses and five brick and mortar retail stores in the united states as of december 31 , 2020 , with such store base subsequently reduced to four stores in early 2021. retail sales are made directly to consumers by company employees . the company 's “ other ” operations include the company 's wholesale and retail businesses in australia , south africa , asia pacific ( collectively , “ florsheim australia ” ) , and europe ( “ florsheim europe ” ) . the majority of the company 's operations are in the united states , and its results are primarily affected by the economic conditions and the retail environment in the united states . this discussion summarizes the significant factors affecting the consolidated operating results , financial position and liquidity of the company for the two-year period ended december 31 , 2020. this discussion should be read in conjunction with item 8 , “ financial statements and supplementary data ” below . executive overview the covid-19 pandemic significantly impacted the company 's 2020 financial results , and has continued to affect its results into 2021. government-mandated shutdowns of non-essential businesses resulted in the majority of retailers temporarily closing their stores in mid-march 2020 , with the majority of retailers , including the company 's retail stores , remaining closed for a majority of the second quarter . while business recovery has been slow , the company returned to profitability in the fourth quarter , which reflected increased demand in certain areas of the business as well as reductions in expenses as the company aligned costs with its lower sales volume . during 2020 , bogs continued to diversify its product mix , selling more lightly-insulated and lifestyle-oriented product in the women 's market while also developing its men 's occupational , work-related footwear . as a result , the bogs brand performed well during 2020. after initial challenges during the beginning of the pandemic , the bogs ' business accelerated in the latter part of 2020 as consumers spent more time outdoors . even with relatively modest precipitation in november and december 2020 across the country , demand for bogs ' product was very strong . while the company entered fall 2020 with adequate levels of inventory , bogs quickly sold through key programs , as there was a shortage of outdoor boots in the general market to satisfy increasing demand . the company has been able replenish a good portion of these programs in order to meet unexpected elevated demand in early 2021. regarding the company 's legacy brands ( florsheim , stacy adams , and nunn bush ) , the business environment remains challenging . as a result of the pandemic , the company 's wholesale partners reduced styles in dress and dress-casual footwear that are work or occasion oriented . management believes the normalization of its legacy business is tied closely to the rollout of vaccinations and people returning to normal activities . story_separator_special_tag collectively , florsheim australia and florsheim europe had a combined loss from operations totaling $ 7.5 million in 2020 compared to a loss from operations of $ 3.5 million last year . operating losses deepened in 2020 primarily due to lower sales volumes and higher selling and administrative expenses relative to net sales . selling and administrative expenses of the company 's other businesses included $ 3.6 million in employee costs related to restructuring and temporary closures , $ 2.1 million for the impairment of retail store fixed assets and operating lease right-of-use assets , $ 1.1 million in reserves for obsolete and slow moving inventory due to covid-19-related impacts , and $ 0.3 million in related charges , partially offset by $ 3.5 million of income from government wage and rent subsidies . other income and expense and taxes the majority of the company 's interest income is generated by investments in marketable securities . interest income was $ 527,000 and $ 823,000 in 2020 and 2019 , respectively . the decrease in 2020 was primarily due to less interest earned on the lower investment balances this year as a result of maturities of marketable securities and lower interest rates . interest expense declined to $ 79,000 in 2020 from $ 244,000 in 2019 , due to the lower average debt balance this year . other income totaled $ 96,000 in 2020 versus other expense of $ 535,000 in 2019. the decrease in expense was primarily due to a decrease in the non-service cost components of pension expense , resulting from lower interest expense and higher expected return on plan assets . the company 's effective tax rate was ( 20.3 ) % in 2020 versus 22.9 % in 2019. the company 's 2020 tax provision included $ 2.0 million of tax expense related to deferred tax assets of the company 's foreign subsidiaries . the company 's 2020 effective tax rates were also impacted because it did not record an income tax benefit on foreign losses , and , in the u.s. , the company has the ability to carry back current year losses to a tax year when the u.s. federal statutory tax rate was 35 % versus the current tax rate of 21 % , which is currently permitted under the u.s. coronavirus aid , relief , and economic security act ( `` cares act '' ) . liquidity & capital resources the company 's primary sources of liquidity are its cash and short-term marketable securities , which aggregated $ 34.7 million at december 31 , 2020 , and $ 15.7 million at december 31 , 2019 , and its revolving line of credit . the company generated $ 40.0 million and $ 9.4 million of cash from operations in 2020 and 2019 , respectively . fluctuations in net cash from operating activities have mainly resulted from changes in net earnings ( loss ) and operating assets and liabilities , and most significantly , the year-end inventory balances . the company reduced its inventory levels during 2020 to align with sales . specifically , the company reduced its dress inventory levels 13 in line with the current decrease in demand for this category as a result of the impact of the pandemic , which has led to more people working from home and few special occasion-related events . the company 's capital expenditures were $ 3.4 million and $ 7.4 million in 2020 and 2019 , respectively . in early 2020 , the company completed a project to expand its office space within its corporate headquarters . the company expects capital expenditures will be between $ 1.0 million and $ 2.0 million in 2021. the company paid cash dividends of $ 11.8 million and $ 9.4 million in 2020 and 2019 , respectively . the company accelerated the timing of its january 2021 quarter dividend payment into 2020. the company plans to resume its regularly quarterly dividend payment schedule in march 2021. the company continues to repurchase its common stock under its share repurchase program when the company believes market conditions are favorable . in 2020 , the company repurchased 106,490 shares for a total cost of $ 2.1 million . in 2019 , the company repurchased 222,740 shares for a total cost of $ 5.6 million . at december 31 , 2020 , the company had remaining authorization to repurchase up to 335,780 shares under the program . at december 31 , 2020 , the company had a $ 30 million revolving line of credit with a bank that is secured by a lien against the company 's general corporate assets . the line of credit bears interest at libor plus 1.35 % and expires on november 4 , 2021. the related credit agreement contains customary representations , warranties , and covenants ( including a minimum tangible net worth financial covenant ) for a facility of this type . at december 31 , 2020 , there were no amounts outstanding on the company 's line of credit . the highest balance on the line of credit during 2020 was $ 8.5 million . at december 31 , 2019 , outstanding borrowings under a previous revolving line of credit with the company 's former bank were approximately $ 7.0 million at an interest rate of 2.5 % . as of december 31 , 2020 , $ 4.4 million of cash and cash equivalents was held by the company 's foreign subsidiaries . the company will continue to evaluate the best uses for its available liquidity , including , among other uses , capital expenditures , continued stock repurchases and additional acquisitions . the company believes that available cash and marketable securities , cash provided by operations , and available borrowing facilities will provide adequate support for the cash needs of the business for at least one year , although there can be no assurances .
| sales and earnings highlights consolidated net sales were $ 195.4 million in 2020 , a decrease of 36 % compared to $ 304.0 million in 2019. consolidated loss from operations totaled totaled $ 7.6 million in 2020 , compared to earnings from operations of $ 27.0 million in 2019. the company 's net loss totaled $ 8.5 million in 2020 versus net earnings of $ 20.9 million in 2019. diluted loss per share was $ 0.87 per share in 2020 , compared to diluted earnings per share of $ 2.10 in 2019. financial position highlights at december 31 , 2020 , cash and marketable securities totaled $ 47.5 million and there were no amounts outstanding on the company 's line of credit . during 2020 , the company generated $ 40.0 million of cash from operations . the company used funds to pay $ 11.8 million in dividends , pay down $ 7.0 million on its line of credit , and repurchase $ 2.1 million of company stock . the company also had $ 3.4 million of capital expenditures in 2020. segment analysis net sales and earnings ( loss ) from operations for the company 's segments , as well as its “ other ” operations , in the years ended december 31 , 2020 and 2019 , were as follows : replace_table_token_4_th 11 north american wholesale segment wholesale net sales net sales in the company 's north american wholesale segment for the years ended december 31 , 2020 and 2019 , were as follows : replace_table_token_5_th as discussed in the “ executive overview ” above , net sales of the stacy adams , nunn bush , and florsheim brands were down in 2020 primarily due to the effects of the pandemic .
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while we believe that we are currently able to continue our operations at each of our operating locations , this could change at any time in the future . we are closely monitoring the situation and taking actions to protect the safety of our employees and communities . for example , among other things , we have restricted international and domestic travel , taken a variety of steps to ensure social distancing in our facilities , including working remotely where available , and have increased our cleaning and sanitizing procedures in our facilities . economic measures much of our business is driven by the ebbs and flows of the general economic conditions in both the united states and , to a lesser extent , abroad . we focus on a wide array of customer types including , but not limited to large retailers , aerospace manufacturers , large and small resellers of pneumatic tools and parts , and automotive related customers . we tend to track the general economic conditions of the united states , industrial production and general retail sales . a key economic measure relevant to us is the cost of the raw materials in our products . key materials include metals , especially various types of steel and aluminum . also important is the value of the united states dollar ( “ usd ” ) in relation to the taiwanese dollar ( “ twd ” ) , as we purchase a significant portion of our products from taiwan . purchases from chinese sources are made in usd ; however , if the chinese currency , the renminbi ( “ rmb ” ) , were to be revalued against the usd , there could be a negative impact on the cost of our products . additionally , we closely monitor the fluctuation in the great british pound ( “ gbp ” ) to the usd , and the gbp to twd , both of which can have an impact on the consolidated results . as the result of several new tariffs imposed in the second half of 2018 , specifically those imposed on products imported from china , we now must consider tariffs a key economic measure , as a significant portion of products imported by florida pneumatic for our retail customers are subject to these tariffs . lastly , the cost and availability of a quality labor pool in the countries where products and components are manufactured , both overseas as well as in the united states , could materially affect our overall results . operating measures key operating measures we use to manage our operations are orders ; shipments ; development of new products ; customer retention ; inventory levels and productivity . these measures are recorded and monitored at various intervals , including daily , weekly and monthly . to the extent these measures are relevant , they are discussed in the detailed sections below . financial measures key financial measures we use to evaluate the results of our business include : various revenue metrics ; gross margin ; selling , general and administrative expenses ; earnings before interest and taxes ; earnings before interest , taxes , depreciation and amortization ; operating cash flows and capital expenditures ; return on sales ; return on assets ; days sales outstanding and inventory turns . these measures are reviewed at monthly , quarterly and annual intervals and compared to historical periods as well as to established objectives . to the extent that these measures are relevant , they are discussed in detail below . 12 critical accounting policies and estimates we prepare our consolidated financial statements in accordance with accounting principles generally accepted in the united states of america ( “ us gaap ” ) . certain of these accounting policies require us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and the related disclosure of contingent assets and liabilities , revenues and expenses . on an ongoing basis , we evaluate our estimates pertaining to such matters as bad debts , inventory reserves , goodwill and intangible assets , warranty reserves , sales discounts and taxes . we base our estimates on historical data and experience , when available , and on various other assumptions that are believed to be reasonable under the circumstances , the combined 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 . as future events and their effects can not be determined with precision , actual results could differ significantly from those estimates and assumptions . significant changes , if any , in those estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods . actual results may differ from these estimates . we consider the following policies and estimates to be the most critical in understanding the judgments that are involved in the preparation of the company 's consolidated financial statements and the uncertainties that could impact the company 's financial position , results of operations and cash flows . revenue recognition our accounting policy relating to revenue recognition reflects the impact of the adoption of accounting standard codification , ( “ asc ” ) 606 revenue from contracts with customers ( `` asc 606 '' ) , which is discussed further in our notes to our consolidated financial statements . as a result of our adoption of asc 606 we record revenue based on a five-step model . we sell our goods on terms that transfer title and risk of loss at a specified location , which may be our warehouse , destination designated by our customer , port of loading or port of discharge , depending on the final destination of the goods . other than standard product warranty provisions , our sales arrangements provide for no other post-shipment obligations . story_separator_special_tag however , if , in the future , key drivers in our assumptions or estimates such as ( i ) a material decline in general economic conditions ; ( ii ) competitive pressures on our revenue , or our ability to maintain margins ; ( iii ) significant price increases from our vendors that can not be passed through to our customers ; and ( iv ) breakdowns in supply chain , or other possible factors beyond our control occur , an impairment charge against our intangible assets may be required . impairment of long-lived assets we review long-lived assets , including property , plant , and equipment and identifiable intangible assets , for impairment whenever changes in circumstances or events may indicate that the carrying amounts are not recoverable . if the fair value is less than the carrying amount of the asset , a loss is recognized for the difference . factors which may cause an impairment of long-lived assets include significant changes in the manner of use of these assets , negative industry or market trends , a significant underperformance relative to historical or projected future operating results , or a likely sale or disposal of the asset before the end of its estimated useful life . if any of these factors exist , we are required to test the long-lived asset for recoverability and may be required to recognize an impairment charge for all or a portion of the asset 's carrying value . 14 income taxes we account for income taxes using the asset and liability approach . this approach requires the recognition of current tax assets or liabilities for the amounts refundable or payable on tax returns for the current year , as well as the recognition of deferred tax assets or liabilities for the expected future tax consequences of temporary differences that can arise between ( a ) the amount of taxable income and pretax financial income for a year , such as from net operating loss carryforwards and other tax credits , and ( b ) the tax bases of assets or liabilities and their reported amounts in the consolidated financial statements . deferred tax assets and liabilities are measured using enacted tax rates . the impact on deferred tax assets and liabilities of changes in tax rates and laws , if any , is reflected in the consolidated financial statements in the period enacted . further , we evaluate the likelihood of realizing benefit from our deferred tax assets by estimating future sources of taxable income and the impact of tax planning strategies . deferred tax assets are reduced by a valuation allowance when , in the opinion of management , it is more likely than not that some portion , or all , of the deferred tax assets will not be realized . we file a consolidated federal tax return . p & f and certain of its subsidiaries file combined tax returns in new york , california , illinois and texas . all subsidiaries , other than uat , file other state and local tax returns on a stand-alone basis . uat files an income tax return with the taxing authorities in the united kingdom . when tax returns are filed , it is highly certain that some positions taken would be sustained upon examination by the taxing authorities , while other positions are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained . the benefit of a tax position is recognized in the financial statements in the period during which , based on all available evidence , management believes it is more likely than not that the position will be sustained upon examination , including the resolution of appeals or litigation processes , if any . tax positions taken are not offset or aggregated with other positions . tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 % likely of being realized upon settlement with the applicable taxing authority . the portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination . interest and penalties associated with unrecognized tax benefits are classified as income taxes in the consolidated statements of income and comprehensive income . the authoritative guidance for income taxes requires a reduction of the carrying amounts of deferred tax assets by recording a valuation allowance if , based on the available evidence , it is more likely than not ( defined as a likelihood of more than 50 % ) such assets will not be realized . the valuation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in our financial statements or tax returns and future profitability . our accounting for deferred tax consequences represents our best estimate of those future events . changes in estimates , due to unanticipated events or otherwise , could have a material effect on our financial condition and results of operations . we continually evaluate our deferred tax assets to determine if a valuation allowance is required . in january 2018 , the fasb released guidance on the accounting for tax on the global intangible low-taxed income ( “ gilti ” ) provisions of the act . the gilti provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations . the guidance allows companies to make an accounting policy election to either ( i ) account for gilti as a component of tax expense in the period in which they are subject to the rules ( the period cost method ) , or ( ii ) account for gilti in the company 's measurement of deferred taxes ( the deferred method ) .
| results of operations 2019 compared to 2018 revenue the tables set forth below provide an analysis of our revenue for the years ended december 31 , 2019 and 2018. consolidated replace_table_token_3_th 16 florida pneumatic during the third quarter of 2018 , florida pneumatic commenced the shipment to thd of an improved line of pneumatic tools , which replaced much of thd 's previous product offering . gross margin for the new product line is projected to be approximately 2 % less than recent historic levels . further , in an effort to assist thd in promoting the roll out , florida pneumatic agreed to contribute approximately $ 1,088,000 to thd . this contribution is being ratably amortized over a four-year period commencing august 2018 and will be tested for impairment during said period . florida pneumatic markets its air tool products to four primary sectors within the pneumatic tool market ; retail , automotive , industrial and the aerospace market . it also generates revenue from its berkley products line , as well as a line of air filters and other oem parts ( “ other ” ) . replace_table_token_4_th the most significant component to the decline in florida pneumatic 's full-year 2019 revenue , compared to the full-year 2018 was lower sales to thd . it should be noted that during the third quarter of 2018 , florida pneumatic shipped approximately $ 3.6 million of a then new , refreshed line of pneumatic tools and accessories to thd , whereas during 2019 there were no similar special or promotional orders .
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interest expense attributable to reservation activities was $ 4.1 million , $ 1.1 million and $ 0.3 million for the years ended december 31 , 2011 , 2010 and 2009 , respectively . 7. other assets other assets consist of the following at : replace_table_token_47_th 8. accrued expenses accrued expenses consist of the following : replace_table_token_48_th 77 9. deferred revenue deferred revenue consists of the story_separator_special_tag the following management 's discussion and analysis ( “ md & a ” ) is intended to help the reader understand choice hotels international , inc. and its subsidiaries ( together the “ company ” ) . md & a is provided as a supplement to—and should be read in conjunction with—our consolidated financial statements and the accompanying notes . overview we are a hotel franchisor with franchise agreements representing 6,178 hotels open and 490 hotels under construction , awaiting conversion or approved for development as of december 31 , 2011 , with 497,205 rooms and 39,675 rooms , respectively , in 49 states , the district of columbia and over 35 countries and territories outside the united states . our brand names include comfort inn , comfort suites , quality , clarion , ascend collection , sleep inn , econo lodge , rodeway inn , mainstay suites , suburban extended stay hotel and cambria suites ( collectively , the “ choice brands ” ) . the company 's domestic operations are conducted solely through direct franchising relationships while its international franchise operations are conducted through a combination of direct franchising and master franchising relationships . master 34 franchising relationships are governed by master franchising agreements which generally provide the master franchisee with the right to use our brands in a specific geographic region , usually for a fee . our business philosophy has been to conduct direct franchising in those international markets where both franchising is an accepted business model and we believe our brands can achieve significant distribution . we elect to enter into master franchise agreements in those markets where direct franchising is currently not a prevalent or viable business model . when entering into master franchising relationships , we strive to select partners that have professional hotel and asset management capabilities together with the financial capacity to invest in building the choice brands in their respective markets . master franchising relationships typically provide lower revenues to the company as the master franchisees are responsible for managing certain necessary services ( such as training , quality assurance , reservations and marketing ) to support the franchised hotels in the master franchise area and therefore retain a larger percentage of the hotel franchise fees to cover their expenses . in certain circumstances , the company has and may continue to make equity investments in our master franchisees . as a result of our use of master franchising relationships and international market conditions , total revenues from international franchising operations comprised 9 % and 8 % of our total revenues in 2011 and 2010 , respectively while representing approximately 19 % of our franchise system hotels open at both december 31 , 2011 and 2010 . therefore , our description of the franchise system is primarily focused on the domestic operations . the company previously had a 40 % equity interest in choice hospitality ( india ) ltd. ( “ chn ” ) which it accounted for under the equity method of accounting . on january 8 , 2010 , the company purchased the remaining 60 % of chn at which time it became a wholly-owned subsidiary . the pro forma results of operations as if chn had been combined at the beginning of all periods presented , would not be materially different from the company 's reported results for those periods . this transaction enabled choice to continue its strategy of more closely directing the growth of our international franchise operations our company generates revenues , income and cash flows primarily from initial , relicensing and continuing royalty fees attributable to our franchise agreements . revenues are also generated from qualified vendor arrangements , hotel operations and other sources . the hotel industry is seasonal in nature . for most hotels , demand is lower in december through march than during the remainder of the year . our principal source of revenues is franchise fees based on the gross room revenues of our franchised properties . the company 's franchise fee revenues and operating income reflect the industry 's seasonality and historically have been lower in the first quarter than in the second , third or fourth quarters . with a focus on hotel franchising instead of ownership , we benefit from the economies of scale inherent in the franchising business . the fee and cost structure of our business provides opportunities to improve operating results by increasing the number of franchised hotel rooms and effective royalty rates of our franchise contracts resulting in increased initial and relicensing fee revenue ; ongoing royalty fees and procurement services revenues . in addition , our operating results can also be improved through our company wide efforts related to improving property level performance . at december 31 , 2011 the company estimates , based on its current domestic portfolio of hotels under franchise , that a 1 % change in revenue per available room ( “ revpar ” ) or rooms under franchise would increase or decrease royalty revenues by approximately $ 2.3 million and a 1 basis point change in the company 's effective royalty rate would increase or decrease domestic royalties by approximately $ 0.5 million . in addition to these revenues , we also collect marketing and reservation system fees to support centralized marketing and reservation activities for the franchise system . as a lodging franchisor , choice currently has relatively low capital expenditure requirements . story_separator_special_tag recent market conditions have resulted in an increase in opportunities to incentivize development under these programs and as a result over the next several years , we expect to deploy capital opportunistically pursuant to these programs to promote growth of our emerging brands . the amount and timing of the investment in these programs will be dependent on market and other conditions . our current expectation is that our annual investment in these programs will range from $ 20 million to $ 40 million . notwithstanding these programs , the company expects to continue to return value to its shareholders through a combination of share repurchases and dividends , subject to business performance , economic conditions , changes in income tax regulations and other factors . we believe these value drivers , when properly implemented , will enhance our profitability , maximize our financial returns and continue to generate value for our shareholders . the ultimate measure of our success will be reflected in the items below . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; '' > franchising revenues : franchising revenues were $ 285.4 million for the year ended december 31 , 2011 compared to $ 262.8 million for the year ended december 31 , 2010 , a 9 % increase . the increase in franchising revenues is primarily due to a $ 17.1 million or 7 % increase in royalty revenues and a 46 % increase in initial franchise and relicensing fees . domestic royalty fees for the year ended december 31 , 2011 increased $ 13.9 million to $ 220.3 million from $ 206.3 million in 2010 , an increase of 7 % . the increase in royalties is attributable to a combination of factors including a 6.2 % increase in revpar and an increase in the effective royalty rate of the domestic hotel system from 4.29 % to 4.32 % . system-wide revpar increased due to a 220 basis point increase in occupancy and a 1.9 % increase in average daily rates . 40 a summary of the company 's domestic franchised hotels operating information for the years ending december 31 , 2011 and 2010 is as follows : replace_table_token_19_th * operating statistics represent hotel operations from december through november and exclude cambria suites . the number of domestic rooms on-line decreased to 392,826 rooms as of december 31 , 2011 from 393,535 as of december 31 , 2010 a decline of 0.2 % . the total number of domestic hotels on-line increased by 8 units to 5,001 as of december 31 , 2011 from 4,993 as of december 31 , 2010 . a summary of the domestic hotels and available rooms at december 31 , 2011 and 2010 by brand is as follows : replace_table_token_20_th international available rooms increased 2.7 % to 104,379 as of december 31 , 2011 from 101,610 as of december 31 , 2010 . the total number of international hotels on-line increased 2.4 % from 1,149 at december 31 , 2010 to 1,177 as of december 31 , 2011 . as of december 31 , 2011 , the company had 408 franchised hotels with 32,586 rooms under construction , awaiting conversion or approved for development in its domestic system as compared to 516 hotels and 41,682 rooms at december 31 , 2010 . the number of new construction franchised hotels in the company 's domestic pipeline declined 27 % to 277 at december 31 , 2011 from 380 at december 31 , 2010 . the number of conversion franchised hotels in the company 's domestic pipeline declined by 5 units or 4 % from december 31 , 2010 to 131 hotels at december 31 , 2011 . the domestic system hotels under construction , awaiting conversion or approved for development declined 21 % from the prior year primarily due to the opening of 256 franchised units during the year ended december 31 , 2011 coupled with a 7 % decline in the execution of new franchise agreements due to the difficult credit environment . the company had an additional 82 franchised hotels with 7,089 41 rooms under construction , awaiting conversion or approved for development in its international system as of december 31 , 2011 compared to 105 hotels and 9,105 rooms at december 31 , 2010 . while the company 's hotel pipeline provides a strong platform for growth , a hotel in the pipeline does not always result in an open and operating hotel due to various factors . a summary of the domestic franchised hotels under construction , awaiting conversion or approved for development at december 31 , 2011 and 2010 by brand is as follows : replace_table_token_21_th domestic hotels open and operating increased by 8 hotels during the year ended december 31 , 2011 compared to an increase of 87 domestic hotels open and operating during the year ended december 31 , 2010 . gross domestic franchise additions declined from 327 for the year ended december 31 , 2010 to 256 for the same period in 2011 . new construction hotels represented 29 of the gross domestic additions during year ended december 31 , 2011 compared to 78 hotels in the same period of the prior year . gross domestic additions for conversion hotels during the year ended december 31 , 2011 declined by 22 from 249 hotels during the year ended december 31 , 2010 to 227 hotels . the decline in hotel openings is primarily due to the limited availability of hotel construction financing which has significantly impacted the number of new construction hotel franchise agreements executed as well as the ability of existing projects to obtain financing and commence construction . in addition , a decline in the real estate market for hotel transactions and retention efforts implemented by other hotel brand companies have negatively impacted the company 's pipeline of new franchises .
| results of operation : royalty fees , operating income , net income and diluted earnings per share ( “ eps ” ) represent key measurements of these value drivers . in 2011 , royalty fees revenue totaled approximately $ 247.2 million , a 7 % increase from 2010 . operating income totaled $ 171.9 million for the year ended december 31 , 2011 , a 7 % increase from 2010 . net income for the year ended december 31 , 2011 increased $ 3.0 million to $ 110.4 million and diluted eps were $ 1.85 compared to $ 1.80 for the year ended december 31 , 2010 . these measurements will continue to be a key management focus in 2012 and beyond . 36 refer to md & a heading “ operations review ” for additional analysis of our results . liquidity and capital resources : historically , the company has generated significant cash flows from operations . in 2011 and 2010 , net cash provided by operating activities was $ 134.8 million and $ 144.9 million , respectively . since our business does not currently require significant reinvestment of capital , we typically utilize cash in ways that management believes provide the greatest returns to our shareholders which include share repurchases and dividends . however , we may determine to utilize more cash for acquisitions and other investments in the future . we believe the company 's cash flow from operations and available financing capacity is sufficient to meet the expected future operating , investing and financing needs of the business . refer to md & a heading “ liquidity and capital resources ” for additional analysis . inflation : inflation has been moderate in recent years and has not had a significant impact on our business .
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the decrease in trinidad was primarily attributable to higher contractual deliveries in 2017. during 2018 , eog recognized net losses on the mark-to-market of financial commodity derivative contracts of $ 166 million , which included net cash paid for settlements of crude oil and natural gas financial derivative contracts of $ 259 million . during 2017 , eog recognized net gains on the mark-to-market of financial commodity derivative contracts of $ 20 million , which included net cash received from settlements of crude oil and natural gas financial derivative contracts of $ 7 million . gathering , processing and marketing revenues are revenues generated from sales of third-party crude oil , ngls and natural gas , as well as gathering fees associated with gathering third-party natural gas and revenues from sales of eog-owned sand . purchases and sales of third-party crude oil and natural gas may be utilized in order to balance firm transportation capacity with production in certain areas and to utilize excess capacity at eog-owned facilities . eog sells sand in order to balance the timing of firm purchase agreements with completion operations and to utilize excess capacity at eog-owned facilities . marketing costs represent the costs to purchase third-party crude oil , natural gas and sand and the associated transportation costs , as well as costs associated with eog-owned sand sold to third parties . gathering , processing and marketing revenues less marketing costs in 2018 increased $ 59 million compared to 2017 , primarily due to higher margins on crude oil and condensate marketing activities . 2017 compared to 2016. wellhead crude oil and condensate revenues in 2017 increased $ 1,939 million , or 45 % , to $ 6,256 million from $ 4,317 million in 2016 , due primarily to a higher composite average wellhead crude oil and condensate price ( $ 1,124 million ) and an increase in production ( $ 815 million ) . eog 's composite wellhead crude oil and condensate price for 2017 increased 22 % to $ 50.91 per barrel compared to $ 41.76 per barrel in 2016. wellhead crude oil and condensate deliveries in 2017 increased 19 % to 337 mbbld as compared to 283 mbbld in 2016. the increased production was primarily due to higher production in the permian basin and rocky mountain area . ngl revenues in 2017 increased $ 292 million , or 67 % , to $ 729 million from $ 437 million in 2016 primarily due to a higher composite wellhead ngl price ( $ 257 million ) and an increase in production ( $ 35 million ) . eog 's composite average wellhead ngl price increased 55 % to $ 22.61 per barrel in 2017 compared to $ 14.63 per barrel in 2016. the increased production was primarily due to higher production in the permian basin and rocky mountain area , partially offset by decreased production in the fort worth barnett shale , largely resulting from 2016 asset sales in this region . 33 wellhead natural gas revenues in 2017 increased $ 180 million , or 24 % , to $ 922 million from $ 742 million in 2016 , primarily due to a higher composite wellhead natural gas price ( $ 227 million ) , partially offset by a decrease in wellhead natural gas deliveries ( $ 47 million ) . eog 's composite average wellhead natural gas price increased 32 % to $ 2.29 per mcf in 2017 compared to $ 1.73 per mcf in 2016. natural gas deliveries in 2017 decreased 6 % to 1,103 mmcfd as compared to 1,175 mmcfd in 2016. the decrease in production was primarily due to decreased production in the united states ( 45 mmcfd ) and trinidad ( 27 mmcfd ) . the decreased production in the united states was due primarily to lower volumes in the fort worth barnett shale , upper gulf coast and south texas areas , largely resulting from 2016 asset sales in these regions , partially offset by increased production of associated gas in the permian basin and rocky mountain area and from the 2016 mergers and related asset purchase transactions with yates petroleum corporation and other affiliated entities ( collectively , the yates entities ) . the decrease in trinidad was primarily attributable to higher contractual deliveries in 2016. during 2017 , eog recognized net gains on the mark-to-market of financial commodity derivative contracts of $ 20 million , which included net cash received from settlements of crude oil and natural gas financial derivative contracts of $ 7 million . during 2016 , eog recognized net losses on the mark-to-market of financial commodity derivative contracts of $ 100 million , which included net cash paid for settlements of crude oil and natural gas financial derivative contracts of $ 22 million . gathering , processing and marketing revenues less marketing costs in 2017 increased $ 9 million compared to 2016 , primarily due to higher margins on natural gas and ngl marketing activities ( $ 16 million ) , partially offset by lower margins on sand sales ( $ 9 million ) . operating and other expenses 2018 compared to 2017 . during 2018 , operating expenses of $ 12,806 million were $ 2,524 million higher than the $ 10,282 million incurred during 2017. the following table presents the costs per barrel of oil equivalent ( boe ) for the years ended december 31 , 2018 and 2017 : replace_table_token_15_th ( 1 ) total excludes gathering and processing costs , exploration costs , dry hole costs , impairments , marketing costs and taxes other than income . the primary factors impacting the cost components of per-unit rates of lease and well , transportation costs , dd & a , g & a and net interest expense for 2018 compared to 2017 are set forth below . story_separator_special_tag exploration costs of $ 149 million in 2018 increased $ 4 million from $ 145 million in 2017 primarily due to increased general and administrative expenses in the united states ( $ 7 million ) , partially offset by decreased geological and geophysical expenditures in trinidad ( $ 5 million ) . 35 impairments include amortization of unproved oil and gas property costs as well as impairments of proved oil and gas properties ; other property , plant and equipment ; and other assets . unproved properties with acquisition costs that are not individually significant are aggregated , and the portion of such costs estimated to be nonproductive is amortized over the remaining lease term . unproved properties with individually significant acquisition costs are reviewed individually for impairment . when circumstances indicate that a proved property may be impaired , eog compares expected undiscounted future cash flows at a dd & a group level to the unamortized capitalized cost of the asset . if the expected undiscounted future cash flows are lower than the unamortized capitalized cost , the capitalized cost is reduced to fair value . fair value is generally calculated by using the income approach described in the fair value measurement topic of the financial accounting standards board 's accounting standards codification ( asc ) . in certain instances , eog utilizes accepted offers from third-party purchasers as the basis for determining fair value . the following table represents impairments for the years ended december 31 , 2018 and 2017 ( in millions ) : replace_table_token_16_th impairments of proved properties were primarily due to the write-down to fair value of legacy natural gas assets in 2018 and 2017. taxes other than income include severance/production taxes , ad valorem/property taxes , payroll taxes , franchise taxes and other miscellaneous taxes . severance/production taxes are generally determined based on wellhead revenues , and ad valorem/property taxes are generally determined based on the valuation of the underlying assets . taxes other than income in 2018 increased $ 227 million to $ 772 million ( 6.5 % of wellhead revenues ) from $ 545 million ( 6.9 % of wellhead revenues ) in 2017. the increase in taxes other than income was primarily due to increases in severance/production taxes ( $ 190 million ) primarily as a result of increased wellhead revenues and an increase in ad valorem/property taxes ( $ 33 million ) , both in the united states . other income , net , was $ 17 million in 2018 compared to other income , net , of $ 9 million in 2017. the increase of $ 8 million in 2018 was primarily due to a decrease in deferred compensation expense ( $ 12 million ) and an increase in interest income ( $ 4 million ) ; partially offset by an increase in foreign currency transaction losses ( $ 15 million ) . eog recognized an income tax provision of $ 822 million in 2018 compared to an income tax benefit of $ 1,921 million in 2017 , primarily due to the absence of certain 2017 tax benefits related to the tax cuts and jobs act ( tcja ) and higher pretax income . the most significant impact of the tcja on eog was the reduction in the statutory income tax rate from 35 % to 21 % which required the existing net united states federal deferred income tax liability to be remeasured resulting in the recognition of an income tax benefit in 2017 of approximately $ 2.2 billion . the net effective tax rate for 2018 increased to 19 % from ( 291 % ) in the prior year , primarily due to the absence of the tcja tax benefits . 36 2017 compared to 2016 . during 2017 , operating expenses of $ 10,282 million were $ 1,406 million higher than the $ 8,876 million incurred during 2016. the following table presents the costs per barrel of oil equivalent ( boe ) for the years ended december 31 , 2017 and 2016 : replace_table_token_17_th ( 1 ) total excludes gathering and processing costs , exploration costs , dry hole costs , impairments , marketing costs and taxes other than income . the primary factors impacting the cost components of per-unit rates of lease and well , transportation costs , dd & a , g & a and net interest expense for 2017 compared to 2016 are set forth below . see `` operating revenues and other '' above for a discussion of production volumes . lease and well expenses of $ 1,045 million in 2017 increased $ 118 million from $ 927 million in 2016 primarily due to higher operating and maintenance costs in the united states ( $ 71 million ) and the united kingdom ( $ 30 million ) and higher workover expenditures in the united states ( $ 21 million ) . lease and well expenses increased in the united states primarily due to increased operating activities resulting in increased production . transportation costs of $ 740 million in 2017 decreased $ 24 million from $ 764 million in 2016 primarily due to divestitures in the barnett shale and upper gulf coast ( $ 85 million ) and decreased transportation costs in the eagle ford ( $ 8 million ) and the united kingdom ( $ 8 million ) , partially offset by increased transportation costs related to higher production in the permian basin ( $ 47 million ) and the rocky mountain area ( $ 20 million ) and from the 2016 transactions with the yates entities ( $ 13 million ) . dd & a expenses in 2017 decreased $ 144 million to $ 3,409 million from $ 3,553 million in 2016. dd & a expenses associated with oil and gas properties in 2017 were $ 141 million lower than in 2016 primarily due to lower unit rates in the united states ( $ 449 million ) and trinidad ( $ 19
| results of operations the following review of operations for each of the three years in the period ended december 31 , 2018 , should be read in conjunction with the consolidated financial statements of eog and notes thereto beginning on page f-1 . operating revenues and other during 2018 , operating revenues increased $ 6,067 million , or 54 % , to $ 17,275 million from $ 11,208 million in 2017. total wellhead revenues , which are revenues generated from sales of eog 's production of crude oil and condensate , ngls and natural gas , increased $ 4,039 million , or 51 % , to $ 11,946 million in 2018 from $ 7,907 million in 2017. revenues from the sales of crude oil and condensate and ngls in 2018 were approximately 89 % of total wellhead revenues compared to 88 % in 2017. during 2018 , eog recognized net losses on the mark-to-market of financial commodity derivative contracts of $ 166 million compared to net gains of $ 20 million in 2017. gathering , processing and marketing revenues increased $ 1,932 million during 2018 , to $ 5,230 million from $ 3,298 million in 2017. net gains on asset dispositions of $ 175 million in 2018 were primarily as a result of exchanges of producing properties and acreage in texas and sales of producing properties and acreage in the united kingdom , texas and the rocky mountain area compared to net losses on asset dispositions of $ 99 million in 2017 . 31 wellhead volume and price statistics for the years ended december 31 , 2018 , 2017 and 2016 were as follows : replace_table_token_14_th ( 1 ) thousand barrels per day or million cubic feet per day , as applicable . ( 2 ) other international includes eog 's united kingdom , china , canada and argentina operations . the united kingdom operations were sold in the fourth quarter of 2018. the argentina operations were sold in the third quarter of 2016 .
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additional contingent consideration of up to $ 130 million , with an acquisition date fair value of $ 98.6 million , will be paid upon the achievement of certain defined operational and financial milestones . tower cloud provides data transport services , with particular focus on providing infrastructure solutions to the wireless and enterprise sectors , including fiber-to-the-tower backhaul , small cell networks , and dark fiber deployments . at acquisition , tower cloud 's network consisted of approximately 90,000 fiber strand miles in service across the southeastern united states , with 181,000 fiber strand miles awarded for future deployment for major wireless carriers . we funded the cash portion of the transaction through cash on hand and $ 150 million of borrowings under our revolving credit facility . this transaction compliments our diversification strategy , expands our national wireless carrier relationships , and will accelerate our small cell and dark fiber businesses . following the close of the transaction , the tower cloud and peg bandwidth businesses were combined into a unified fiber infrastructure organization , uniti fiber . during january 2017 , we paid contingent consideration payments of $ 18.8 million for the achievement of certain milestones in accordance with the tower cloud merger agreement . windstream 's disposition of retained interest in cs & l . on june 15 , 2016 , windstream holdings disposed of 14.7 million shares of our common stock , representing approximately half of its retained ownership interest , to certain creditors of windstream in exchange for satisfaction of certain windstream debt . citigroup global markets inc. ( “ citigroup ” ) then acquired such shares from the creditors and sold the shares to institutional accredited investors , including funds managed by searchlight capital partners , l.p. ( “ searchlight ” ) . the company did not receive any proceeds resulting from the disposition of these shares . in connection with the transaction , searchlight , as the lead private investor of 10 million shares of our common stock , was offered by cs & l the right to designate one member to the company 's board of directors , provided such designee is reasonably acceptable to the company , as noted above . the designation right will terminate if searchlight 's ownership drops below 5 % prior to june 15 , 2019 or below 8 % thereafter . on june 24 , 2016 , windstream holdings disposed of its remaining 14.7 million shares of our common stock as part of a public offering ( the “ resale offering ” ) . the company did not receive any proceeds resulting from the disposition of these shares . in connection with the resale offering , we issued 2.2 million additional shares of our common stock pursuant to an overallotment option granted to the underwriters . the shares were sold at a public offering price of $ 26.01 , resulting in proceeds to the company of $ 54.8 million , net of underwriting discounts and commissions , which were used to repay existing borrowings under our revolving credit facility . 29 issuance of senior secured notes . on june 9 , 2016 , we , along with our wholly-owned subsidiary csl capital , co-issued $ 150 million aggregate principal amount of 6.00 % senior secured notes as an add-on to the company 's existing senior secured notes due april 15 , 2023 , which are referred to herein as add-on notes . the add-on notes were issued at an issue price of 99.25 % , are subject to the same customary covenant requirements as the existing senior secured notes , and are guaranteed by each of cs & l 's wholly-owned domestic subsidiaries that guarantee indebtedness under cs & l 's senior credit facilities . the issuance of the add-on notes was not registered under the securities act of 1933 , as amended ( the “ securities act ” ) , but was exempt from registration under securities act pursuant to rule 144a , regulation s and other applicable exemptions of the securities act . proceeds from the issuance of the add-on notes , together with cash on hand , were used to re-pay existing borrowings under the revolving credit facility . acquisition of peg bandwidth , llc . on may 2 , 2016 , we completed the previously announced acquisition of peg bandwidth . the purchase price for all outstanding equity interests was valued at $ 424 million , and included $ 322.5 million of cash , issuance of one million shares of the company 's common stock , and the issuance of 87,500 shares of the company 's 3 % series a convertible preferred stock . peg bandwidth is a leading provider of infrastructure solutions , including cell site backhaul and dark fiber , to the telecommunications industry , and has an extensive fiber network consisting of over 300,000 strand miles in the northeast/mid atlantic and south central regions of the united states and the state of illinois . we funded the cash portion of the transaction through cash on hand and $ 321 million of borrowings under our revolving credit facility . comparison of the year ended december 31 , 2016 to the period from april 24 , 2015 to december 31 , 2015 the following tables sets forth , for the periods indicated , our results of operations expressed as dollars and as a percentage of total revenues : replace_table_token_6_th revenues leasing – lease revenues are primarily attributable to rental revenue from leasing our distribution systems to windstream holdings pursuant to the master lease . under the master lease , windstream holdings is responsible for the costs related to operating the distribution systems , including property taxes , insurance , and maintenance and repair costs . as a result , we do not record an obligation related to the payment of property taxes , as windstream 30 makes direct payments to the taxing authorities . the master lease has an initial term of 15 years with four five-year renewal options and encompasses properties located in 29 states . story_separator_special_tag the increase in the performance of our leasing and consumer clec segments for the year ended december 31 , 2016 compared to the period from april 24 to december 31 , 2015 , is primarily attributable to the impact of a full four quarters of activity in 2016 , while there was only 252 days of activity in 2015. interest expense interest expense for the year ended december 31 , 2016 totaled $ 275.4 million ( 35.7 % of revenue ) , which included non-cash interest expense of $ 16.0 million resulting from the amortization of our debt discounts and debt issuance costs . during the year ended december 31 , 2016 , we incurred $ 4.1 million in interest expense related to our previously undrawn revolving credit facility , $ 4.9 million related to the $ 150 million of newly issued add-on notes and $ 1.2 million in interest expense related to the 2024 notes . interest expense for the period from april 24 , 2015 to december 31 , 2015 totaled $ 181.8 million , which included non-cash interest expense of $ 10.0 million resulting from the amortization of our debt discounts and debt issuance costs . depreciation and amortization expense we incur depreciation and amortization expense related to our property , plant and equipment , corporate assets and intangible assets . charges for depreciation and amortization for the year ended december 31 , 2016 totaled $ 376.0 million ( 48.8 % of revenue ) , which included property , plant and equipment depreciation of $ 369.9 million and intangible asset amortization of $ 6.1 million . charges for depreciation and amortization for the period from april 24 , 2015 to december 31 , 2015 totaled $ 238.7 million ( 50.1 % of revenue ) , which included real estate investment depreciation of $ 235.9 million , corporate asset depreciation of $ 0.2 million and intangible asset amortization of $ 2.6 million . general and administrative expense general and administrative expenses include compensation costs ( including stock-based compensation awards ) , professional and legal services , corporate office costs and other costs associated with administrative activities . for the year ended december 31 , 2016 , general and administrative costs totaled $ 35.4 million ( 4.6 % of revenue ) , which included $ 4.8 million of stock-based compensation expense . for the year ended december 31 , 2016 , our general and administrative expenses included $ 13.1 million ( 1.7 % of revenue ) of expense related to the newly acquired peg bandwidth and tower cloud businesses . for the period from april 24 , 2015 to december 31 , 2015 , general and administrative costs totaled $ 11.2 million ( representing 2.4 % of revenue ) , which includes $ 1.9 million of stock-based compensation expense . operating expense operating expense for the year ended december 31 , 2016 totaled $ 49.7 million ( 6.4 % of revenue ) , which consists of $ 17.4 million ( 2.3 % of revenue ) of expense related to the operation of the consumer clec business and $ 32.1 million ( 4.2 % of revenue ) of expense related to the newly acquired peg bandwidth and tower cloud businesses . for the year ended december 31 , 2016 , fiber infrastructure operating expenses include $ 7 million of tower rent , $ 5.3 million of payroll related expense , and $ 4.3 million of lit service expense . operating expense for the period from april 24 , 2015 to december 31 , 2015 totaled $ 13.7 million ( 2.9 % of revenue ) , which consist primarily of expenses related to the operation of the consumer clec business . 32 reportable segments the following sets forth , for the year ended december 31 , 2016 , revenues and adjusted ebitda of our reportable segments : replace_table_token_7_th the following table sets forth , for the period from april 24 , 2015 to december 31 , 2015 , revenues and adjusted ebitda of our reportable segments : replace_table_token_8_th non-gaap financial measures we refer to ebitda , adjusted ebitda , funds from operations ( “ ffo ” ) as defined by the national association of real estate investment trusts ( “ nareit ” ) , normalized funds from operations ( “ nffo ” ) and adjusted funds from operations ( “ affo ” ) in our analysis of our results of operations , which are not required by , or presented in accordance with , accounting principles generally accepted in the united states ( “ gaap ” ) . while we believe that net income , as defined by gaap , is the most appropriate earnings measure , we also believe that ebitda , adjusted ebitda , ffo , nffo and affo are important non-gaap supplemental measures of operating performance for a reit . we define “ ebitda ” as net income , as defined by gaap , before interest expense , provision for income taxes and depreciation and amortization . we define “ adjusted ebitda ” as ebitda before stock-based compensation expense and the impact , which may be recurring in nature , of transaction and integration related costs , the write off of unamortized deferred financing costs , costs incurred as a result of the early repayment of debt , changes in the fair value of contingent consideration and financial instruments , and other similar items . we believe ebitda and adjusted ebitda are important supplemental measures to net income because they provide additional information to evaluate our operating performance on an unleveraged basis . in addition , adjusted ebitda is calculated similar to defined terms in our material debt agreements used to determine compliance with specific financial 33 covenants . since ebitda and adjusted ebitda are not measures calculated in accordance with gaap , they should not be considered as alternatives to net income determined in accordance with gaap .
| financial condition and results of operations . the following management 's discussion and analysis of financial condition and results of operations describes the principal factors affecting the results of our operations , financial condition , and changes in financial condition , as well as our critical accounting estimates . because we were formed in connection with the spin-off from windstream holdings on april 24 , 2015 , the comparable period results discussed in this section cover only the 252-day period from april 24 , 2015 to december 31 , 2015. as such , there are inherent limitations to period over period comparability . this discussion should be read in conjunction with the accompanying audited financial statements , and the notes thereto set forth in part ii , item 8 of this annual report on form 10-k. overview company description on april 24 , 2015 , cs & l completed the spin-off from windstream pursuant to which windstream contributed the distribution systems and the consumer clec business to cs & l and cs & l issued common stock and indebtedness and paid cash obtained from borrowings under cs & l 's senior credit facilities to windstream . in connection with the spin-off , we entered into the master lease with windstream , pursuant to which a substantial portion of our real property is leased to windstream and from which a substantial portion of our revenues are currently derived . we are an independent , internally managed real estate investment trust ( “ reit ” ) engaged in the acquisition and construction of mission critical infrastructure in the communications industry . we are principally focused on acquiring and constructing fiber optic broadband networks , wireless communications towers , copper and coaxial broadband networks and data centers .
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risk factors and other portions of this annual report on form 10-k. overview we are a global design , marketing and distribution company that specializes in consumer fashion accessories . our principal offerings include an extensive line of men 's and women 's fashion watches and jewelry , handbags , small leather goods , belts , and sunglasses . in the watch and jewelry product categories , we have a diverse portfolio of globally recognized owned and licensed brand names under which our products are marketed . our products are distributed globally through various distribution channels including wholesale in countries where we have a physical presence , direct to the consumer through our retail stores and commercial websites and through third-party distributors in countries where we do not maintain a physical presence . our products are offered at varying price points to meet the needs of our customers , whether they are value-conscious or luxury oriented . based on our range of accessory products , brands , distribution channels and price points , we are able to target style-conscious consumers across a wide age spectrum on a global basis . the vast majority of our products are sourced internationally , with a substantial percentage of our watch and jewelry products assembled or manufactured by entities that are majority owned by us . during fiscal 2020 , approximately 43 % of our global watch production was assembled or sourced through wholly or majority owned factories . this vertical integration of our business allows for better flow of communication , consistent quality , product design protection and improved supply chain speed , while still allowing us to utilize non-owned production facilities for their unique capabilities and to cover production needs over internal capabilities . we operate our business in three segments which are divided into geographies . net sales for each geographic segment are based on the location of the selling entity and each reportable segment provides similar products and services . americas : the americas segment is comprised of sales from our operations in the united states , canada and latin america . sales are generated through diversified distribution channels that include wholesalers , distributors , and direct to consumer . within each channel , we sell our products through a variety of physical point of sale , distributors and e-commerce channels . in the direct to consumer channel , we had 185 company-owned stores as of the end of fiscal 2020 and an extensive collection of products available through our owned websites . as of the end of fiscal 2020 , net sales in the americas segment accounted for 39.8 % of our consolidated revenue . europe : the europe segment is comprised of sales to customers based in european countries , the middle east and africa . sales are generated through diversified distribution channels that include wholesalers , distributors and direct to consumer . within each channel , we sell our products through a variety of physical points of sale , distributors , and e-commerce channels . in the direct to consumer channel , we had 147 company-owned stores as of the end of fiscal 2020 and an extensive collection of products available through our owned websites . as of the end of fiscal 2020 , net sales in the europe segment accounted for 32.4 % of our consolidated revenue . asia : the asia segment is comprised of sales to customers based in australia , china ( including hong kong , macau , and taiwan ) , india , indonesia , japan , malaysia , new zealand , singapore , south korea and thailand . sales are generated through diversified distribution channels that include wholesalers , distributors and direct to consumer . within each channel , we sell our products through a variety of physical points of sale , distributors , and e-commerce channels . in the direct to consumer channel , we had 89 company-owned stores as of the end of fiscal 2020 and an extensive collection of products available through our owned websites . as of the end of fiscal 2020 , net sales in the asia segment accounted for 26.9 % of our consolidated revenue . our consolidated gross profit margin is influenced by our diversified business model that includes , but is not limited to : ( i ) a significant number of product categories we distribute , ( ii ) the multiple brands we offer within several product categories , ( iii ) the geographical presence of our businesses and ( iv ) the different distribution channels we sell to or through . the components of this diversified business model produce varying ranges of gross profit margin . generally , on a historical basis , our fashion branded watch and jewelry offerings produce higher gross profit margins than our leather goods offerings . in addition , in most product categories that we offer , brands with higher retail price points generally produce higher gross profit margins compared to those of lower retail priced brands and connected products carry relatively lower margins than traditional products . gross profit margins related to sales in our europe and asia businesses are historically higher than our 36 americas business , primarily due to the following factors : ( i ) premiums charged in comparison to retail prices on products sold in the u.s. ; ( ii ) the product sales mix in our international businesses , in comparison to our americas business , is comprised more predominantly of watches and jewelry that generally produce higher gross profit margins than leather goods ; and ( iii ) the watch sales mix in our europe and asia businesses , in comparison to our americas business , are comprised more predominantly of higher priced licensed brands . our business is subject to the risks inherent in global sourcing supply . certain key components in our products come from limited sources of supply , which exposes us to potential supply shortages that could disrupt the manufacture and sale of our products . story_separator_special_tag if our allowance for product returns were to change by 10 % , the impact , excluding taxes , would have been an approximate $ 2.4 million change to net income ( loss ) . inventories . inventories are stated at the lower of cost and net realizable value , including any applicable duty and freight charges . we account for estimated obsolescence or unmarketable inventory equal to the difference between the average cost of inventory and the estimated net realizable value based upon assumptions about forecasted sales demand , market conditions and available liquidation channels . valuation of existing connected inventory can be negatively impacted by the emergence of newer generation product . if actual future demand or market conditions are less favorable than those projected by management , or if liquidation channels are not readily available , additional inventory valuation reductions may be required . we assess our off-price sales on an ongoing basis and update our estimates accordingly . impairment of trade names . we evaluate indefinite-lived trade names by comparing the fair value of the asset to its recorded value annually as of the end of the fiscal year and whenever events or conditions indicate that the carrying value of the trade name may not be recoverable . the fair value of the asset is estimated using discounted cash flow methodologies . due to the inherent uncertainties involved in making the estimates and assumptions used in the fair value analysis , actual results may differ , which could alter the fair value of the trade names and possibly cause impairment charges to occur in future periods . judgments and assumptions are inherent in our estimate of future cash flows used to determine the estimate of our fair values . the most significant assumptions associated with the fair value calculations include net sales growth rates and discount rates . if the actual future sales results do not meet the assumed growth rates , future impairments of trade names may be incurred . in fiscal year 2020 , as a result of a triggering event , we recorded impairment charges of $ 2.5 million related to the michele trade name . for our annual fiscal year 2020 impairment test , a discount rate of 12.5 % and a royalty rate of 5 % were used to estimate the michele trade name fair value . the michele trade name represented approximately 68 % , 71 % and 34 % of our total trade name balances at the end of fiscal years 2020 , 2019 and 2018 , respectively . no impairment charges were recorded to the michele trade name in fiscal years 2019 or 2018. as of january 2 , 2021 , the fair value of the michele trade name exceeded its carrying value by approximately 50 % . we test our finite-lived trade name for impairment whenever events or conditions indicate that the carrying value of the asset might not be recoverable . the skagen trade name is being fully amortized on a straight-line basis over its remaining estimated useful life of 5 years as of january 2 , 2021. the skagen trade name represented approximately 29 % of our total trade name balance at the end of both fiscal years 2020 and 2019 and 66 % at the end of fiscal year 2018. we recorded no impairment charges in fiscal year 2020 and impairment charges of $ 16.6 million and $ 6.2 million for fiscal years 2019 and 2018 , respectively , related to the skagen trade name . property , plant and equipment and lease impairment . we test for asset impairment of property , plant and equipment and lease assets whenever events or conditions indicate that the carrying value of an asset might not be recoverable based on expected undiscounted cash flows related to the asset . in evaluating long-lived assets for recoverability , we calculate fair value using our best estimate of future cash flows expected to result from the use of the asset and its eventual disposition . when undiscounted cash flows estimated to be generated through the operations of our company-owned retail stores are less than the carrying value of the underlying assets , the assets are impaired . if it is determined that assets are impaired , an impairment loss is recognized for the amount that the asset 's book value exceeds its fair value . should actual results or market conditions differ from those anticipated , additional losses may be recorded . we recorded impairment losses in selling , general , and 38 administrative ( `` sg & a '' ) expense of $ 27.3 million and $ 7.9 million in fiscal years 2020 and 2019 , respectively , related to lease assets . we recorded impairment losses in sg & a expense of $ 4.0 million , $ 0.7 million and $ 1.9 million in fiscal years 2020 , 2019 and 2018 , respectively , related to property , plant and equipment . we recorded impairment losses in restructuring charges of $ 2.9 million and $ 1.7 million in fiscal years 2020 and 2019 , respectively , related to lease assets . we recorded impairment losses in restructuring charges of $ 1.1 million , $ 0.6 million and $ 1.7 million in fiscal years 2020 , 2019 and 2018 , respectively , related to property , plant and equipment . in fiscal year 2020 , an increase of 100 basis points to the discount rate would have increased property , plant and equipment and lease impairment expense by $ 0.1 million . a 10 % decrease in future expected cash flows would have increased impairment expense by $ 2.1 million . we recorded a loss on disposal related to the write off of property , plant and equipment of $ 0.1 million , $ 0.5 million and $ 0.6 million in fiscal years 2020 , 2019 and 2018 , respectively . i ncome taxes .
| executive summary results for the 53 weeks ended january 2 , 2021 were impacted by the challenging retail environment which was further intensified by the covid-19 global pandemic . net sales decreased 27 % ( 28 % in constant currency ) as compared to fiscal year 2019 and generated a net loss of $ 96 million in fiscal year 2020 , as compared to a net loss of $ 52 million in fiscal year 2019. beginning in march 2020 , the company initiated several actions that were designed to reduce spending and improve liquidity in order to navigate the severity of the global pandemic . the actions , listed below , along with other actions under the nwf 2.0 program supported an overall reduction in our sg & a expenses from $ 1.1 billion to $ 866.7 million . board of director and executive compensation : we implemented base salary reductions for each of our executive officers for an indefinite time period . further , the cash fees for all non-employee directors serving on our board of directors were deferred for the first quarter of fiscal year 2020 until the end of the year , and the cash fees were reduced by 20 % for the second quarter of fiscal year 2020. employee actions : during the second quarter of fiscal year 2020 , we implemented weekly work hour reductions ( e.g. , from 40 hours to 32 or 24 hours ) and work-reduction furloughs for certain other employees . we also have implemented base salary reductions for a substantial number of our employees globally and reduced corporate staff levels . in the third quarter of fiscal year 2020 , we reinstated normal work week schedules . we closed all of our corporate offices at various times in 2020. we believe our employees have generally been successful in transitioning to a virtual working environment .
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we feel we are now well-positioned in these markets , with high-quality , low-cost production in growth markets , substantially lower fixed costs in mature markets , and continued strength in new product development , technical product support , and manufacturing technology . because of pricing pressures and industry overcapacity , the machine clothing and paper industries will continue to face top line pressure . nonetheless , the business retains the potential for maintaining stable earnings in the future . it has been a significant generator of cash , and we seek to maintain the cash-generating potential of this business by maintaining the low costs that we have achieved through previous restructuring , and competing vigorously by using our differentiated and technically superior products to reduce our customers ' total cost of operation and improve their paper quality . the aec segment provides significant growth potential for our company both near and long term . our strategy is to grow by focusing our proprietary 3d-woven technology , as well as our conventional non-3d technology , on high-value aerospace and defense applications , while at the same time performing successfully on our portfolio of growth programs . aec ( including albany safran composites , llc ( asc ) , in which our customer safran group owns a 10 percent noncontrolling interest ) supplies a number of customers in the aerospace and defense industry . aec 's largest aerospace customer is the safran group and sales to safran ( consist primarily of fan blades and cases for cfm 's leap engine ) accounted for approximately 14 percent of the company 's consolidated net sales in 2017. through asc , aec develops and sells 3d-woven composite aerospace components to safran , with the most significant current program being the production of fan blades and other components for the leap engine . aec , through asc , also supplies 3d-woven composite fan cases for the ge9x engine . aec 's current portfolio of non-3d programs includes components for the f-35 joint strike fighter , fuselage components for the boeing 787 , components for the ch-53k helicopter , vacuum waste tanks for boeing 7-series aircraft , and missile bodies for lockheed martin 's jassm air-to-surface missiles . aec is actively engaged in research to develop new applications in the aircraft engine , airframe , and automotive markets . consolidated results of operations on april 8 , 2016 , the company acquired the outstanding shares of harris corporation 's composite aerostructures business for $ 187 million in cash , plus the assumption of certain liabilities . the acquired entity , located in salt lake city ( slc ) , utah , is part of the aec segment . management believes that the acquisition broadened and deepened aec 's products , experience and manufacturing capabilities , and significantly increased opportunities for future growth . 25 the following table presents operational results of the acquired entity that are included in the consolidated statements of income : replace_table_token_5_th net sales the following table summarizes our net sales by business segment : replace_table_token_6_th 2017 vs. 2016 ● changes in currency translation rates had the effect of increasing net sales by $ 3.7 million ( 0.4 % of net sales ) , compared to 2016. that currency translation effect was principally due to the effect on european sales that resulted from the euro strengthening in the second half of 2017 . ● excluding the effect of changes in currency translation rates : ■ consolidated net sales increased 10.3 % . ■ net sales in mc increased $ 5.1 million , or 0.9 % . ■ net sales in aec increased $ 75.0 million , or 38.0 % . ● the increase in mc net sales was due to the growth in tissue , packaging and pulp grades , which more than offset continuing declines in the publication grades . ● the increase in aec net sales was principally due to : ■ slc sales increased $ 41.1 million . the 2016 slc acquisition occurred in the second quarter of 2016 , resulting in an additional quarter of sales in 2017. the slc sales increase was also due to the ramping up of key programs . ■ sales in the leap program increased $ 32.8 million , or 39.5 % , compared to 2016 . 2016 vs. 2015 ● changes in currency translation rates had the effect of decreasing net sales by $ 3.0 million ( 0.4 % of net sales ) , compared to 2015. that currency translation effect was principally due to sales in china , as the chinese renminbi was approximately 5 % weaker in 2016 , compared to 2015 . ● excluding the effect of changes in currency translation rates : ■ consolidated net sales increased 10.3 % . 26 ■ net sales in mc decreased $ 26.3 million , or 3.9 % . ■ net sales in aec increased $ 96.4 million , or 95.3 % . ● the reduction in mc net sales was due to the continuation of declines in the market for publication grades , coupled with economic weakness in south america . ● the slc acquisition increased aec segment sales by $ 67.0 million . the remaining increase was due to growth in the leap program . backlog backlog in the mc segment was $ 201.1 million at december 31 , 2017 , compared to $ 163.8 million at december 31 , 2016. the increase reflects a weakening of the u.s. dollar in 2017 and strong orders in the fourth quarter of 2017. backlog in the aec segment increased to $ 157.7 million at december 31 , 2017 , compared to $ 128.4 million at december 31 , 2016 , reflecting the ramp-up in several key programs . the backlog in each segment is generally expected to be invoiced during the next 12 months . story_separator_special_tag 29 the following table summarizes restructuring expense by business segment : replace_table_token_10_th in 2017 , the company announced the initiation of discussions with the local works council regarding a proposal to discontinue operations at its mc production facility in sélestat , france . during 2017 , we incurred $ 1.1 million of restructuring expense associated with this proposal . in february 2018 , we completed negotiations with the works council regarding benefits that would be provided to affected employees , and submitted the proposed plan to the government labor authorities for approval . while there can be no assurance that such approval will be obtained , we consider it probable that such approval will be obtained in the first quarter of 2018. we are presently unable to reasonably estimate the total costs for severance and other charges associated with the proposal . aec restructuring charges in 2017 included the discontinuation of the bear claw® line of hydraulic fracturing components used in the oil and gas industry , which led to restructuring charges totaling $ 4.5 million . we also reduced our direct labor workforce in salt lake city and administrative positions in salt lake city , utah and rochester , new hampshire , which led to restructuring charges of $ 5.0 million . cost savings from these actions principally affect cost of goods sold . while some cost savings were recognized in 2017 , we expect the actions will result in additional cost savings of approximately $ 2.0 million in 2018. in 2016 , the company discontinued research and development activities at its mc facility in sélestat , france , which resulted in $ 2.2 million of restructuring expense in 2016. in 2017 , we recorded additional restructuring charges of $ 1.6 million principally related to additional termination benefits paid to former employees . aec restructuring expenses in 2016 were principally related to the consolidation of legacy programs into boerne , texas . in 2015 , the company announced a plan to discontinue manufacturing operations at its mc manufacturing facility in göppingen , germany and manufacturing operations were discontinued during the second quarter . the restructuring program was driven by the company 's need to balance manufacturing capacity with demand . in 2015 , we recorded charges of $ 11.4 million related to this restructuring . in 2016 and 2017 , we recorded additional restructuring charges of $ 2.6 million and $ 0.8 million , respectively , related to the final closure of the plant . in the fourth quarter of 2015 , the company implemented an early retirement program for certain employees in the united states . restructuring charges associated with this restructuring program were $ 8.1 million . 2015 restructuring charges also include $ 4.3 million related to the reduction in stg & r employment in the mc and corporate segments . for more information on our restructuring charges , see note 5 to the consolidated financial statements in item 8 , which is incorporated herein by reference . 30 operating income the following table summarizes operating income/ ( loss ) by business segment : replace_table_token_11_th other earnings items replace_table_token_12_th interest expense , net interest expense , net , increased $ 3.6 million in 2017 principally due to borrowings to fund the 2016 slc acquisition , and the interest associated with the capital lease obligation assumed in the acquisition . see “ liquidity and capital resources ” for further discussion of borrowings and interest rates . other expense , net the increase in other expense , net included the following individually significant items : ● foreign currency revaluations of cash and intercompany balances resulted in losses of $ 4.6 million in 2017 , gains of $ 3.5 million in 2016 , and losses of $ 1.5 million in 2015 . ● in 2016 , we recorded a $ 2.5 million charge related to the theft of cash at the company 's subsidiary in japan . in 2017 , we recorded a gain of $ 2.0 million based on an insurance settlement related to that theft . income taxes the company has operations which constitute a taxable presence in 18 countries outside of the united states . all of these countries had income tax rates that are below the united states federal tax rate of 35 % during the periods reported . the jurisdictional location of earnings is a significant component of our effective tax rate each year and therefore on our overall income tax expense . the company 's effective tax rate for fiscal years 2017 , 2016 and 2015 was 40.4 % , 32.5 % and ( 11.2 % ) , respectively . new tax legislation in the u.s. had a significant impact on tax expense in 2017 ; tax expense of $ 5.8 million was recorded to reflect the impact of the mandatory deemed repatriation of the post-1986 earnings and profits of the company 's foreign subsidiaries , while expense of $ 1.0 million was recorded as the result of the revaluation of u.s. net deferred tax assets using the new lower rate of 21 % . these charges are based on the company 's current estimates . the final impact of the new tax legislation may differ due to factors such as further refinement of the company 's calculations , changes in interpretations and assumptions that the company has made , additional guidance that may be issued by the u.s. government , and actions the company may take , among other items . 31 the tax rate is also affected by recurring items , such as the income tax rate in the u.s. and in non-u.s. jurisdictions and the mix of income earned in those jurisdictions and discrete items that may occur in any given year but are not consistent from year to year . significant items that impacted the 2017 effective tax rate included the following ( percentages reflect the effect of each item as a percentage of income before income taxes ) : ● a tax charge of $ 5.8 million ( 10.5 % ) related to the impact of the u.s. mandatory deemed repatriation .
| cash flow summary replace_table_token_16_th operating activities cash provided by operating activities was $ 64.2 million in 2017 , compared to $ 80.9 million in 2016 , and $ 98.0 million in 2015. changes in working capital for 2017 includes a use of cash of $ 44.3 million for aec segment accounts receivable , inventories and contract receivables , due to the ongoing ramp up of several key programs . changes in working capital for 2016 includes a use of cash of $ 42.8 million for aec segment accounts receivable , inventories , contract receivables and other assets . changes in working capital for 2015 includes the $ 14.0 million write-off related to the br 725 program , while changes in accounts receivable , inventories and accounts payable resulted in an offsetting use of cash . changes in long-term liabilities , deferred taxes and other liabilities resulted in a use of cash totaling $ 11.4 million in 2017 , a provision of cash totaling $ 0.7 million in 2016 , and a use of cash totaling $ 25.9 million in 2015. the amount reported for 2017 was principally due to an amendment to a long-term agreement with a licensor for the a380 program . that agreement resulted in a $ 3.0 million cash payment , plus a $ 4.9 million reduction in the present value of the obligation to the supplier . the amount reported for 2015 was principally due to the $ 28.6 million deferred tax benefit related to the elimination of the value of the company 's investment in its germany subsidiary . cash paid for income taxes was $ 23.7 million , $ 23.4 million , and $ 18.4 million in 2017 , 2016 , and 2015 , respectively . at december 31 , 2017 , the company had $ 183.7 million of cash and cash equivalents , of which $ 156.7 million was held by subsidiaries outside of the united states .
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10.30 confidential license agreement for nintendo gamecube ( western hemisphere ) , dated as of april 5 , 2002 , between noa and the company ( story_separator_special_tag critical accounting policies 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 policies 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 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 policies are described in the following paragraphs . for all of these policies , management cautions that actual results may differ materially from these estimates under different assumptions or conditions . allowances for price protection , returns and doubtful accounts . we derive revenues from sales of packaged software for video game systems and personal computers , sales of software and services for wireless devices and from licensing software . 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 . we may decide to provide price protection or allow returns for our video game system and personal computer products 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 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 , management monitors the volume of our sales to retailers and distributors and their inventories because substantial overstocking in the distribution channel can result in the requirement for substantial price protection or high returns in subsequent periods . in the past , actual price protection and returns have not generally exceeded our reserves . however , actual price protection and returns in any future period are inherently uncertain as unsold products in the distribution channels are exposed to rapid changes in consumer preferences , market conditions or technological obsolescence due to new platforms , product updates or competing products . while management believes it 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 would decrease our reported revenue . conversely , if actual price protection and returns were significantly less than our reserves , this would increase our reported revenue . similarly , management must use significant judgment and make estimates in connection with establishing allowances for doubtful accounts in any accounting period . management analyzes 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 management 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 . for example , in january 2002 , one of our retail customers , kmart , filed for bankruptcy protection . we believe we have adequately reserved for our exposure from kmart . for the years ended december 31 , 2002 , 2001 and 2000 , we recorded allowances for future price protection , returns and doubtful accounts of approximately $ 69.6 million , $ 47.4 million and $ 35.4 million , respectively , during such periods . as of december 31 , 2002 and 2001 , our aggregate reserves against accounts receivable for price protection , returns and doubtful accounts were approximately $ 59.9 million and $ 40.6 million , respectively . licenses . minimum guaranteed royalty payments for intellectual property licenses are initially recorded as an asset ( licenses ) and as a liability ( accrued royalties ) at the contractual amount upon execution of the contract when no significant performance remains with the licensor . when significant performance remains with the licensor , we record royalty payments as an asset ( licenses ) when actually paid rather than upon execution of the contract . royalty payments for intellectual property licenses are classified as current assets and current liabilities to the extent such 16 royalty payments relate to anticipated sales during the subsequent year and long-term assets and long-term liabilities if such royalty payments relate to anticipated sales after one year . licenses are expensed to license amortization and royalties at the higher of ( i ) the contractual royalty rate based on actual net product sales or ( ii ) the ratio of current units sold to total projected units sold . story_separator_special_tag we evaluate long-lived assets , including but not limited to licenses , software development , property and equipment and identifiable intangible assets with finite lives , for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . factors we consider in deciding when to perform an impairment review include significant under-performance of a product or platform in relation to expectations , significant negative industry or economic trends , and significant changes or planned changes in our use of the assets . recoverability of the assets are measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset . if such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value . judgments and assumptions about future values are complex and often subjective . they can be affected by a variety of factors , including but not limited to , significant negative industry or economic trends , significant changes in the manner or use of the acquired assets or the strategy of our overall business and significant underperformance relative to expected historical or projected future operating results . although we believe the judgments and assumptions management has made in the past have been reasonable and appropriate , there is nonetheless a high degree of uncertainty and judgment involved . more conservative assumptions of the anticipated future cash flows from these assets would result in greater impairment charges , which would decrease net income and result in lower asset values on our balance sheet . conversely , less conservative assumptions would result in smaller impairment charges and higher net income . we also make judgments about the remaining useful lives of long-lived assets . when we determine that the useful lives of assets are shorter than we had originally estimated , and there are sufficient cash flows to support the carrying value of the assets , we accelerate the rate of depreciation charges in order to fully depreciate the assets over their new , shorter , useful lives . income taxes . as part of the process of preparing our consolidated financial statements , we are required to estimate our income taxes in each of the jurisdictions in which we operate . this process involves estimating our current tax exposures in each jurisdiction including the impact , if any , of additional taxes resulting from tax examinations as well as making judgments regarding the recoverability of deferred tax assets . to the extent recovery of deferred tax assets is not likely based on our estimation of future taxable income in each jurisdiction , a valuation allowance is established . tax exposures can involve complex issues and may require an extended period to resolve . the estimated effective tax rate is adjusted for the tax related to significant unusual items . changes in the geographic mix or estimated level of annual pre-tax income can affect the overall effective tax rate . recently issued accounting pronouncements . in june 2002 , the fasb issued sfas no . 146 , accounting for costs associated with exit or disposal activities. sfas no . 146 requires that the liability for costs associated with an exit or disposal activity be initially measured at fair value and recognized when the liability is incurred . the provisions of sfas no . 146 are required to be applied prospectively to exit or disposal activities initiated after december 31 , 2002. we do not expect the adoption of sfas no . 146 to have a material impact on our financial statements , as we have not initiated any exit or disposal activities . in november 2002 , fasb issued interpretation ( fin ) no . 45 guarantor 's accounting and disclosure requirements for guarantees , including indirect guarantees of indebtedness of others. fin no . 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued . it also clarifies that a guarantor is required to recognize , at the inception of a guarantee , a liability for the fair value of the obligation undertaken in issuing the guarantee . the initial recognition and initial measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after december 31 , 2002. we are currently evaluating the provisions of fin no . 45 and have not determined the impact , if any , they will have on our financial statements . in december 2002 , the fasb issued sfas no . 148 , accounting for stock-based compensation transition and disclosure. this statement amends sfas no . 123 , to provide alternative methods of voluntary transition to change to the fair value based method of accounting for stock-based employee compensation . additionally , this statement amends disclosure requirements of accounting for stock-based employee compensation and the effect of the method used on reporting results . currently , we do not expect to adopt sfas no . 123 related to the expensing of the fair value based method of accounting for stock-based employee compensation . we have adopted the new disclosure requirements of sfas no . 148 as included in the summary of significant accounting policies , stock-based compensation . 18 story_separator_special_tag same period of 2001 is attributed to the acquisition of valusoft . this increase in net sales for 2002 attributed to valusoft is offset by lower net sales of our regular priced pc cd-rom products .
| results of operations comparison of the year ended december 31 , 2002 to the year ended december 31 , 2001 sales by platform the following table sets forth our net sales by platform as a percentage of sales for the years ended december 31 , 2002 and 2001 : replace_table_token_6_th the following table sets forth our net sales by platform for the years ended december 31 , 2002 and 2001 : replace_table_token_7_th sony playstation 2 net sales we had 12 new releases of playstation 2 titles in 2002 whereas we had five new playstation 2 releases in 2001. key titles for playstation 2 released in 2002 include red faction ii , scooby-doo ! night of 100 frights , spongebob squarepants : revenge of the flying dutchman , summoner 2 and wwe smackdown ! shut your mouth . key titles for playstation 2 released in 2001 included wwf smackdown ! just bring it , red faction and mx 2002 featuring ricky carmichael . sony playstation net sales we did not release any playstation products in the year ended december 31 , 2002 , whereas we released ten playstation titles in the year ended december 31 , 2001. we do not anticipate releasing any new playstation products in the future , due to the transition to the next generation of hardware . we do not anticipate that this will have a material effect on our overall net sales because of the increase in playstation 2 net sales and the continued demand for our current playstation catalogue titles in the children 's genre . 19 nintendo game boy advance net sales we released 31 new game boy advance titles in the year ended december 31 , 2002 , including scooby-doo !
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– financial statements and supplementary data of this report . executive overview during 2018 , trustmark focused on its strategic initiatives of profitably growing each of its financial services businesses , optimizing its balance sheet , deploying capital through stock repurchases and maintaining disciplined expense management . trustmark continued to achieve solid financial results with total revenue of $ 148.7 million and $ 604.3 million for the three months and year ended december 31 , 2018 , respectively . trustmark continued to maintain and expand customer relationships as reflected by growth in the lhfi portfolio of $ 265.9 million , or 3.1 % , and growth in deposits of $ 786.9 million , or 7.4 % , during the year ended december 31 , 2018. credit quality remained strong and continued to be an important contributor to trustmark 's financial success . trustmark is committed to managing the franchise for the long term , supporting investments to promote profitable revenue growth , realigning delivery channels to support changing customer preferences as well as reengineering and efficiency opportunities to enhance long-term shareholder value . trustmark 's capital position remained solid , reflecting the consistent profitability of its diversified financial services businesses . trustmark 's board of directors declared a quarterly cash dividend of $ 0.23 per share . the dividend is payable march 15 , 2019 , to shareholders of record on march 1 , 2019. story_separator_special_tag income partially offset by an increase in total interest expense and decreases in interest on total securities and interest and fees on acquired loans . interest and fees on lhfs and lhfi for 2018 increased $ 51.3 million , or 14.9 % , compared to 2017 , primarily due to the year-over-year increase in the lhfi portfolio and higher interest rates . other interest income for 2018 increased $ 2.7 million when compared to 2017 primarily due to an increase in interest on interest-bearing deposits due from depository institutions . total interest expense for 2018 increased $ 23.9 million , or 56.7 % , when compared to 2017 primarily due to an increase in interest on deposits partially offset by a decline in other interest expense . interest expense on deposits for 2018 increased $ 31.2 million when compared to 2017 , principally due to rising rates in general , accompanied by increases in average balances of all categories of interest-bearing deposits . other interest expense decreased $ 7.9 million , or 51.4 % , when the year ended december 31 , 2018 is compared to the year ended december 31 , 2017 , principally due to a decrease in interest expense on short-term fhlb advances as a result of a $ 900.0 million decline in outstanding short-term fhlb advances with the fhlb of dallas . interest on total securities for 2018 declined $ 10.9 million , or 13.7 % , compared to 2017 , principally due to the run-off of maturing investment securities . interest and fees on acquired loans for 2018 decreased $ 7.4 million , or 30.1 % , compared to 2017 , primarily due to declines in accretion income , principally related to the loans acquired in the banctrust merger , as well as decreases in loan recovery from settlement of debt , deferred fee amortization and other interest and fees related to loans acquired in the reliance merger , partially offset by an increase in loan recovery from settlement of debt related to loans acquired in the banctrust merger . trustmark 's provision for loan losses , lhfi , for 2018 totaled $ 18.0 million , an increase of $ 2.9 million , or 19.2 % , when compared to a provision for loan losses , lhfi of $ 15.1 million for 2017. please see the section captioned “ provision for loan losses , lhfi , ” for additional information regarding the provision for loan losses , lhfi . the provision for loan losses , acquired loans for 2018 totaled a negative $ 1.0 million , a decrease of $ 6.4 million , or 86.4 % , when compared to a negative provision of $ 7.4 million for 2017 principally due to changes in expectations based on the periodic re-estimations performed during the respective periods and a decline in acquired loan balances . please see the section captioned “ provision for loan losses , acquired loans , ” for additional information regarding the provision for loan losses , acquired loans . in total , the provision for loan losses , net was $ 17.0 million for 2018 , an increase of $ 9.3 million when compared to 2017 . 32 at december 31 , 2018 , nonperforming assets , excluding acquired loans , totaled $ 96.3 million , a decrease of $ 14.5 million , or 13.1 % , compared to december 31 , 2017 due to declines in other real estate as well as nonaccrual lhfi . other real estate declined $ 8.6 million , or 19.8 % , during 2018 primarily due to properties sold in trustmark 's florida , alabama , mississippi and tennessee market regions partially offset by new properties foreclosed in those same market regions . total nonaccrual lhfi were $ 61.6 million at december 31 , 2018 , representing a decrease of $ 6.0 million , or 8.8 % , relative to december 31 , 2017 principally due to resolution of three large problem credits in the mississippi and texas market regions partially offset by three credits moving to nonaccrual status in the mississippi and tennessee market regions during 2018. the percentage of loans , excluding acquired loans , that are 30 days or more past due and nonaccrual lhfi increased in 2018 to 1.56 % compared to 1.53 % in 2017 and 1.33 % in 2016. both classified and criticized lhfi balances remain at low levels and continue to reflect strong credit quality . story_separator_special_tag the nonaccretable difference represents an estimate of the loss exposure of principal and interest related to the acquired impaired loan portfolio , and such amount is subject to change over time based on the performance of such loans . the excess of undiscounted expected cash flows at acquisition over the initial fair value of acquired impaired loans is referred to as the “ accretable yield ” and is recorded as interest income over the estimated life of the loans using the effective yield method if the timing and amount of the future cash flows is reasonably estimable . under the effective yield method , the accretable yield is recorded as an accretion of interest income over the life of the loan . as required by fasb asc topic 310-30 , trustmark periodically re-estimates the expected cash flows to be collected over the life of the acquired impaired loans . if , based on current information and events , it is probable that trustmark will be unable to collect all cash flows expected at acquisition plus additional cash flows expected to be collected arising from changes in estimate after acquisition , the acquired loans are considered impaired . the decrease in the expected cash flows reduces the carrying value of the acquired impaired loans as well as the accretable yield and results in a charge-off through the allowance for loan losses , acquired loans or the establishment of an allowance for loan losses , acquired loans with a charge to income through the provision for loan losses , acquired loans . if , based on current information and events , it is probable that there is a significant increase in the cash flows previously expected to be collected or if actual cash flows are significantly greater than cash flows previously expected , trustmark will reduce any remaining allowance for loan losses , acquired loans established on the acquired impaired loans for the increase in the present value of cash flows expected to be collected . the increase in the expected cash flows for the acquired impaired loans over those originally estimated at acquisition increases the carrying value of the acquired impaired loans as well as the accretable yield . mortgage servicing rights ( msr ) trustmark recognizes as assets the rights to service mortgage loans based on the estimated fair value of the msr when loans are sold and the associated servicing rights are retained . trustmark has elected to account for the msr at fair value . the fair value of the msr is determined using a valuation model administered by a third party that calculates the present value of estimated future net servicing income . the model incorporates assumptions that market participants use in estimating future net servicing income , including estimates of prepayment speeds , discount rate , default rates , cost to service ( including delinquency and foreclosure costs ) , escrow account earnings , contractual servicing fee income and other ancillary income such as late fees . management reviews all significant assumptions quarterly . mortgage loan prepayment speeds , a key assumption in the model , is the annual rate at which borrowers are forecasted to repay their mortgage loan principal . the discount rate used to determine the present value of estimated future net servicing income , another key assumption in the model , is an estimate of the required rate of return investors in the market would require for an asset with similar risk . both assumptions can , and generally will , change as market conditions and interest rates change . by way of example , an increase in either the prepayment speed or discount rate assumption will result in a decrease in the fair value of the msr , while a decrease in either assumption will result in an increase in the fair value of the msr . in recent years , there have been significant market-driven fluctuations in loan prepayment speeds and discount rates . these fluctuations can be rapid and may continue to be significant . therefore , estimating prepayment speed and or discount rates within ranges that market participants would use in determining the fair value of the msr requires significant management judgment . at december 31 , 2018 , the msr fair value was approximately $ 95.6 million . the impact on the msr fair value of either a 10 % adverse change in prepayment speeds or a 100 basis point increase in discount rates at december 31 , 2018 , would be a decline in fair 34 value of approximately $ 3.3 million and $ 3.7 million , respectively . changes of equal magnitude in the opposite direction would produce similar increases in fair value in the respective amounts . goodwill and identifiable intangible assets trustmark records all assets and liabilities acquired in purchase acquisitions , including goodwill and other intangible assets , at fair value as required by fasb asc topic 805. the carrying amount of goodwill at december 31 , 2018 totaled $ 334.6 million for the general banking segment and $ 45.0 million for the insurance segment , a consolidated total of $ 379.6 million . trustmark 's goodwill is not amortized but is subject to annual tests for impairment or more often if events or circumstances indicate it may be impaired . trustmark 's identifiable intangible assets , which totaled $ 11.1 million at december 31 , 2018 , are amortized over their estimated useful lives and are subject to impairment tests if events or circumstances indicate a possible inability to realize the carrying amount . the initial recording and subsequent impairment testing of goodwill requires subjective judgments concerning estimates of the fair value of the acquired assets . the goodwill impairment test is performed in two phases . the first step compares the fair value of the reporting unit with its carrying amount , including goodwill .
| financial highlights trustmark reported net income of $ 36.7 million , or basic and diluted earnings per share ( eps ) of $ 0.55 , for the fourth quarter of 2018 , compared to $ 15.8 million , or basic and diluted eps of $ 0.23 , in the fourth quarter of 2017. the increase in net income when the fourth quarter of 2018 is compared to the same time period in 2017 was principally due to an one-time charge to income taxes resulting from the re-measurement of trustmark 's net deferred tax assets due to the enactment of the tax cuts and jobs act of 2017 ( tax reform act ) and the elimination of a deferred tax valuation allowance related to a prior merger , which collectively reduced net income in the fourth quarter of 2017 by $ 17.0 million , or $ 0.25 per diluted share . excluding these non-routine transactions , net income for the fourth quarter of 2017 totaled $ 32.7 million , or diluted eps of $ 0.48. the increase in net income , excluding the non-routine transactions , when the fourth quarter of 2018 is compared to the same time period in 2017 was principally due to a decrease in the total provision for loan losses , net of $ 2.2 million , or 53.3 % .
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three customers represented 3.1 % , 1.8 % and 1.1 % of consolidated fiscal 2005 sales , respectively , and no other customer comprised as much as 1 % of sales . the number of customers and their distribution across the geographic areas served by the company help to reduce the company 's credit exposure to a single customer or to economic events that affect a particular geographic region . although the company believes that its allowance for doubtful accounts is adequate , any future condition that would impair the ability of a broad section of the company 's customer base to make payments on a timely basis may require the company to record additional allowances . inventories inventories consist of hvacr equipment , parts and supplies and are valued at the lower of cost or market value using the moving average cost method . at february 28 , 2005 , all inventories represented finished goods held for sale . when necessary , the carrying value of obsolete or excess inventory is reduced to estimated net realizable value . the process for evaluating the value of obsolete or excess inventory requires estimates by management concerning future sales levels and the quantities and prices at which such inventory can be sold in the ordinary course of business . the company holds a substantial amount of hvacr equipment inventory at several branches on consignment from a supplier . the terms of this arrangement provide that the inventory is held for sale in bonded warehouses at the branch premises , with payment due only when products are sold . the supplier retains legal title and substantial management control with respect to the consigned inventory . the company is responsible for damage to and loss of inventory that may occur at its premises . the company has the ability to return consigned inventory , at its sole discretion , to the supplier for a specified period of time after receipt of the inventory . - 16 - this consignment arrangement allows the company to have inventory available for sale to customers without incurring a payment obligation for the inventory prior to a sale . because of the control retained by the supplier and the uncertain time when a payment obligation will be incurred , the company does not record the consigned inventory as an asset upon receipt with a corresponding liability . rather , the company records a liability to the supplier only upon sale of the inventory to a customer . the amount of the consigned inventory is disclosed in the company 's financial statements as a contingent obligation . vendor rebates the company receives rebates from certain vendors based on the volume of product purchased from the vendor . the company records rebates when they are earned , i.e . as specified purchase volume levels are reached or are reasonably assured of attainment . vendor rebates attributable to unsold inventory are carried as a reduction of the carrying value of inventory until such inventory is sold , at which time the related rebates are used to reduce cost of sales . goodwill goodwill represents the excess of purchase price paid over the fair value of net assets acquired in connection with business acquisitions . the assessment of recoverability of goodwill requires management to project future operating results and other variables to estimate the fair value of business units . future operating results can be affected by changes in market or industry conditions . self-insurance reserves the company establishes reserves related to a group health benefit program that covers most of the company 's employees . the reserves represent an estimate of the sum of unpaid claims and incurred but not reported claims . management estimates the reserve necessary based on both historical and recent claims experience . actual claims , once known , may differ significantly from the reserves . in february 2005 , the company began to self-insure its workers compensation , general liability and vehicle liability exposures . the level of exposure from catastrophic events is limited by stop-loss and aggregate liability reinsurance coverages . because of the limited duration of the program , management believed that no reserves were necessary as of february 28 , 2005. interest rate derivative instruments the company has an interest rate derivative that does not qualify as a hedge , in accordance with sfas no . 133 , accounting for derivative instruments and hedging activities . the fair value of the derivative instrument is reflected on the company 's balance sheets , and changes in the fair value of such derivatives are recorded as unrealized gains or losses , as applicable , in the company 's statements of operations as interest derivative loss ( gain ) . payments received or paid by the company during the term of the derivative contract as a result of differences between the fixed interest rate of the derivative and the market interest rate are also recorded as interest derivative loss ( gain ) . - 17 - safe harbor statement this annual report on form 10-k includes forward-looking statements within the meaning of section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934. forward-looking statements include statements concerning plans , objectives , goals , strategies , future events or performance and underlying assumptions and other statements , which are other than statements of historical facts . forward-looking statements involve risks and uncertainties , which could cause actual results or outcomes to differ materially . the company 's expectations and beliefs are expressed in good faith and are believed by the company to have a reasonable basis but there can be no assurance that management 's expectations , beliefs or projections will be achieved or accomplished . the forward-looking statements in this document are intended to be subject to the safe harbor protection provided under the securities laws . in addition to other factors and matters discussed elsewhere herein , the story_separator_special_tag three customers represented 3.1 % , 1.8 % and 1.1 % of consolidated fiscal 2005 sales , respectively , and no other customer comprised as much as 1 % of sales . the number of customers and their distribution across the geographic areas served by the company help to reduce the company 's credit exposure to a single customer or to economic events that affect a particular geographic region . although the company believes that its allowance for doubtful accounts is adequate , any future condition that would impair the ability of a broad section of the company 's customer base to make payments on a timely basis may require the company to record additional allowances . inventories inventories consist of hvacr equipment , parts and supplies and are valued at the lower of cost or market value using the moving average cost method . at february 28 , 2005 , all inventories represented finished goods held for sale . when necessary , the carrying value of obsolete or excess inventory is reduced to estimated net realizable value . the process for evaluating the value of obsolete or excess inventory requires estimates by management concerning future sales levels and the quantities and prices at which such inventory can be sold in the ordinary course of business . the company holds a substantial amount of hvacr equipment inventory at several branches on consignment from a supplier . the terms of this arrangement provide that the inventory is held for sale in bonded warehouses at the branch premises , with payment due only when products are sold . the supplier retains legal title and substantial management control with respect to the consigned inventory . the company is responsible for damage to and loss of inventory that may occur at its premises . the company has the ability to return consigned inventory , at its sole discretion , to the supplier for a specified period of time after receipt of the inventory . - 16 - this consignment arrangement allows the company to have inventory available for sale to customers without incurring a payment obligation for the inventory prior to a sale . because of the control retained by the supplier and the uncertain time when a payment obligation will be incurred , the company does not record the consigned inventory as an asset upon receipt with a corresponding liability . rather , the company records a liability to the supplier only upon sale of the inventory to a customer . the amount of the consigned inventory is disclosed in the company 's financial statements as a contingent obligation . vendor rebates the company receives rebates from certain vendors based on the volume of product purchased from the vendor . the company records rebates when they are earned , i.e . as specified purchase volume levels are reached or are reasonably assured of attainment . vendor rebates attributable to unsold inventory are carried as a reduction of the carrying value of inventory until such inventory is sold , at which time the related rebates are used to reduce cost of sales . goodwill goodwill represents the excess of purchase price paid over the fair value of net assets acquired in connection with business acquisitions . the assessment of recoverability of goodwill requires management to project future operating results and other variables to estimate the fair value of business units . future operating results can be affected by changes in market or industry conditions . self-insurance reserves the company establishes reserves related to a group health benefit program that covers most of the company 's employees . the reserves represent an estimate of the sum of unpaid claims and incurred but not reported claims . management estimates the reserve necessary based on both historical and recent claims experience . actual claims , once known , may differ significantly from the reserves . in february 2005 , the company began to self-insure its workers compensation , general liability and vehicle liability exposures . the level of exposure from catastrophic events is limited by stop-loss and aggregate liability reinsurance coverages . because of the limited duration of the program , management believed that no reserves were necessary as of february 28 , 2005. interest rate derivative instruments the company has an interest rate derivative that does not qualify as a hedge , in accordance with sfas no . 133 , accounting for derivative instruments and hedging activities . the fair value of the derivative instrument is reflected on the company 's balance sheets , and changes in the fair value of such derivatives are recorded as unrealized gains or losses , as applicable , in the company 's statements of operations as interest derivative loss ( gain ) . payments received or paid by the company during the term of the derivative contract as a result of differences between the fixed interest rate of the derivative and the market interest rate are also recorded as interest derivative loss ( gain ) . - 17 - safe harbor statement this annual report on form 10-k includes forward-looking statements within the meaning of section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934. forward-looking statements include statements concerning plans , objectives , goals , strategies , future events or performance and underlying assumptions and other statements , which are other than statements of historical facts . forward-looking statements involve risks and uncertainties , which could cause actual results or outcomes to differ materially . the company 's expectations and beliefs are expressed in good faith and are believed by the company to have a reasonable basis but there can be no assurance that management 's expectations , beliefs or projections will be achieved or accomplished . the forward-looking statements in this document are intended to be subject to the safe harbor protection provided under the securities laws . in addition to other factors and matters discussed elsewhere herein , the
| results of operations net income was $ 4,211,000 ( $ 0.38 per share ) , $ 2,395,000 ( $ 0.22 per share ) , and $ 517,000 ( $ 0.05 per share ) in fiscal 2005 , 2004 and 2003 , respectively . an accounting change and a lower effective tax rate in fiscal 2003 affects the comparability of net income for fiscal 2003 to the other years presented . income before taxes and cumulative effect of accounting change was $ 6,799,000 , $ 3,759,000 and $ 1,277,000 in fiscal 2005 , 2004 , and 2003 , respectively . in november 2004 , the company restated its consolidated financial statements as of february 29 , 2004 and february 28 , 2003 , and for the fiscal years ended february 29 , 2004 and february 28 , 2003 and 2002. the purpose of the restatement was to correct previously improper accounting for interest rate derivative instruments that the company originally entered into in september 2000 and april 2001. the company did not properly record the fair value of the derivative and the change to the fair value of the derivative as an unrealized gain ( loss ) in the statements of operations for the periods affected . accounting for interest rate derivative instruments is governed by statement of financial accounting standards ( sfas ) no . 133 , accounting for derivative instruments and hedging activities . in connection with the restatement , the company has reclassified payments made on derivative instruments from interest expense to interest derivative gain or loss ; recorded changes in the fair value of such instruments as interest derivative gain or loss ; and the related effect of such changes in the recorded fair value of the derivative instrument .
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the new standard requires lessees to apply a dual approach , classifying leases as either finance or operating leases based on the principle of whether or not the story_separator_special_tag financial condition and results of operations you should read the following discussion of our results of operations and financial condition in conjunction with the audited consolidated financial statements and related notes thereto as of december 31 , 2016 and 2015 and for the years ended december 31 , 2016 , 2015 and 2014 and the sections entitled “ risk factors ” , “ forward looking statements ” , “ business ” , and “ properties ” contained elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . the forward-looking statements are not historical facts , but rather are based on current expectations , estimates , assumptions and projections about our industry , business and future financial results . our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors , including those discussed in the sections of this annual report on form 10-k entitled “ risk factors ” and “ forward looking statements. ” our company references to “ easterly , ” “ we , ” “ our , ” “ us ” and “ our company ” refer to easterly government properties , inc. , a maryland corporation , together with our consolidated subsidiaries including easterly government properties lp , a delaware limited partnership , which we refer to herein as our operating partnership . we are an internally managed real estate investment trust , or reit , focused primarily on the acquisition , development and management of class a commercial properties that are leased to u.s. government agencies that serve essential functions . we generate substantially all of our revenue by leasing our properties to such agencies through the u.s. general services administration , or gsa . our objective is to generate attractive risk-adjusted returns for our stockholders over the long term through dividends and capital appreciation . as of december 31 , 2016 , we wholly owned 43 operating properties in the united states , including 40 operating properties that are leased primarily to u.s. government tenant agencies and three operating properties that are entirely leased to private tenants , encompassing approximately 3.1 million square feet in the aggregate . in addition , we wholly owned one property under development encompassing approximately 0.1 million square feet . we focus on acquiring , developing and managing gsa-leased properties that are essential to supporting the mission of the tenant agency and strive to be a partner of choice for the u.s. government , working closely with the gsa to meet the needs and objectives of the tenant agency . we were incorporated in maryland as a corporation on october 9 , 2014 and did not have any meaningful operations until the completion of the formation transactions and our initial public offering on february 11 , 2015. in connection with our initial public offering , we engaged in certain formation transactions , or the “ formation transactions ” , pursuant to which our operating partnership acquired ( i ) 15 properties previously owned by the easterly funds ( as defined below ) , ( ii ) 14 properties previously owned by western devcon , inc. , a private real estate company , and a series of related entities beneficially owned by michael p. ibe , which we refer to collectively as western devcon and ( iii ) all of the ownership interests in the management entities ( as defined below ) . after our initial public offering , we acquired seven additional operating properties in 2015 , as well as seven operating properties and one property under development in 2016. our predecessor means easterly partners , llc and its consolidated subsidiaries prior to the initial public offering and the formation transactions , including ( i ) all entities or interests in u.s. government properties income and growth fund l.p. , u.s. government properties income and growth fund reit , inc. and the related feeder and subsidiary entities , which we refer to , collectively , as easterly fund i , ( ii ) all entities or interests in u.s. government properties income and growth fund ii , lp , usgp ii reit lp , usgp ii ( parallel ) fund , lp and their related feeders and subsidiary entities , which we refer to , collectively , as easterly fund ii and , together with easterly fund i , we refer to as the easterly funds and ( iii ) the entities that managed the easterly funds , which we refer to as the management entities . our operating partnership holds substantially all of our assets and conducts substantially all of our business . we own approximately 80.3 % of the aggregate operating partnership units in our operating partnership . we believe that we have operated and have been originated in conformity with the requirements for qualification and taxation as a reit for u.s. federal income tax purposes commencing with our taxable year ended december 31 , 2015. since our initial public offering and the formation transactions occurred on february 11 , 2015 , the results of operations and financial condition for the entities acquired by us in connection with our initial public offering and the formation transactions are not included in certain historical financial statements . more specifically , our results of operations and financial condition for the year ended december 31 , 2014 reflect the results of operations and financial condition for our predecessor . our results of operations for the year ended december 31 , 2015 reflect the results of operation and financial condition for our predecessor together with the entities we acquired at and after the time of our initial public offering . the results of operations for each of these acquisitions are included in our consolidated statements of operations only from the date of acquisition . story_separator_special_tag the majority of the remaining change is attributable to changes in net operating income of the properties as well as changes in market conditions including a decrease in residual capitalization rates and discount rates , which had a positive effect on the fair value of the properties owned by our predecessor for the year ended december 31 , 2014. following our initial public offering , we have not had unrealized gains as the accounting for the properties contributed by the easterly funds from the property owning subsidiaries to us in connection with the formation transactions have changed from investment company accounting to historical cost accounting . liquidity and capital resources we anticipate that our cash flows from the sources listed below will provide adequate capital for the next 12 months for all anticipated uses , including all scheduled principal and interest payments on our outstanding indebtedness , current and anticipated tenant improvements , stockholder distributions to maintain our qualification as a reit and other capital obligations associated with conducting our business . at december 31 , 2016 , we had approximately $ 4.8 million available in cash and cash equivalents and there was $ 187.8 million available under our senior unsecured revolving credit facility and $ 100.0 million available for draw down under our senior unsecured term loan facility . our primary expected sources of capital are as follows : cash and cash equivalents ; operating cash flow ; available borrowings under our senior unsecured revolving credit facility and our senior unsecured term loan facility ; 38 secured loans collateralized by individual properties ; issuance of long-term debt ; issuance of equity ; and asset sales . our short-term liquidity requirements consist primarily of funds to pay for the following : development and redevelopment activities , including major redevelopment , renovation or expansion programs at individual properties ; tenant improvements allowances and leasing costs ; recurring maintenance and capital expenditures ; debt repayment requirements ; corporate and administrative costs ; interest swap payments ; and distribution payments . our long-term liquidity needs , in addition to recurring short-term liquidity needs as discussed above , consist primarily of funds necessary to pay for acquisitions , non-recurring capital expenditures , and scheduled debt maturities . although we may be able to anticipate and plan for certain of our liquidity needs , unexpected increases in uses of cash that are beyond our control and which affect our financial condition and results of operations may arise , or our sources of liquidity may be fewer than , and the funds available from such sources may be less than , anticipated or required . as of the date of this filing , there were no known commitments or events that would have a material impact on our liquidity . universal shelf on march 9 , 2016 , we filed a universal shelf registration statement on form s-3 with the securities and exchange commission , or sec , which was declared effective on may 3 , 2016 , registering the sale of up to $ 500.0 million of equity securities . however , there can be no assurance that we will be able to complete any future offerings of such securities . offering of common stock on june 7 , 2016 , we completed an underwritten public offering under the shelf registration statement of an aggregate of 6,219,045 shares of common stock , consisting of 4,719,045 shares sold by us to the underwriters and 1,500,000 shares offered on a forward basis in connection with certain forward sales agreements . the gross proceeds from the offering of 4,719,045 shares sold by us to the underwriters was $ 84.9 million before deducting underwriting discounts , commissions and estimated offering expenses . on november 29 , 2016 , the company physically settled the forward sales agreement by issuing an aggregate of 1,500,000 shares of common stock in exchange for approximately $ 25.1 million . senior unsecured revolving credit facility upon the completion of our initial public offering on february 11 , 2015 we entered into a $ 400.0 million senior unsecured revolving credit facility with citigroup capital markets inc. , raymond james bank , n.a . and royal bank of canada , as joint lead arrangers and joint book running managers and raymond james bank , n.a . and royal bank of canada , as co-syndication agents . this credit facility has an accordion feature that provides us with additional capacity , subject to the satisfaction of customary terms and conditions , of up to $ 250.0 million , for a total facility size of not more than $ 650.0 million . we intend to use our senior unsecured revolving credit facility to repay indebtedness , fund acquisitions , development and redevelopment opportunities , capital expenditures and the costs of securing new and renewal leases and provide working capital . our operating partnership is the borrower under our senior unsecured revolving credit facility and we and certain of our subsidiaries that directly own certain of our properties are guarantors under the credit facility . our senior unsecured revolving credit facility will terminate in approximately two years . in addition , there will be two as-of-right extension options for our senior unsecured revolving credit facility and each extension option will allow us to extend our senior unsecured revolving credit facility for an additional six months , in each case subject to certain conditions and the payment of an extension fee . 39 our senior unsecured revolving credit facility bears interest , at our option , either at : a fluctuating rate equal to the sum of ( a ) the highest of ( x ) citibank , n.a .
| results of operations prior to our initial public offering on february 11 , 2015 , the easterly funds , as controlled by our predecessor , qualified as investment companies pursuant to asc 946 financial services – investment companies and , as a result , our predecessor 's consolidated financial statements accounted for the easterly funds using investment company accounting based on fair value . subsequent to our initial public offering , as the properties contributed to us from the easterly funds are no longer held by funds that qualify for investment company accounting , we made a shift , in accordance with gaap to account for the properties contributed by the easterly funds and western devcon using historical cost accounting instead of investment company accounting , resulting in a significant change in the presentation of our consolidated financial statements following the formation transactions . the contribution of the investments of the easterly funds controlled by our predecessor to our operating partnership pursuant to the formation transactions is accounted for as transactions among entities under common control . the contribution of the western devcon properties in the formation transactions has been accounted for as a business combination using the acquisition method of accounting and recognized at the estimated fair value of acquired assets and assumed liabilities on the date of such contribution .
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under the series a agreement , the company initially issued 27,083,333 shares at a price of $ 1.00 per share for net cash proceeds of $ 26.7 million from january 2017 through may 2017. the series a agreement provided for a second tranche closing based on the achievement of a defined milestone ( the “ tranche right ” ) , pursuant to which the investors were required to purchase , and the company to sell , an additional 21,666,667 shares of series a convertible preferred stock at a price of $ 1.00 per share upon the achievement of the defined milestone or waiver of the milestone . in november 2018 , the company sold 21,666,667 shares of series a convertible preferred stock at a price of $ 1.00 per share for proceeds of $ 21.6 million . the company concluded that the tranche right met the definition of a freestanding financial instrument , as the tranche right was legally detachable and separately exercisable from the series a story_separator_special_tag story_separator_special_tag style= '' font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > , respectively . as of december 3 1 , 2020 , we had an accumulated deficit of $ 91 . 1 million . our total operating expenses were $ 57.0 million and $ 20.8 million for the years ended december 31 , 2020 and 2019 , respectively . we expect to continue to incur significant expenses for the foreseeable future . we expect our expenses to increase substantially in connection with our ongoing activities , particularly as we advance our preclinical activities and clinical trials . in addition , if we obtain marketing approval for inz-701 or any other product candidate we develop , we expect to incur significant commercialization expenses related to product manufacturing , sales , marketing and distribution . we have incurred and expect to continue to incur additional costs associated with operating as a public company . as a result , we will need to obtain substantial additional funding to support our continuing operations . until such time , if ever , as we can generate significant revenues from product sales , we expect to finance our cash needs through a combination of equity offerings , debt financings , collaborations , strategic alliances and marketing , distribution and licensing arrangements . we do not have any committed external source of funds . if we are unable to raise capital or obtain adequate funds when needed or on acceptable terms , we may be required to delay , limit , reduce or terminate our research and development programs or any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves . in addition , attempting to secure additional financing may divert the time and attention of our management from day-to-day activities and distract from our research and development efforts . because of the numerous risks and uncertainties associated with pharmaceutical product development , we are unable to reasonably predict the timing or amount of increased expenses or when , or if , we will be able to achieve profitability . even if we do achieve profitability , we may not be able to sustain or increase profitability on a quarterly or annual basis . our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital , expand our business , maintain our research and development efforts , diversify our pipeline of product candidates or even continue our operations . as of december 31 , 2020 , we had cash , cash equivalents and short-term and long-term investments of approximately $ 159.9 million . we believe that our existing cash , cash equivalents and short-term and long-term investments as of december 31 , 2020 , will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2022. we have based this estimate on assumptions that may prove to be wrong , and our operating plan may change as a result of many factors currently unknown to us . see “ —liquidity and capital resources. ” to finance our operations beyond that point , we will need to raise additional capital , which can not be assured . we anticipate that our expenses will increase substantially if and as we : prepare for , initiate and conduct a planned phase 1/2 clinical trial of inz-701 for enpp1 deficiency ; prepare for , initiate and conduct a planned phase 1/2 clinical trial of inz-701 for abcc6 deficiency ; prepare for , initiate and conduct later stage clinical trials of inz-701 for patients with enpp1 and abcc6 deficiencies ; conduct research and preclinical testing of inz-701 for additional indications ; conduct research and preclinical testing of other product candidates ; advance inz-701 for additional indications or any other product candidate into clinical development ; seek marketing approval for inz-701 or any other product candidate if it successfully completes clinical trials ; scale up our manufacturing processes and capabilities to support clinical trials of inz-701 or any other product candidates we develop and for commercialization of any product candidate for which we may obtain marketing approval ; establish a sales , marketing and distribution infrastructure to commercialize any product candidate for which we may obtain marketing approval ; in-license or acquire additional technologies or product candidates ; 100 make any payments to yale university , or yale , under our license agreement or sponsored research agreement with yale ; maintain , expand , enforce and protect our intellectual property portfolio ; hire additional clinical , regulatory , quality control and scientific personnel ; and add operational , financial and management information systems and personnel , including personnel to support our research , product development and planned future commercialization efforts and our operations as a public company . story_separator_special_tag 102 general and administrative expenses general and administrative expenses consist primarily of salaries , related benefits , travel and stock-based compensation expense for personnel in executive , finance and administrative functions . general and administrative expenses also include professional fees for legal , consulting , accounting , tax and audit services , and information technology infrastructure costs . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates . we incur and anticipate that we will continue to incur increased costs associated with being a public company , including costs of accounting , audit , legal , regulatory , compliance and tax-related services related to maintaining compliance with requirements of nasdaq and the securities and exchange commission , or sec ; director and officer insurance costs ; and investor and public relations costs . we anticipate the additional costs for these services will substantially increase our general and administrative expenses . additionally , we may experience an increase in payroll and expense as a result of our preparation for potential commercial operations , especially as it relates to sales and marketing costs . interest income interest income consists of income from bank deposits and investments . other income ( expense ) , net other income ( expense ) , net primarily consists of foreign exchange gains or losses . results of operations comparison of the year ended december 31 , 2020 and 2019 the following table summarizes our results of operations for the year ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_1_th research and development expense research and development expense increased by $ 30.3 million to $ 46.5 million for the year ended december 31 , 2020 from $ 16.2 million for the year ended december 31 , 2019. the increase in research and development expense was primarily attributable to the following : an increase of $ 17.8 million as a result of the recognition of the acquisition of in-process research and development intellectual property from alexion pharmaceuticals , inc. , or alexion , that has no future alternative use , in exchange for our stock in july 2020 ; an increase of $ 2.5 million as a result of preclinical toxicology studies in support of our ind filing for inz-701 ; an increase of $ 1.9 million in manufacturing operations due to activities in preparation for clinical trials , such as fill/finish work , and additional stabilization and validation studies ; an increase of $ 2.9 million due to a ramp-up of preclinical start-up costs ; 103 an increase of $ 2.6 million due to increased salaries and other employee-related costs to support the growth of the business , offset by a decrease of $ 0.2 million in employee-related travel expenses stemming from the covid-19 pandemic ; an increase of $ 1.1 million due to pre-commercialization activities supporting medical affairs and patient physician strategies ; an increase of $ 0.9 million related to other activities such as research for additional indications ; and an increase of $ 0.8 million as a result of increased stock-based compensation expense due to an increase in the price of the company 's common stock following our ipo in july 2020 and due to an increase in common stock issued in 2020 compared to 2019. excluding the purchase of in-process research and development intellectual property assets , we expect that our research and development expense will continue to increase for the foreseeable future as we prepare for and initiate clinical trials of inz-701 , further scale our manufacturing processes and advance development of inz-701 for additional indication or of additional product candidates . general and administrative expense general and administrative expense increased by $ 6.0 million to $ 10.5 million for the year ended december 31 , 2020 from $ 4.6 million for the year ended december 31 , 2019. the increase in general and administrative expense was primarily attributable to an increase in our employee compensation , including stock-based compensation , and benefits related to an increase in the number of general and administrative employees , an increase in legal fees related to patents , new contracts and our operations as a public company , and generally higher fees in areas such as audit , tax and information technology to support our growth and support our operations as a public company . we expect that our general and administrative expenses will increase in future periods as we expand our operations and incur additional costs in connection with operating as a public company . interest income interest income decreased by $ 0.7 million to $ 0.4 million for the year ended december 31 , 2020 from $ 1.1 million for the year ended december 31 , 2019. the decrease was primarily attributable to lower interest rates on investments during the year ended december 31 , 2020 as compared to the year ended december 31 , 2019. other income ( expense ) , net other income ( expense ) , net , consisting primarily of foreign exchange gains and losses , increased by $ 0.3 million to a gain of $ 0.2 million for the year ended december 31 , 2020 from a net loss of less than $ 0.1 million for the year ended december 31 , 2019. this increase was driven by cash balances we hold which are denominated in euros and their related appreciation compared to the u.s. dollar during the year ended december 31 , 2020 compared to the year ended december 31 , 2019. liquidity and capital resources sources of liquidity since our inception , we have not generated any revenue and have incurred significant operating losses and negative cash flows from our operations . to date , we have funded our operations primarily with proceeds from the sales of convertible preferred stock and sales of common stock in our ipo . through december 31 , 2020 , we had received net cash proceeds of $ 111.5 million from sales of our convertible preferred stock .
| financial condition and results of operations . the following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes appearing elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in the “ risk factors ” section of this annual report on form 10-k , our actual results could differ materially from the results described in or implied by these forward-looking statements . for convenience of presentation some of the numbers have been rounded in the text below . overview we are a clinical-stage rare disease biopharmaceutical company developing novel therapeutics for the treatment of diseases of abnormal mineralization impacting the vasculature , soft tissue and skeleton . through our in-depth understanding of the biological pathways involved in mineralization , we are pursuing the development of therapeutics to address the underlying causes of these debilitating diseases . it is well established that two genes , enpp1 and abcc6 , play key roles in a critical mineralization pathway and that defects in these genes lead to abnormal mineralization . we are initially focused on developing a novel therapy to treat the rare genetic diseases of enpp1 and abcc6 deficiencies . our lead product candidate , inz-701 , is a soluble , recombinant , or genetically engineered , fusion protein that is designed to correct a defect in the mineralization pathway caused by enpp1 and abcc6 deficiencies . this pathway is central to the regulation of calcium deposition throughout the body and is further associated with neointimal proliferation , or the overgrowth of smooth muscle cells inside blood vessels .
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payments made in advance of when the right to air the content is received are story_separator_special_tag management 's discussion and analysis of financial condition and results of operations is a supplement to and should be read in conjunction with the accompanying consolidated financial statements and related notes . this section provides additional information regarding our businesses , current developments , results of operations , cash flows , financial condition , contractual commitments and critical accounting policies . story_separator_special_tag 2018 vs. 2017 our consolidated results of operations for 2018 and 2017 were as follows ( in millions ) . replace_table_token_3_th nm - not meaningful 42 revenues distribution revenue consists principally of fees from affiliates for distributing our linear networks , supplemented by revenue earned from svod content licensing and other emerging forms of digital distribution . distribution revenue increase d 31 % , primarily due to the impact of the transactions . excluding the impact of the transactions and on a pro forma combined basis , excluding the impact of foreign currency fluctuations , distribution revenue increase d 3 % . increases at international networks were primarily driven by increases in subscribers to our linear networks and higher digital subscription revenues and increases in pricing in europe and latin america . increases at u.s. networks were principally attributable to an increase in contractual affiliate rates , which was partially offset by a decline in subscribers and , to a lesser extent , the timing of content deliveries under svod arrangements . advertising revenue is dependent upon a number of factors , including the stage of development of television markets , the number of subscribers to our channels , viewership demographics , the popularity of our content , our ability to sell commercial time over a group of channels , market demand , the mix in sales of commercial time between the upfront and scatter markets and economic conditions . these factors impact the pricing and volume of our advertising inventory . advertising revenue increase d 79 % , primarily due to the impact of the transactions . excluding the impact of the transactions and on a pro forma combined basis , excluding the impact of foreign currency fluctuations , advertising revenue increase d 3 % . the increases were due to continued monetization of our digital content offerings , an increase in pricing at u.s. networks , and the olympics . other revenue increase d 54 % , primarily due to the impact of the transactions . excluding the impact of the transactions and on a pro forma combined basis , excluding the impact of foreign currency fluctuations , other revenue increase d 8 % . the increases were primarily due to sublicensing of olympics sports rights to broadcast networks throughout europe , partially offset by the education and other revenue that decreased 66 % following the disposition of the education business on april 30 , 2018 . ( see note 3 to the accompanying consolidated financial statements . ) revenue for our segments is discussed separately below under the heading “ segment results of operations. ” costs of revenues costs of revenues increase d 48 % , primarily due to the impact of the transactions . the company 's principal component of costs of revenues is content expense . content expense includes television series , television specials , films , sporting events and digital products . the costs of producing a content asset and bringing that asset to market consist of film costs , participation costs , exploitation costs and manufacturing costs . content rights expense excluding the impact of foreign currency fluctuations was $ 2.9 billion and $ 1.9 billion for the years ended december 31 , 2018 and 2017 , respectively . excluding the impact of the transactions and foreign currency fluctuations , costs of revenue increase d 5 % . excluding the impact of foreign currency fluctuations and on a pro forma combined basis , costs of revenues increase d 2 % . the increases were primarily due to spending on the olympics at international networks , partially offset by the impact of higher content impairment expenses recorded in the prior year at u.s. networks and the impact of the disposition of the education business . on a pro forma combined basis and excluding the impacts of foreign currency fluctuations , content expense was $ 3.0 billion for each of the years ended december 31 , 2018 and 2017 . content impairment is generally a component of costs of revenue on the consolidated statements of operations . however , during the year ended december 31 , 2018 , content impairments of $ 405 million were reflected as a component of restructuring and other charges as a result of the strategic programming changes following the acquisition of scripps networks . no content impairments were recorded as a component of restructuring and other charges during the year ended december 31 , 2017 . selling , general and administrative selling , general and administrative expenses consist principally of employee costs , marketing costs , research costs , occupancy and back office support fees . selling , general and administrative expenses increase d 48 % , primarily due to the impact of the transactions . excluding the impact of the transactions , directly related third-party transaction and planned integration costs and foreign currency fluctuations , selling , general and administrative expenses increase d 6 % , primarily due to increased marketing spend at international networks , increased share-based compensation expense , charge-backs to an equity method investee in the prior year that is now consolidated , and increases in technology costs and tax advisory fees , partially offset by decreases at education and other following the disposition of the education business on april 30 , 2018. excluding the impact of foreign currency fluctuations and on a pro forma combined basis , selling , general and administrative expenses were largely consistent with the prior year . impairment of goodwill no goodwill impairment expense was recorded during the year ended december 31 , 2018 . story_separator_special_tag during 2018 , the increase in the income tax expense was primarily attributable to an increase in income , a reduction in benefits from investment tax credits from our renewable energy investments , the effect of foreign operations , which included the establishment of valuation allowances and write-offs of deferred tax assets , and elimination of the domestic production activity deduction , partially offset by the lower u.s. federal statutory income tax rate , a decrease in expense for uncertain tax positions , and a tax benefit from tcja rate change on the deferred tax liability recomputation as a result of u.s. legislative changes that extended the accelerated deduction of qualified film productions . in connection with the acquisition of scripps networks , we recorded reserves in purchase accounting totaling $ 110 million for foreign tax matters claimed by tax authorities that are currently pending resolution . after the purchase accounting measurement period closes on march 5 , 2019 , any adjustment to these estimated amounts resulting from their resolution will affect net income in the period resolved . 45 segment results of operations – 2018 vs. 2017 we evaluate the operating performance of our operating segments based on financial measures such as revenues and adjusted oibda . adjusted oibda is defined as operating income excluding : ( i ) mark-to-market share-based compensation , ( ii ) depreciation and amortization , ( iii ) restructuring and other charges , ( iv ) certain impairment charges , ( v ) gains and losses on business and asset dispositions , ( vi ) certain inter-segment eliminations related to production studios , and ( vii ) third-party transaction costs directly related to the acquisition and integration of scripps networks . we use this measure to assess the operating results and performance of our segments , perform analytical comparisons , identify strategies to improve performance , and allocate resources to each segment . we believe adjusted oibda is relevant to investors because it allows them to analyze the operating performance of each segment using the same metric management uses . we exclude mark-to-market share-based compensation , restructuring and other charges , certain impairment charges , gains and losses on business and asset dispositions , and scripps networks acquisition and integration costs from the calculation of adjusted oibda due to their impact on comparability between periods . we also exclude the depreciation of fixed assets and amortization of intangible assets and deferred launch incentives as these amounts do not represent cash payments in the current reporting period . certain corporate expenses and inter-segment eliminations related to production studios are excluded from segment results to enable executive management to evaluate segment performance based upon the decisions of segment executives . adjusted oibda should be considered in addition to , but not a substitute for , operating income , net income and other measures of financial performance reported in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . additional financial information for our segments and geographical areas in which we do business is discussed in note 23 to the accompanying consolidated financial statements included in item 8 , “ financial statements and supplementary data ” in this annual report on form 10-k. the table below presents our adjusted oibda by segment , with a reconciliation of consolidated net income available to discovery , inc. to total adjusted oibda ( in millions ) . replace_table_token_6_th 46 the table below presents the calculation of total adjusted oibda ( in millions ) . replace_table_token_7_th ( a ) selling , general and administrative expenses exclude mark-to-market share-based compensation and scripps networks transaction and integration costs due to their impact on comparability between periods . effective january 1 , 2019 , our definition of adjusted oibda was modified to exclude all share-based compensation , whereas only mark-to-market share-based compensation is excluded for each of the periods presented herein . during 2018 , the company began granting a higher percentage of equity classified awards ( in lieu of liability classified awards , which require mark-to-market accounting ) under its stock incentive plans , and expects to continue this action in future periods . since most equity classified awards are non-cash expenses not entirely under management control , the company has elected to exclude all share-based compensation from adjusted oibda beginning in 2019. the revised definition of adjusted oibda will be used by our chief operating decision maker in evaluating segment performance in 2019. the following table presents adjusted oibda as historically reported and under the revised definition : replace_table_token_8_th 47 u.s. networks the table below presents , for our u.s. networks segment , revenues by type , certain operating expenses , adjusted oibda and a reconciliation of adjusted oibda to operating income ( in millions ) . replace_table_token_9_th revenues distribution revenue increase d 52 % , primarily due to the impact of the transactions . excluding the impact of the transactions and on a pro forma combined basis , distribution revenue increase d 1 % reflecting the impact of an increase in contractual affiliate rates , partially offset by a decline in subscribers and to a lesser extent , the timing of content deliveries under svod arrangements . on a pro forma combined basis , total portfolio subscribers for december 2018 were 4 % lower than december 2017 and subscribers to our fully distributed networks were consistent with the prior year , due to additional carriage toward the end of the year , which offset the general trend of subscriber declines . advertising revenue increase d $ 2.0 billion , primarily due to the impact of the transactions . excluding the impact of the transactions and on a pro forma combined basis , advertising revenue increase d 3 % . the increases were due to the continued monetization of our digital content offerings and an increase in pricing , partially offset by the impact of audience declines on our linear networks . other revenue increase d 77 % , primarily due to the impact of the transactions .
| business overview we are a global media company that provides content across multiple distribution platforms , including pay-tv , free to air ( `` fta '' ) and broadcast television , authenticated applications , digital distribution arrangements and content licensing agreements . our portfolio of networks includes prominent television brands such as discovery channel , our most widely distributed global brand , tlc , animal planet , food network , hgtv , id , motortrend ( previously known as velocity and known as turbo outside of the u.s. ) and eurosport , a leading sports entertainment pay-tv programmer across europe and asia . we operate production studios , and prior to the sale of our education business on april 30 , 2018 , we sold curriculum-based education products and services ( see note 3 to the accompanying consolidated financial statements . ) our objectives are to invest in content for our networks to build viewership , optimize distribution revenue , capture advertising sales and create or reposition branded channels and businesses that can sustain long-term growth and occupy a desired content niche with strong consumer appeal . our strategy is to maximize the distribution , ratings and profit potential of each of our branded networks . in addition to growing distribution and advertising revenues for our branded networks , we are extending content distribution across new platforms , including brand-aligned websites , on-line streaming , mobile devices , vod and broadband channels , which provide promotional platforms for our television content and serve as additional outlets for advertising and distribution revenue . audience ratings are a key driver in generating advertising revenue and creating demand on the part of cable television operators , dth satellite operators , telecommunication service providers , and other content distributors , that deliver our content to their customers . our content spans genres including survival , exploration , sports , general entertainment , home , food and travel , heroes , adventure , crime and investigation , health and kids .
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page 51 of 69 the following table summarizes the activity in total shares available for grant ( in thousands ) : replace_table_token_23_th stock compensation expense the following table summarizes the effects of stock-based compensation on cost of goods sold , research and development , sales , general and administrative , pre-tax income , and net income after taxes for options granted under the company 's equity incentive plans ( in thousands , except per share amounts ) : replace_table_token_24_th the total share based compensation expense included in the table above and which is attributable to restricted stock awards and restricted stock units was $ 16.3 million , $ 6.3 million , and $ 1.1 million for fiscal years 2013 , 2012 , and 2011 , respectively . as of march 30 , 2013 , there was $ 39.7 million of compensation costs related to non-vested stock options , story_separator_special_tag please read the following discussion in conjunction with our audited historical consolidated financial statements and notes thereto , which are included elsewhere in this form 10-k. management 's discussion and analysis of financial condition and results of operations contains statements that are forward-looking . these statements are based on current expectations and assumptions that are subject to risk , uncertainties and other factors . actual results could differ materially because of the factors discussed in part i , item 1a . risk factors of this form 10-k. critical accounting policies our discussion and analysis of the company 's financial condition and results of operations are based upon the consolidated financial statements included in this report , which have been prepared in accordance with u. s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts . we evaluate the estimates on an on-going basis . we base these 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 . actual results may differ from these estimates under different assumptions and conditions . we believe the following critical accounting policies involve significant judgments and estimates that are used in the preparation of the consolidated financial statements : ¡ we provide for the recognition of deferred tax assets if realization of such assets is more likely than not . the company evaluates the ability to realize its deferred tax assets based on all the facts and circumstances , including projections of future taxable income and expiration dates of carryover attributes . we have provided a valuation allowance against a portion of our net u.s. deferred tax assets due to uncertainties regarding its realization . page 24 of 69 the calculation of our tax liabilities involves assessing uncertainties with respect to the application of complex tax rules and the potential for future adjustment of our uncertain tax positions by the internal revenue service or other taxing jurisdiction . if our estimates of these taxes are greater or less than actual results , an additional tax benefit or charge will result . see note 17 income taxes of the notes to consolidated financial statements contained in item 8 for additional details . ¡ we recognize revenue when all of the following criteria are met : persuasive evidence that an arrangement exists , delivery of goods has occurred , the sales price is fixed or determinable and collectability is reasonably assured . we evaluate our distributor arrangements , on a distributor by distributor basis , with respect to each of the four criteria above . for a majority of our distributor arrangements , we provide rights of price protection and stock rotation . revenue is deferred at the time of shipment to our domestic distributors and certain international distributors due to the determination that the ultimate sales price to the distributor is not fixed or determinable . once the distributor has resold the product , and our final sales price is fixed or determinable , we recognize revenue for the final sales price and record the related costs of sales . for certain of our smaller international distributors , we do not grant price protection rights and provide minimal stock rotation rights . for these distributors , revenue is recognized upon delivery to the distributor , less an allowance for estimated returns , as the revenue recognition criteria have been met upon shipment . further , the company defers the associated cost of goods sold on our consolidated balance sheet , net within the deferred income caption . the company routinely evaluates the products held by our distributors for impairment to the extent such products may be returned by the distributor within these limited rights and such products would be considered excess or obsolete if included within our own inventory . products returned by distributors and subsequently scrapped have historically been immaterial to the company . ¡ inventories are recorded at the lower of cost or market , with cost being determined on a first-in , first-out basis . we write down inventories to net realizable value based on forecasted demand , product release schedules , product life cycles , management judgment , and the age of inventory . actual demand and market conditions may be different from those projected by management , which could have a material effect on our operating results and financial position . see note 2 summary of significant accounting policies of the notes to consolidated financial statements contained in item 8 . ¡ we evaluate the recoverability of property , plant , and equipment and intangible assets by testing for impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets ' carrying amounts . an impairment loss is recognized in the event the carrying value of these assets exceeds the fair value of the applicable assets . story_separator_special_tag with the amendments in this update , an entity is required to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under u.s. gaap to be reclassified in its entirety to net income . for other amounts that are not required under u.s. gaap to be reclassified in their entirety to net income in the same reporting period , an entity is required to cross-reference other disclosures required under u.s. gaap that provide additional detail about those amounts. the amendments in this asu are effective prospectively for reporting periods beginning after december 15 , page 26 of 69 2012 , with early adoption permitted . the adoption of this asu is not expected to have a material impact on our consolidated financial position , results of operations or cash flows . overview cirrus logic develops high-precision analog and mixed-signal ics for a broad range of audio and energy markets . we track operating results in one reportable segment , but report revenue performance by product line , which currently are audio and energy . in fiscal year 2013 , the company announced that our board of directors authorized a share repurchase program of up to $ 200 million of the company 's common stock , continued to target growing markets that we were focused on in previous years and developed new winning designs . the company reported a revenue increase of 90 % over the prior fiscal year and an increase in the investment in research and development of $ 28.4 million . fiscal year 2013 fiscal year 2013 was a year focused on ramping new custom products and introducing general market portable audio and energy products that we expect to drive revenue growth and customer diversification longer-term . the company continued to target tier-one customers in growing markets who are able to differentiate their products with our innovative technology , highlighted by the fact that our top ten end customer concentration has increased to 89 percent of sales in the current fiscal year , from 74 percent in fiscal year 2012. fiscal year 2013 net sales of $ 809.8 million represented a 90 percent increase over fiscal year 2012 net sales of $ 426.8 million . audio product line sales of $ 754.8 million in fiscal year 2013 represented a 115 percent increase over fiscal year 2012 sales of $ 350.7 million , attributable to higher sales of portable audio products . energy product line sales of $ 55.0 million in fiscal year 2013 represented a 28 percent decrease from fiscal year 2012 sales of $ 76.1 million , which was attributable , primarily to the absence of revenue related to the products involved in the tucson office asset sale , described in note 7 , coupled with decreased sales from our power meter components . additionally , the restructuring discussed in note 9 of the consolidated financial statements contributed to this decrease . in fiscal year 2013 , we experienced substantial growth in our revenue and operating profit , significantly expanded our footprint in portable audio , and continued our investments in new led lighting products . overall , gross margin for fiscal year 2013 was 48.8 percent . decreases in gross margin for fiscal year 2013 were primarily due to inventory write-downs , including scrapped inventory , and unfavorable product mix . the company achieved net income of $ 136.6 million in fiscal year 2013 , which included an income tax provision in the amount of $ 64.6 million . additionally , the company 's number of employees decreased slightly to 652 in fiscal year 2013 , due to the restructuring discussed in note 9 , partially offset by an increase in new hires . fiscal year 2012 fiscal year 2012 net sales of $ 426.8 million represented a 15 percent increase over fiscal year 2011 net sales of $ 369.6 million . audio product line sales of $ 350.7 million in fiscal year 2012 represented a 32 percent increase over fiscal year 2011 sales of $ 264.8 million and were primarily attributable to higher sales of portable audio products . energy product line sales of $ 76.1 million in fiscal year 2012 represented a 27 percent decrease from fiscal year 2011 sales of $ 104.7 million , and were attributable to decreased sales across product lines , primarily in the seismic product line . in fiscal year 2012 , we launched our first led controller within our energy product line and continued our strategy of targeting growing markets , where we can showcase our expertise in analog and digital signal processing to solve challenging problems . overall gross margin of 54.0 percent for fiscal year 2012 represented an approximate 14 percent increase in gross profit over prior years . the company achieved net income of $ 88.0 million in fiscal year 2012 , which included a benefit for income taxes in the amount of $ 8.0 million upon realizing net deferred tax assets . additionally , the company 's number of employees grew to 667 in the 2012 fiscal year , due to the increased hiring of engineering talent for existing projects . page 27 of 69 fiscal year 2011 the company completed a $ 150 million stock repurchase program in fiscal year 2011 and continued our strategy of targeting and developing relationships with tier 1 customers in growing markets , such as portable audio products , including smartphones ; automobile audio amplifiers ; and energy measurement and energy control . we built on our diverse analog and signal-processing patent portfolio by delivering highly optimized products for a variety of audio and energy-related applications . we dedicated substantial resources and investments towards portable audio products , but also invested in energy-related applications . fiscal year 2011 net sales of $ 369.6 million represented a 67 percent increase over fiscal year 2010 net sales of $ 221.0 million .
| results of operations the following table summarizes the results of our operations for each of the past three fiscal years as a percentage of net sales . all percentage amounts were calculated using the underlying data , in thousands : replace_table_token_4_th page 28 of 69 net sales we report sales in two product categories : audio products and energy products . our sales by product line are as follows ( in thousands ) : replace_table_token_5_th net sales for fiscal year 2013 increased 90 percent , to $ 809.8 million from $ 426.8 million in fiscal year 2012. the increase in net sales reflects a $ 404.0 million increase in audio product sales , partially offset by a $ 21.1 million decrease in energy product sales . the audio products group experienced growth primarily from the sales of portable audio products , while the decline in energy product group sales was attributable primarily to the absence of revenue related to the products involved in the tucson office asset sale , described in note 7 , coupled with decreased sales from our power meter components . net sales for fiscal year 2012 increased 15 percent , to $ 426.8 million from $ 369.6 million in fiscal year 2011. the increase in net sales reflects an $ 85.9 million increase in audio product sales , offset by a $ 28.6 million decrease in energy product sales . the audio products group experienced growth primarily from the sales of portable products , while the decline in energy product group sales was attributable to decreased sales across product lines , primarily in the seismic product line .
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in addition , any statements which refer to expectations , projections or other characterizations of future events or circumstances are forward-looking statements . we undertake no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this form 10-k with the securities and exchange commission . these forward-looking statements are subject to risks and uncertainties , including , without limitation , those discussed in this section and in item 1a , `` risk factors . '' in addition , new risks emerge from time to time and it is not possible for management to predict all such risk factors or to assess the impact of such risk factors on our business . accordingly , our future results may differ materially from historical results or from those discussed or implied by these forward-looking statements . given these risks and uncertainties , the reader should not place undue reliance on these forward-looking statements . overview we are a globally-recognized , provider of sketch-to-scale ® services - innovative design , engineering , manufacturing , and supply chain services and solutions - from conceptual sketch to full-scale production . we design , build , deliver and manage complete packaged consumer and enterprise products , from medical devices and connected automotive systems to sustainable lighting and cloud data center infrastructures , for companies of all sizes in various industries and end-markets , through our activities in the following segments : high reliability solutions ( `` hrs '' ) , which is comprised of our health solutions business , including surgical equipment , drug delivery , diagnostics , telemedicine , disposable devices , imaging and monitoring , patient mobility and ophthalmology ; and our automotive business , including vehicle electrification , connectivity , autonomous , and smart technologies ; industrial and emerging industries ( `` iei '' ) , which is comprised of energy including advanced metering infrastructure , energy storage , smart lighting , smart solar energy ; and industrial , including semiconductor and capital equipment , office solutions , household industrial and lifestyle , industrial automation and kiosks ; communications & enterprise compute ( `` cec '' ) , which includes our telecom business of radio access base stations , remote radio heads and small cells for wireless infrastructure ; our networking business , which includes optical , routing , and switching products for data and video networks ; our server and storage platforms for both enterprise and cloud-based deployments ; next generation storage and security appliance products ; and rack-level solutions , converged infrastructure and software-defined product solutions ; and consumer technologies group ( `` ctg '' ) , which includes our consumer-related businesses in iot enabled devices , audio and consumer power electronics , mobile devices ; and various supply chain solutions for consumer , computing and printing devices . these segments represent components of the company for which separate financial information is available that is utilized on a regular basis by the chief operating decision maker ( “ codm ” ) . our segments are determined based on several factors , including the nature of products and services , the nature of production processes , customer base , delivery channels and similar economic characteristics . during the fourth quarter of fiscal year 2019 , we announced that revathi advaithi was appointed ceo of the company effective february 11 , 2019. as part of her new role and responsibilities , the ceo along with certain direct reports that oversee operations of the business , are now considered the codm . there is a possibility that the codm will request changes in the 33 information that is regularly reviewed in determining how to allocate resources and in assessing performance , which could eventually result in changes to our reportable segments . refer to note 19 to the consolidated financial statements in item 8 , `` financial statements and supplementary data '' for additional information on our operating segments . our strategy is to provide customers with a full range of cost competitive , vertically-integrated global supply chain solutions through which we can design , build , ship and service a complete packaged product for our customers . this enables our customers to leverage our supply chain solutions to meet their product requirements throughout the entire product life cycle . over the past few years , we have seen an increased level of diversification by many companies , primarily in the technology sector . some companies that have historically identified themselves as software providers , internet service providers or e-commerce retailers have entered the highly competitive and rapidly evolving technology hardware markets , such as mobile devices , home entertainment and wearable devices . this trend has resulted in a significant change in the manufacturing and supply chain solutions requirements of such companies . while the products have become more complex , the supply chain solutions required by such companies have become more customized and demanding , and it has changed the manufacturing and supply chain landscape significantly . we use a portfolio approach to manage our extensive service offerings . as our customers change the way they go to market , we have the capability to reorganize and rebalance our business portfolio in order to align with our customers ' needs and requirements in an effort to optimize operating results . the objective of our business model is to allow us to be flexible and redeploy and reposition our assets and resources as necessary to meet specific customer 's supply chain solutions needs across all the markets we serve and earn a return on our invested capital above the weighted average cost of that capital . during the past several years , we have evolved our long-term portfolio towards a mix of businesses which possess longer product life cycles and higher segment operating margins such as reflected in our iei and hrs businesses . we have expanded our design and engineering relationships through our product innovation centers and global design centers . story_separator_special_tag in addition , the u.s. commerce department has implemented additional restrictions and may implement further restrictions that would affect conducting business with certain chinese companies . depending upon their duration and implementation , as well as our ability to mitigate their impact , these tariffs , the executive order and its implementation and other regulatory actions could materially affect our business , including in the form of increased cost of goods sold , decreased margins , increased pricing for customers , and reduced sales . we also are subject to other risks as outlined in item 1a , `` risk factors '' . net sales for fiscal year 2019 increased 3 % or $ 0.8 billion to $ 26.2 billion from the prior year . the increase was primarily due to a $ 0.6 billion increase in our cec segment and a $ 0.2 billion increase in our iei segment . our fiscal year 2019 gross profit totaled $ 1.5 billion , representing a decrease of $ 78 million , or 5 % , from the prior year , which is primarily driven by an incremental increase of $ 32 million of restructuring charges , coupled with approximately $ 47 million of additional charges related to distressed customers that were included in cost of sales in fiscal year 2019 . these incremental charges were part of our targeted actions to optimize our business portfolio , most notably within ctg , as we eliminated certain non-core activities and repositioned ourselves to align with go-forward strategies . the decline in gross margin is also due to the mix of revenues included in our portfolio most notably a decline in revenues from our automotive products and services within hrs which carry higher gross profit margins . increased revenues from our ramping businesses in india further impacted the decline in gross profit margin from the prior year as the new programs were pressured below our average margins during the ramp . our net income totaled $ 93 million , representing a decrease of $ 335 million , or 78 % , compared to fiscal year 2018 . the decrease in net income during fiscal year 2019 is primarily due to the same factors explained above in addition to the recognition of $ 193 million of charges primarily for the impairment of certain of our investments , including our investment in elementum scm ( cayman ) ltd ( `` elementum '' ) , offset by an $ 87 million gain from the deconsolidation of bright machines ( formerly known as autolab ai ) . we also recognized a $ 152 million gain from the deconsolidation of elementum in fiscal year 2018 , which contributed further to the decrease in net income from fiscal year 2018 to 2019. refer to note 2 to the consolidated financial statements in item 8 , `` financial statements and supplementary data '' for details of the investment impairments and the deconsolidation of bright machines , respectively . cash used in operations decreased by approximately $ 0.9 billion to $ 3.0 billion for fiscal year 2019 compared with $ 3.9 billion for fiscal year 2018 primarily due to a lower level of cash collections on deferred purchase price being reclassed to investing activities offset by elevated levels of investment required to support the business growth and operating through a more constrained inventory marketplace in fiscal year 2019. our net working capital , defined as accounts receivable , net of allowance for doubtful accounts , adding back the reduction in accounts receivable resulting from non-cash accounts receivable sales , plus inventories , less accounts payable , was redefined upon the adoption of asc 606 ( as further described in note 2 to the consolidated financial statements in item 8 , `` financial statements and supplementary data '' ) , to include contract assets on a going forward basis . our net working capital as a percentage of annualized sales for fiscal year 2019 increased by 0.3 % to 6.7 % from the prior year . upon adoption of accounting standard update ( asu ) 2016-15 during the first quarter of fiscal year 36 2019 , cash collections on deferred purchase price from our abs programs that were previously classified as operating cash inflows are now classified as cash flows from investing activities . refer to note 2 to the consolidated financial statements in item 8 , `` financial statements and supplementary data '' for further description on the asu . as a result , we redefined our free cash flow as cash from operating activities , plus cash collections of deferred purchase price , less net purchases of property and equipment in order to present free cash flows on a consistent basis for investor transparency . we also excluded the reduction to operating cash flows related to certain vendor programs from the free cash flow calculation . free cash flow was $ 3 million for fiscal year 2019 compared to $ 236 million for fiscal year 2018 . the decrease in free cash flow is primarily due to increased capital expenditures in fiscal year 2019 as we built out our regional capacity in india and continued to expand our capacity and capability in support of our expanding iei and hrs businesses , as well as increased inventory levels due to a more constrained inventory marketplace and higher business levels . refer to the liquidity and capital resources section for the free cash flows reconciliation to our most directly comparable gaap financial measure of cash flows from operations . cash provided by investing activities decreased by approximately $ 458 million to $ 3.3 billion for fiscal year 2019 , compared with $ 3.7 billion for fiscal year 2018 , primarily due lower cash collection on deferred purchase price and higher capital expenditures as described above .
| results of operations the following table sets forth , for the periods indicated , certain statements of operations data expressed as a percentage of net sales . the financial information and the discussion below should be read in conjunction with the consolidated financial statements and notes thereto included in item 8 , `` financial statements and supplementary data . '' the data below , and discussion that follows , represents our results from operations . on april 1 , 2018 , we adopted the new revenue standard and as a result we recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings , as further described in note 2 to the consolidated financial statements included under item 8. the comparative information has not been restated and continues to be reported under the accounting standards in effect at the time . replace_table_token_7_th net sales net sales during fiscal year 2019 totaled $ 26.2 billion , representing an increase of $ 0.8 billion , or 3 % , from $ 25.4 billion during fiscal year 2018 . the overall increase in sales was driven by increases in three of our segments offset by a decline in sales in our ctg segment . net sales was higher across all our regions during fiscal year 2019 , with increase s of $ 0.5 billion in europe , $ 0.3 billion in asia , and to a lesser extent , $ 12 million in the americas . net sales during fiscal year 2018 totaled $ 25.4 billion , representing an increase of $ 1.5 billion , or 7 % , from $ 23.9 billion during fiscal year 2017 .
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( 2 ) represents the total difference between our closing stock price on the last trading day of 2014 and the stock option exercise price , multiplied by the number of in-the-money options as of december 31 , 2014. the amount of intrinsic value will change based on the fair market value of our stock . the following table summarizes information with respect to stock option grants as of december 31 , 2014 : replace_table_token_45_th as of december 31 , 2014 , there was unrecognized compensation expense of $ 11.4 million related to unvested stock options , which we expect to recognize over a weighted average period of 2.54 years . f-27 restricted stock award activity a summary of restricted stock award activity is as follows : replace_table_token_46_th replace_table_token_47_th as of december 31 , 2014 story_separator_special_tag the following discussion and analysis should be read in conjunction with selected financial data and our consolidated financial statements and the related notes included in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in the forward-looking statements as a result of various factors including the risks we discuss in item 1a of part i , risk factors and elsewhere in this annual report on form 10-k. overview our business we are a biotechnology company with fully integrated commercial and drug development operations , with a primary focus on oncology and hematology . our strategy is comprised of the ( i ) commercialization of cancer therapeutics through our u.s. direct sales force and international distributors , ( ii ) completion of studies for new indications of our marketed products , and ( iii ) acquisition , development and marketing of a broad and diverse pipeline of late-stage clinical and commercial drug compounds . we currently market five drugs for the treatment of cancer : fusilev injection for patients with advanced metastatic colorectal cancer and to counteract certain effects of methotrexate therapy ; zevalin injection for patients with follicular non-hodgkin 's lymphoma ; folotyn injection for patients with relapsed or refractory ptcl ; marqibo injection for patients with philadelphia chromosomenegative acute lymphoblastic leukemia ; and beleodaq injection for patients with relapsed or refractory ptcl . we also have ongoing indication expansion studies with several of our marketed products , and a diversified pipeline of product candidates in phase 2 and phase 3 clinical studies . our business strategy is comprised of the following three initiatives : maximize the revenue potential of our five currently-marketed drugs for the treatment of cancer . our near-term outlook largely depends on sales and marketing success of our five marketed products . it is this base business that provides the requisite working capital to operate our daily operations , and for opportunistic acquisitions . develop and commercialize drugs for the treatment of cancer within our pipeline . our focus is on drugs in the late-stages of development . we strive to timely complete clinical studies in order to obtain regulatory approval in the shortest period possible . upon obtaining regulatory approval , our sales and marketing function educates physicians on the safety and effectiveness of the drug in treating cancer patients for the approved indication . 56 expand our pipeline of development-stage and commercial-stage drugs , while also pursuing out-licensing opportunities . we are constantly seeking strategic opportunities that complement our current product portfolio . we will continue to explore collaborations with third parties for cancer drugs that are in the clinical trial phase of development , as well as the acquisition of the rights to cancer drugs that have significant growth potential . to maximize revenue potential , we also pursue strategic out-license opportunities for our drugs in specific territories . see item 1 , business , for our discussion of : company overview cancer background and market size product portfolio manufacturing sales and marketing customers competition research and development 2014 overview and recent business accomplishments we accomplished various critical business objectives during 2014 , which included : business development : in september 2014 , we executed three product out-license agreements with a perpetual term with casi pharmaceuticals , inc. ( nasdaq : casi ) . under these out-licenses , we granted casi the exclusive rights to distribute in the greater china territory , two of our commercialized drugs , zevalin and marqibo , and our phase 3 drug candidate , c-e melphalan . in return , we received equity representing 19.9 % of casi 's then outstanding common stock and a secured promissory note , with an aggregate combined transaction value of $ 10 million . in december 2014 , we executed a zevalin out-license agreement with dr. reddy 's laboratories , ltd. the signing triggered a $ 0.5 million licensing fee to us . we will also receive payments ( aggregating up to $ 3.0 million ) upon the achievement of certain regulatory and sales milestone in india , in additional to royalties for any sales in their territory . in february 2015 we executed an in-license agreement with hanmi pharmaceutical co. , ltd for poziotinib , a pan-her inhibitor in phase 2 clinical trials , for an upfront payment and future regulatory and sales-dependent milestone payments . poziotinib has shown single agent activity in the treatment of various cancer types , including breast , gastric , colorectal and lung cancers . under the terms of this agreement , we received the exclusive rights to commercialize this drug , excluding korea and china . commercial : total product revenue in 2014 was $ 186.5 million , representing 30 % growth over 2013. in the second half of 2014 , beleodaq became our fifth commercialized drug , with 2014 net sales of nearly $ 5 million . we launched beleodaq in less than three weeks following its approval . story_separator_special_tag our gtn estimates reduce revenue in the same period that the related sale is recorded and include the following major categories : ( i ) product returns allowances ( ii ) government chargebacks ( iii ) discounts ( iv ) rebates ( v ) medicaid rebates ( vi ) distribution and data fees product returns allowances : our fusilev , marqibo , and beleodaq customers are permitted to return purchased product beginning at its expiration date , and within six months thereafter . returned product is generally not resold . returns for expiry of zevalin and folotyn are not contractually , or customarily , allowed . we estimate potential returns based on historical rates of return . government chargebacks : our products are subject to pricing limits under certain federal government programs . qualifying entities ( end-users ) purchase product from our wholesalers at their qualifying discounted price . the chargeback amount we incur represents the difference between our original sales price to the wholesaler , and the end-user 's applicable discounted purchase price . there may be significant lag time between our original sale to the wholesaler and our receipt of the corresponding government chargeback claims from our wholesalers . 59 prompt pay discounts : discounts for prompt payment are estimated at the time of sale , based on our eligible customers ' prompt payment history and the contractual discount percentage . commercial rebates : rebates are estimated based on our customers ' actual purchase level during the quarterly or annual rebate purchase period , and the corresponding contractual rebate tier we expect each customer to achieve . medicaid rebates : our products are subject to state government-managed medicaid programs , whereby rebates for purchases are issued to participating state governments . these rebates arise when the patient treated with our products is covered under medicaid . our calculations related to these medicaid rebate accruals require us to estimate end-user and patient mix to determine which of our sales will likely be subject to these rebates . there is a significant time lag in us receiving these rebate notices ( generally several months after our sale is made ) . our estimates are based on our historical claims , as supplemented by management 's judgment . distribution , data , and gpo administrative fees : distribution , data , and group purchasing organization ( gpo ) administrative fees are paid to authorized wholesalers of our products ( except for u.s. sales of zevalin ) for various services , including : contract administration , inventory management , end-user sales data , and product returns processing . these fees are based on a contractually determined percentage of applicable sales . license fees : we recognize revenue for our licensing of intellectual property to third parties ( i.e. , out-licenses ) , based on the contractual terms of each agreement . this revenue may be associated with upfront license fees , milestone payments from our licensees ' sales or regulatory achievements , and royalties from our licensees ' sales in applicable territories . service revenue : we receive fees under certain arrangements for research and development activities , clinical trial management , and supply chain services . payment may be triggered by the successful completion of a phase of development , results from a clinical trial , regulatory approval events , or completion of product delivery in our capacity as an agent in such arrangement . we recognize revenue when the corresponding milestone is achieved , or the revenue is otherwise earned through our on-going activities . inventories lower of cost or market we adjust our inventory value for estimated amounts of excess , obsolete , or unmarketable items . such assumptions involve projections of future customer demand , as driven by economic and market conditions , and the product 's shelf life . if actual demand , or economic or market conditions are less favorable than those projected by us , incremental inventory write-downs may be required and could be significant . fair value of acquired assets and assumed liabilities the accounting for business combination and asset acquisitions requires extensive use of estimates and judgments to measure the fair value of the identifiable tangible and intangible assets acquired , including in-process research and development , and liabilities assumed . additionally , we must determine whether the acquisition meets the criteria for business combination accounting ( rather than asset acquisition accounting ) , because in a business combination , the excess of the purchase price over the fair value of net assets acquired can only be recognized as goodwill. the fair value of acquired tangible and identifiable intangible assets and liabilities assumed , are based on their estimated fair values at the acquisition date and requires extensive use of accounting estimates , judgments , and assumptions , including but not limited to : likelihood , timing , and costs to complete the in-process projects , probability of achieving regulatory approvals , cash flows to be derived from the acquired assets , and the application of appropriate discount rates . for each acquisition , we engage an independent third-party valuation specialist to assist management in determining the fair value of in-process research and development , identifiable intangible assets , and any contingent consideration . in connection with certain of our acquisitions , we must record a contingent consideration liability for cash or stock payments upon the completion of certain future performance milestones . in these cases , a liability is recorded on the acquisition date for an estimate of the acquisition date fair value of the contingent consideration by applying the income approach utilizing variable inputs such as probability of achievement and risk-free adjusted discount rates . any change in the fair value of the contingent consideration subsequent to the acquisition date is recognized in earnings . 60 goodwill and intangible assets impairment evaluations goodwill and other intangible assets with indefinite lives are not subject to amortization , but are evaluated for impairment annually as of october 1 , or whenever events or changes in circumstance indicate that the asset might be impaired .
| results of operations operations overview 2014 , 2013 , and 2012 replace_table_token_10_th 62 year ended december 31 , 2014 versus december 31 , 2013 total revenues replace_table_token_11_th product sales , net : gross product revenues are reduced by estimated provisions for product returns , sales discounts and rebates , distribution and data fees , and chargebacks established at the time revenues are recognized to arrive at product sales , net . management considers various factors in the determination of such provisions , which are described in more detail within critical accounting policies and estimates above . fusilev revenue increase is primarily due to ( i ) an increase in our average net price per unit as a result of certain non-recurring gtn adjustments that we experienced in the prior year period , and ( ii ) an increase in unit sales to our wholesalers during the current period , to satisfy end-user demand . folotyn revenue increase is due to an increase in unit sales to satisfy end-user demand , as well as a $ 1.0 million purchase by a new wholesaler in the first half of 2014 ; this resulted from the modification of our folotyn distribution model and a bulk purchase by this wholesaler to fulfill anticipated end-user demand . zevalin revenue decrease is attributable to decreased end-user demand in the u.s. market , partially offset by an increase in our average net sales price per unit in 2014 versus 2013. marqibo revenue increase is a result of our acquisition of talon in july 2013 ( and the product 's launch in late september 2013 ) , as discussed in note 10 ( a ) . in addition , during the third quarter of 2014 , we modified the timing of our revenue recognition model for this product from end-user receipt to wholesaler receipt , based on sufficient history of marqibo customer returns which provided a reasonable basis to estimate expected returns . this change had a one-time $ 0.4
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when available , we utilize quoted market prices from an independent third party source to determine fair value and classify such items in level 1. in some instances where a market price is available , but the instrument is in an inactive or over-the-counter market , we consistently apply the dealer ( market maker ) pricing estimate and classify the asset or liability in level 2. if quoted market prices or story_separator_special_tag unless otherwise indicated , references to our , we and us in this management 's discussion and analysis of financial condition and results of operations refer to medical properties trust , inc. and its consolidated subsidiaries , including mpt operating partnership , l.p. overview we were incorporated in maryland on august 27 , 2003 , primarily for the purpose of investing in and owning net-leased healthcare facilities across the united states . we also make real estate mortgage loans and other loans to our tenants . we conduct our business operations in one segment . we have operated as a reit since april 6 , 2004 , and accordingly , elected reit status upon the filing in september 2005 of our calendar year 2004 federal income tax return . our existing tenants are , and our prospective tenants will generally be , healthcare operating companies and other healthcare providers that use substantial real estate assets in their operations . we offer financing for these operators ' real estate through 100 % lease and mortgage financing and generally seek lease and loan terms on a long-term basis ranging from 10 to 15 years with a series of shorter renewal terms at the option of our tenants and borrowers . we also have included and intend to include in our lease and loan agreements annual contractual minimum rate increases . our existing portfolio minimum escalators range from 1 % to 4 % , while a limited number of our properties do not have an escalator . most of our leases and loans also include rate increases based on the general rate of inflation if greater than the minimum contractual increases . in addition to the base rent , our leases require our tenants to pay all operating costs and expenses associated with the facility . some leases also require our tenants to pay percentage rents , which are based on the level of those tenants ' revenues from their operations . finally , we may acquire a profits or other equity interest in our tenants ( which we refer to as ridea investments ) that gives us a right to share in the tenant 's income or loss . we selectively make loans to certain of our operators through our taxable reit subsidiaries , which they use for acquisitions and working capital . we consider our lending business an important element of our overall business strategy for two primary reasons : ( 1 ) it provides opportunities to make income-earning investments that yield attractive risk-adjusted returns in an industry in which our management has expertise , and ( 2 ) by making debt capital available to certain qualified operators , we believe we create for our company a competitive advantage over other buyers of , and financing sources for , healthcare facilities . at december 31 , 2012 , our portfolio consisted of 82 properties : 67 facilities ( of the 74 facilities that we own ) are leased to 22 operators , one is under re-development , six are under development , with the remainder in the form of mortgage loans to three operators . 2012 highlights in 2012 , we achieved a number of important milestones , including increasing our assets beyond the $ 2 billion mark , driving revenues above $ 200 million and exceeding any previous year 's investment total . a summary of the 2012 highlights is as follows : acquired real estate assets , entered into development agreements , entered into leases , made new loan investments , made ridea investments and committed to new development projects totaling more than $ 800 million as noted below : made loans to and acquired assets from ernest for a combined purchase price and investment of $ 396.5 million , consisting of $ 200 million to purchase real estate assets , a first mortgage loan of $ 100 million , and $ 96.5 million in ridea investments made up of an acquisition loan for $ 93.2 million and an equity contribution of $ 3.3 million . this acquisition was the single largest investment ever made by us and included our largest ridea investment . with this acquisition , we took ownership of 16 new facilities and opened opportunities for future growth ; funded a $ 100 million mortgage loan secured by the real property of centinela hospital medical center . centinela is a 369 bed acute care facility that is operated by prime . this mortgage loan is subject to cross-default with other mortgage loans to prime and certain master lease agreements ; 35 acquired the real estate of the 380 bed st. mary 's regional medical center , an acute care hospital in reno , nevada for $ 80 million and the real estate of the 140 bed roxborough memorial hospital in pennsylvania for $ 30 million . the acquired facilities are leased to prime pursuant to master lease agreements . acquired the real estate of a 40 bed long-term acute care hospital in hammond , louisiana for $ 10.5 million and leased the facility to the operator under a 15-year lease . as part of this transaction , we made a secured working capital loan of $ 2.5 million as well as a revolving loan of up to $ 2.0 million . in addition , we have made a $ 2.0 million ridea investment for a 25 % equity ownership in the operator of this facility . entered into an agreement to develop and lease an acute care facility in altoona , wisconsin for $ 33.5 million , which will be leased to national surgical hospitals . story_separator_special_tag with the execution of these agreements , we funded $ 7.4 million during the fourth quarter of 2011 , of which $ 6.2 million was used to acquire land for these three facilities . the three facilities will be leased under a master lease structure with an initial term of 15 years and three five-year extension options . one of these facilities opened in october 2012 , and the other two are scheduled to open in the 2013 first quarter . hoboken university medical center real estate a 350-bed acute care facility located in hoboken , new jersey . the total investment for this transaction was $ 75.0 million , comprising $ 50.0 million for the acquisition of an 100 % ownership of the real estate , a secured working capital loan of $ 15.1 million , and the purchase of a $ 5.0 million convertible note which provides us with the option to acquire up to 25 % of the hospital operator which we converted $ 1.6 million into a 9.9 % equity interest in the 2012 first quarter . the lease with the tenant has an initial term of 15 years . with these new investments , all of our diversification metrics improved . substantially modified our credit profile by refinancing most of our secured debt with unsecured debt by issuing $ 450 million of senior unsecured notes with a fixed rate of 6.875 % due in 2021. in 37 connection with these notes , we amended our existing credit agreement to go unsecured on our revolving credit facility , extend the maturity to october 2015 and lowered our interest rate spread . sold our morgantown and sherman oaks facilities for $ 41 million , resulting in gains of $ 5.4 million . with the financing activities and property sales noted above , we funded our 2011 acquisition activity as well as paid off certain loans ( including the remaining portion of our 2006 exchangeable notes ) and extended our debt maturities . 2010 highlights in 2010 , our primary business goals were to recapitalize our balance sheet with longer-term debt and lower leverage , increase our access to liquidity and accelerate our acquisitions of healthcare real estate . we took the following actions to achieve these goals among others : replaced old $ 220 million credit facility with a new $ 480 million credit facility and completed a $ 279 million stock offering , establishing a low leverage platform with more than $ 500 million of available capital for acquisition growth ; purchased $ 128.8 million of our 6.125 % senior notes , leaving only $ 9.2 million of the 2006 exchangeable notes that were paid in full in november 2011 ; paid $ 30 million term loan maturing in 2010 ; completely paid down $ 40 million revolver ; committed to more than $ 200 million in healthcare real estate investments : acquired three inpatient rehabilitation hospitals in texas with a new tenant for $ 74 million ; commenced redevelopment of the twelve oaks hospital in houston ; entered into $ 30 million agreement to develop phoenix-area general acute care hospital ; acquired two free standing long term acute care hospitals and a third property in the first quarter 2011 , all leased to and operated by kindred healthcare inc. , the nation 's third largest operator of ltachs , for $ 83.4 million . sold our inglewood property for $ 75 million in cash realizing a $ 6.2 million gain , received $ 40 million in early payment of loans , and received $ 12 million in early receipt of rent related to transactions with prime ; sold our montclair hospital for $ 20 million in cash realizing a gain of $ 2.2 million ; sold our sharpstown facility in houston , texas for $ 3 million in cash realizing a $ 0.7 million gain ; received pre-payment of our marina mortgage loan of $ 43 million ; entered into interest rate swaps to fix $ 60 million of our senior notes starting october 30 , 2011 ( date on which the interest rate was scheduled to turn variable ) through the maturity date at a rate of 5.675 % and to fix $ 65 million of our senior notes , starting july 30 , 2011 ( date on which the interest rate was scheduled to turn variable ) through maturity date , at a rate of 5.507 % ; and recorded a $ 12 million charge to recognize the estimated impairment of our monroe working capital loan . critical accounting policies in order to prepare financial statements in conformity with accounting principles generally accepted in the united states , we must make estimates about certain types of transactions and account balances . we believe that our estimates of the amount and timing of our revenues , credit losses , fair values ( either as part of a purchase price allocation , impairment analysis or in valuing certain of our ernest investments ) and periodic depreciation of 38 our real estate assets , and stock compensation expense , along with our assessment as to whether an entity that we do business with should be consolidated with our results , have significant effects on our financial statements . each of these items involves estimates that require us to make subjective judgments . we rely on our experience , collect historical and current market data , and develop relevant assumptions to arrive at what we believe to be reasonable estimates . under different conditions or assumptions , materially different amounts could be reported related to the accounting policies described below . in addition , application of these accounting policies involves the exercise of judgment on the use of assumptions as to future uncertainties and , as a result , actual results could materially differ from these estimates . our accounting estimates include the following : revenue recognition : we receive income from operating leases based on the fixed , minimum required rents ( base rents ) per the lease agreements .
| results of operations we began operations during the second quarter of 2004. since then , we have substantially increased our income earning investments each year ( see overview section in this item for more details ) , and we expect to continue to add to our investment portfolio , subject to the capital markets and other conditions described in this annual report on form 10-k. accordingly , we expect that future results of operations will vary from our historical results . year ended december 31 , 2012 compared to the year ended december 31 , 2011 net income for the year ended december 31 , 2012 , was $ 89.9 million compared to net income of $ 26.5 million for the year ended december 31 , 2011. this increase was primarily related to acquisitions made in 2012 and the debt refinancing charges that were incurred in 2011 , partially offset by higher interest expense due to additional debt incurred in 2012. ffo , after adjusting for certain items ( as more fully described in reconciliation of non-gaap financial measures ) , was $ 119.4 million , or $ 0.90 per diluted share for 2012 as compared to $ 78.0 million , or $ 0.71 per diluted share for 2011 , a 27 % increase on a per share basis . these increases are primarily the result of the acquisitions in 2012. a comparison of revenues for the years ended december 31 , 2012 and 2011 is as follows ( dollar amounts in thousands ) : replace_table_token_14_th base rents for 2012 increased 13.3 % versus the prior year as a result of the additional rent generated from annual escalation provisions in our leases and $ 12.3 million of incremental revenue from the properties acquired or completed in late 2011 and 2012. income from direct financing leases is solely related to the ernest 46 transaction and the new roxborough and reno facilities .
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asu 2011-05 allows an entity to present components of net income and other comprehensive income in one continuous statement , referred to as the statement of comprehensive income story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this form 10-k , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . you should read the risk factors section of this form 10-k ( see part i-item 1a 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 . overview we are a specialty biopharmaceutical company focused on the development and commercialization of innovative treatments for diabetes that may be safer , more effective and more convenient for patients . we develop our product candidates by applying our proprietary formulation technologies to existing drugs in order to improve their therapeutic profiles . our most advanced program involves developing proprietary formulations of injectable recombinant human insulin , or rhi , designed to be more rapid-acting than the rapid-acting mealtime insulin analogs currently used to treat patients with type 1 and type 2 diabetes . we , therefore , refer to these formulations as our ultra-rapid-acting insulin formulations . in addition to our rhi-based formulations , we are using our formulation technologies to develop new ultra-rapid-acting formulations of insulin analogs . these insulin analog-based formulations generally use the same or similar excipients as our rhi-based formulations and are designed to be more rapid-acting than the rapid-acting mealtime insulin analogs , but they may present characteristics that are different from those offered by our rhi-based formulations . we are also developing liquid glucagon formulations for use as a rescue treatment for diabetes patients experiencing severe hypoglycemia . an earlier rhi-based formulation known as linjeta tm ( and previously referred to as viaject® ) was the subject of a new drug application , or nda , that we submitted to the fda in december 2009. in october 2010 , the fda issued a complete response letter stating that the nda for linjeta tm could not be approved in its submitted form and that we should conduct two new phase 3 clinical trials using our preferred commercial formulation of linjeta tm prior to re-submitting the nda . based upon the complete response letter and subsequent feedback that the fda provided to us at a meeting in january 2011 , we decided to study newer rhi-based formulations in earlier stage clinical trials . the objective of these clinical trials was to identify an rhi-based formulation with pharmacokinetic and pharmacodynamic profiles similar to the linjeta tm formulation , but with improved injection site toleration characteristics . these earlier stage clinical trials evaluated the pharmacokinetic , pharmacodynamic and injection site toleration profiles of our product candidates relative to humalog® , a rapid-acting insulin analog . in september 2011 , we announced that two newer formulations , biod-105 and biod-107 , did not demonstrate our target profile in phase 1 clinical trials . we subsequently conducted a phase 1 clinical trial of two additional formulations , biod-123 and biod-125 , and announced top line results from that trial in april 2012. both biod-123 and biod-125 achieved our target pharmacokinetic , pharmacodynamic and toleration profiles . based on our assessment of these two formulations , we selected biod-123 as our lead rhi-based product candidate , and in the third calendar quarter of 2012 , we began enrolling patients in a phase 2 clinical trial of biod-123 . this phase 2 clinical trial is designed to assess the clinical impact of biod-123 relative to humalog® . the trial is being conducted at investigative centers in the united states and is expected to enroll approximately 130 randomized patients with type 1 diabetes . we expect to announce top-line results from this phase 2 clinical trial in the third calendar quarter of 2013. in may 2012 , we selected two insulin analog-based formulations , biod-238 and biod-250 , to evaluate in a phase 1 clinical trial . biod-238 and biod-250 generally use the same or similar excipients as biod-123 and are intended to be optimized for rapid absorption and injection site toleration . we began enrolling patients in the phase 1 clinical trial in the third calendar quarter of 2012. this trial , which is being conducted in australia , is designed to compare the pharmacokinetic and injection site toleration profiles of these formulations relative to a rapid-acting mealtime insulin analog . we expect to announce top-line results from 39 this clinical trial in the first calendar quarter of 2013. in parallel with the phase 1 clinical trial of biod-238 and biod-250 , we are continuing our formulation development work to improve the stability characteristics of our ultra-rapid-acting insulin analog-based formulations . in addition to our ultra-rapid-acting insulin formulation program , we are developing a liquid glucagon formulation for use as a rescue treatment for diabetes patients experiencing severe hypoglycemia , or very low concentrations of blood glucose . to date , we have not selected a lead formulation to advance into clinical trials . we are continuing to conduct preclinical testing to develop formulations that achieve a combination of pharmacokinetic , pharmacodynamic and stability characteristics that we believe would be required for a glucagon rescue treatment product to be commercially successful . we are a development stage company . we were incorporated in december 2003 and commenced active operations in january 2004. to date , we have generated no revenues and have incurred significant losses . we expect to continue to incur operating losses as we continue our efforts to develop and commercialize our product candidates . story_separator_special_tag at this time , we can not reasonably estimate or know the nature , specific timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of , or the period , if any , in which material net cash inflows may commence from our product candidates . this is due to the numerous risks and uncertainties associated with developing drugs , including the uncertainty of : our ability to complete our phase 2 clinical trial of biod-123 in a timely manner and the outcome of that trial ; 41 the success of our formulation development work to improve the stability , pharmacokinetic and pharmacodynamic characteristics of our ultra-rapid-acting insulin analog-based formulations ; our ability to conduct the development work necessary to select a lead formulation for our liquid glucagon product candidate for the rescue treatment of severe hypoglycemia and commence clinical trials of that formulation ; the results of our real-time stability programs for our insulin and glucagon product candidates , including the reproducibility of earlier , smaller scale , stability studies and our ability to accurately project real-time stability on the basis of accelerated testing ; our ability to accurately anticipate technical challenges that we may face in the development of a glucagon rescue product candidate ; our ability to secure approval by the fda for our product candidates under section 505 ( b ) ( 2 ) of the ffdca ; our ability to conduct pivotal clinical trials and other tests or analyses required by the fda to secure approval to commercialize an ultra-rapid-acting insulin formulation or a liquid glucagon formulation ; our ability to enter into collaboration arrangements for the commercialization of our product candidates and the success or failure of any such collaborations into which we enter , or our ability to commercialize our product candidates ourselves ; our ability to enforce our patents for our product candidates and our ability to secure additional patents for our product candidates ; our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others ; the degree of clinical utility of our product candidates , particularly with regard to our ultra-rapid-acting insulin formulations , which have not yet been shown to be clinically superior to existing rapid-acting insulin analogs ; the emergence of competing technologies and products and other adverse market developments , such as advancements in glucagon stabilization technologies that could enable a room-temperature rescue product in a portable , easy to use presentation ; the ability of our major suppliers to produce our products in our final dosage form ; our commercialization , marketing and manufacturing capabilities and strategies ; and our ability to accurately estimate anticipated operating losses , future revenues , capital requirements and our needs for additional financing . a change in the outcome of any of these variables with respect to the development of ultra-rapid-acting insulin formulations or our liquid glucagon formulation , could mean a significant change in the costs and timing associated with product development . general and administrative expenses general and administrative expenses consist primarily of salaries and related expenses for personnel , including stock-based compensation expenses , in our executive , legal , accounting , finance and information technology functions . other general and administrative expenses include facility-related costs not otherwise allocated to research and development expense , travel expenses , costs associated with industry conventions and professional fees , such as legal and accounting fees and consulting costs . we anticipate that our general and administrative expenses in the fiscal year ending september 30 , 2013 will remain substantially the same as in the fiscal year ended september 30 , 2012 as we continue to focus our efforts on product formulation activities and earlier stage clinical trials . over the longer term , however , these expenses could increase if we are successful in advancing our product candidates into later stage clinical trials , including phase 3 pivotal trials . 42 warrant liability in june 2012 , we issued warrants to purchase 2,749,469 shares of our common stock at an exercise price of $ 2.66 per share in connection with our june 2012 private placement . these warrants will expire on june 26 , 2017 , five years from the original issuance date of june 27 , 2012. in may 2011 , we issued warrants to purchase 2,256,929 shares of our common stock at an exercise price of $ 9.92 per share in connection with our may 2011 registered direct offering . these warrants will expire on may 17 , 2016 , five years from the original issuance date of may 18 , 2011. under the terms of both the 2012 warrants and the 2011 warrants , if we enter into a merger or change of control transaction , the holders of the warrants will be entitled to receive consideration as if they had exercised the warrants immediately prior to such transaction , or they may require us to purchase the unexercised warrants at the black-scholes value ( as defined in the applicable warrant ) of the warrant on the date of such transaction . the holders have up to 30 days following any such transaction to exercise this right . as a result of this provision , we recognize the 2012 and 2011 warrants as liabilities at their fair value on each reporting date . we use the black-scholes valuation model to estimate the fair value of the warrants . the black-scholes valuation model takes into account , as of the valuation date , factors including the current exercise price , the expected life of the warrant , the current price of the underlying stock and its expected volatility , expected dividends on the stock , and the risk-free interest rate for the term of the warrant . using this model , we recorded an initial warrant liability of $ 4.8 million for the 2012 warrants and $ 9.4 million for the 2011 warrants , in each case as of the initial warrant issuance date .
| results of operations year ended september 30 , 2012 compared to year ended september 30 , 2011 revenue . we did not recognize any revenue during the years ended september 30 , 2012 or 2011 . 46 research and development expenses . replace_table_token_6_th research and development expenses were $ 12.5 million for the year ended september 30 , 2012 , a decrease of $ 1.3 million or 10 % , from $ 13.9 million for the year ended september 30 , 2011. this decrease was primarily attributable to reductions of $ 2.6 million in manufacturing expenses and $ 0.4 million in regulatory expenses . these decreases were offset in part by an increase of $ 1.4 million in clinical expenses related primarily to our phase 1 clinical trial of biod-123 and biod-125 and a net increase of $ 0.3 million in research and development expenses related to an increase in the number of preclinical animal studies we conducted and a licensing fee paid to aegis . the reductions in manufacturing expenses are attributable to savings of $ 2.2 million as a result of renegotiating the terms of our supply agreement for rhi and $ 0.4 million in reduced personnel costs . the $ 0.4 million reduction in regulatory expenses resulted from lower professional fees for the year ended september 30 , 2012 , as compared to 2011 , and lower stock-based compensation costs . the research and development expenses for the twelve months ended september 30 , 2011 were reduced by our receipt in january 2011 of $ 1.2 million in research grants under the internal revenue services therapeutic tax credit program and were increased by a $ 1.4 million severance charge resulting from the retirement of our former chief scientific officer . research and development expenses for the year ended september 30 , 2012 include $ 0.7 million in stock-based compensation expense related to options granted to employees .
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pricewaterhousecoopers llp greensboro , north carolina february 29 , 2012 f-2 [ this page intentionally left blank ] f-3 tanger factory outlet centers , inc. and subsidiaries consolidated balance sheets ( in thousands , except share and per share data ) replace_table_token_35_th the accompanying notes are an integral part of these consolidated financial statements . f-4 tanger factory outlet centers , inc. and subsidiaries consolidated statements of operations ( in thousands , except per share data ) replace_table_token_36_th the accompanying notes are an integral part of these consolidated financial statements . f-5 tanger factory outlet centers , inc. and subsidiaries consolidated statements of shareholders ' equity ( in thousands , except share and per share data ) preferred shares common shares paid in capital distributions in excess of earnings accumulated other comprehensive income ( loss ) total shareholders ' equity noncontrolling interest in operating partnership noncontrolling story_separator_special_tag cautionary statements certain statements made in item 1 - business and this management 's discussion and analysis of financial condition and results of operations below are forward-looking statements within the meaning of section 27a of the securities act and section 21e of the exchange act . we intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the private securities reform act of 1995 and included this statement for purposes of complying with these safe harbor provisions . forward-looking statements , which are based on certain assumptions and describe our future plans , strategies , beliefs and expectations , are generally identifiable by use of the words 'believe ' , 'expect ' , 'intend ' , 'anticipate ' , 'estimate ' , 'project ' , or similar expressions . you should not rely on forward-looking statements since they involve known and unknown risks , uncertainties and other factors which are , in some cases , beyond our control and which could materially affect our actual results , performance or achievements . factors which may cause actual results to differ materially from current expectations include , but are not limited to , those set forth under item 1a - risk factors . the following discussion should be read in conjunction with the consolidated financial statements appearing elsewhere in this report . historical results and percentage relationships set forth in the consolidated statements of operations , including trends which might appear , are not necessarily indicative of future operations . general overview at december 31 , 2011 and 2010 , we had 36 consolidated outlet centers in 24 states totaling 10.7 million square feet . the table below details our development and acquisition activities that significantly impacted our results of operations and liquidity during 2011. replace_table_token_15_th ( 1 ) substantially all of the economic interests in phase i & ii of atlantic city outlets the walk and ocean city were purchased on july 15 , 2011 , and substantially all of the economic interest in phase iii if atlantic city outlets the walk was purchased on november 1 , 2011 . ( 2 ) excludes a $ 6.2 million loan to the noncontrolling interest holder collateralized by their ownership interest in the property . 32 leasing activity the following table provides information for our consolidated outlet centers regarding space re-leased or renewed during the years ended december 31 , 2011 and 2010 , respectively : replace_table_token_16_th ( 1 ) net average straight-line rent is calculated by dividing the average tenant allowance costs per square foot by the average initial term and subtracting this calculated number from the average straight-line rent per year amount . the average annaul straight-line rent disclosed in the table above includes all concessions , abatements and reimbursements of rent to tenants . story_separator_special_tag style= '' font-family : arial ; font-size:10pt ; color : # 000000 ; font-weight : normal ; text-decoration : none ; '' > 8 % , in the 2011 period as compared to the 2010 period . the following table sets forth the changes in various components of property operating expenses ( in thousands ) : replace_table_token_20_th general and administrative expenses general and administrative expenses increased $ 5.6 million , or 23 % , in the 2011 period as compared to the 2010 period . this increase was primarily due to additional share-based compensation expense related to the 2011 restricted share grant to directors and certain officers of the company and organizational costs related to the formation of additional unconsolidated joint ventures . also , the 2011 period included higher payroll related expenses on a comparative basis to the 2010 period due to the addition of new employees throughout 2011 , including the positions of executive vice president - chief operating officer and executive vice president - general counsel . acquisition costs the 2011 period includes costs related to the acquisition of the properties described above in `` general overview '' . impairment charges in 2005 we sold an outlet center located in seymour , indiana . we retained various outparcels of land at the development site , some of which we had sold in recent years . in february 2010 , our board of directors approved the sale of the remaining parcels of land in seymour , in . as a result of this board approval and an approved plan to actively market the land , we accounted for the land as `` held for sale '' and recorded a non-cash impairment charge of approximately $ 735,000 in the 2010 period in our consolidated statement of operations which equaled the excess of the carrying amount of the land over its current fair value . we determined the estimated fair value using a market approach considering offers that we obtained for all the various parcels less estimated closing costs . depreciation and amortization depreciation and amortization increased $ 6.0 million , or 8 % , in the 2011 period as compared to the 2010 period . story_separator_special_tag the redevelopment of this site began during the second quarter of 2010 with the opening of a new 177,000 square foot outlet center during the first quarter of 2011. base rentals related to the demolished center of $ 400,000 and $ 1.8 million for the years ended 2010 and 2009 , respectively are included in the `` base rentals from new developments '' line item above . also , included in base rentals is the amortization from the value of the above and below market leases recorded as a result of our property acquisitions as either an increase ( in the case of below market leases ) or a decrease ( in the case of above market leases ) to rental income over the remaining term of the associated lease . at december 31 , 2010 , the net liability representing the amount of unrecognized combined above and below market lease values totaled approximately $ 1.5 million . if a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease , any unamortized balance of the related above or below market lease value will be written off and could materially impact our net income positively or negatively . percentage rentals percentage rentals , which represent revenues based on a percentage of tenants ' sales volume above predetermined levels , increased $ 1.1 million , or 16 % from the 2009 period to the 2010 period . the increase in percentage rentals are directly related to the strength of our tenants ' sales . reported tenant comparable sales for our wholly owned properties for the year ended december 31 , 2010 increased 6.6 % to $ 354 per square foot . reported tenant comparable sales is defined as the weighted average sales per square foot reported in space open for the full duration of each comparison period . expense reimbursements expense reimbursements increased $ 2.1 million , or 3 % , in the 2010 period compared to the 2009 period . the following table sets forth the changes in various components of expense reimbursements from 2009 to 2010 ( in thousands ) : replace_table_token_23_th expense reimbursements , which represent the contractual recovery from tenants of certain common area maintenance , insurance , property tax , promotional , advertising and management expenses , generally fluctuate consistently with the reimbursable property operating expenses to which they relate . 37 in november 2010 , we opened our new outlet center in mebane , nc and during the second quarter of 2009 opened an additional expansion phase at our commerce ii , ga outlet center . expense reimbursements from the redevelopment of hilton head i , sc center of $ 115,000 and $ 918,000 for the years ended 2010 and 2009 , respectively , are included in the `` expense reimbursements from new developments '' line item above . other income other income decreased $ 2.5 million , or 22 % , in the 2010 period as compared to the 2009 period due primarily to the $ 3.3 million gain on the sale of a land outparcel at our washington , pennsylvania outlet center in august 2009. this decrease was partially offset by the incremental other income generated from the opening of the outlet center in mebane , nc in november 2010 and an increase in tanger club memberships and other vending categories . property operating expenses property operating expenses increased $ 5.6 million , or 6 % , in the 2010 period compared to the 2009 period . the following table sets forth the changes in various components of property operating expenses from 2009 to 2010 thousands ) : replace_table_token_24_th the increase in existing property operating expenses is primarily due to increases in snow removal in 2010 due to extreme winter weather in december in the eastern portion of the united states and normal annual increases associated with operating mall offices throughout our portfolio . general and administrative expenses general and administrative expenses decreased $ 8.0 million , or 25 % , in the 2010 period as compared to the 2009 period . effective september 1 , 2009 , stanley k. tanger , founder of the company , retired as an employee of the company . his severance , totaling $ 10.3 million , consisted of a cash payment of $ 3.4 million and $ 6.9 million of share-based compensation from the accelerated vesting of restricted common shares . excluding this severance , general and administrative expenses increased $ 2.3 million primarily as a result of additional share-based compensation expense related to the 2010 notional unit plan and increases in other professional and legal fees . depreciation and amortization expenses depreciation and amortization decreased $ 1.9 million , or 2 % , in the 2010 period compared to the 2009 period . the majority of the decrease is due to lower levels of intangible lease cost amortization from acquired outlet centers in 2003 , 2005 and 2009. these decreases were partially offset by additional depreciation and amortization of approximately $ 9.0 million and $ 6.3 million recognized during the 2010 and 2009 periods , respectively , related to the demolition and redevelopment plan at our hilton head i , sc center . impairment charge in 2005 we sold our outlet center located in seymour , in , but retained various outparcels of land at the development site , some of which we had sold in recent years . in february 2010 , our board of directors approved the sale of the remaining parcels of land in seymour , in . as a result of this board approval and an approved plan to actively market the land for sale , we accounted for the land as `` held for sale '' and recorded a non-cash impairment charge of approximately $ 735,000 in our consolidated statements of operations which equaled the excess of the carrying amount of the land over its fair value at that time .
| results of operations 2011 compared to 2010 net income net income increased approximately $ 12.7 million in the 2011 period to $ 51.0 million as compared to $ 38.2 million for the 2010 period . the increase in net income was a result of a $ 38.9 million increase in operating revenues partially offset by a $ 15.4 million increase in operating expenses , $ 11.3 million in higher interest costs , $ 6.0 million in higher depreciation and amortization amounts and $ 1.1 million in higher losses on unconsolidated joint ventures . in addition , $ 6.7 million of losses on debt extinguishment and termination of derivatives were recorded during the 2010 period compared to no losses on debt extinguishment for the 2011 period . base rentals base rentals increased $ 28.7 million , or 16 % , in the 2011 period compared to the 2010 period . the following table sets forth the changes in various components of base rentals ( in thousands ) : replace_table_token_17_th base rental income generated from existing properties in our portfolio increased due to increases in rental rates on lease renewals and incremental rents from re-tenanting vacant spaces . 33 during the fourth quarter of 2010 , we opened a 319,000 square foot outlet center in mebane , nc . during the first quarter of 2011 , we completed the redevelopment and opened our 177,000 square foot outlet center in hilton head i , sc and throughout 2011 acquired a total of four outlet centers adding approximately 1.3 million square feet of to our consolidated outlet center portfolio . at december 31 , 2011 , the net asset representing the amount of unrecognized , combined above and below market lease values , recorded as a part of the purchase price of acquired properties , totaled approximately $ 4.4 million .
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at september 30 , 2013 , $ 126.5 million , or 42.4 % of our loan portfolio , consisted of one- to four-family residential real estate loans , of which $ 89.0 million , or 70.4 % , were fixed rate loans and $ 37.5 million , or 29.6 % were adjustable rate loans . this resulted in our being particularly vulnerable to increases in interest rates , as our interest-bearing liabilities mature or reprice more quickly than our interest-earning assets . in recent years , we have increased our focus on the origination of commercial real estate loans , which generally provide higher yields than one- to four-family residential mortgage loans , have shorter durations and are usually originated with adjustable interest rates . other than our loans for the construction of one- to four-family residential properties and home equity lines of credit , we do not offer interest only mortgage loans on one- to four-family residential properties ( where the borrower pays interest but no principal for an initial period , after which the loan converts to a fully amortizing loan ) . we also do not offer loans that provide for negative amortization of principal , such as option arm loans , where the borrower can pay less than the interest owed on their loan , resulting in an increased principal balance during the life of the loan . we do not offer subprime loans ( loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies , previous charge-offs , judgments , 21 bankruptcies , or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios ) or alt-a loans ( traditionally defined as loans having less than full documentation ) . we also do not own any private label mortgage-backed securities that are collateralized by alt-a , low or no documentation or subprime mortgage loans . at september 30 , 2013 , 99.6 % of our mortgage-backed securities have been issued by freddie mac , fannie mae or ginnie mae , u.s. government agencies or government-sponsored enterprises . these entities guarantee the payment of principal and interest on our mortgage-backed securities . our non-performing assets totaled $ 2.6 million , or 0.60 % of total assets at september 30 , 2013 , compared to $ 4.4 million , or 1.00 % , of total assets at september 30 , 2012. we had $ 2.6 million and $ 4.9 million of loans delinquent 60 days or greater at september 30 , 2013 and september 30 , 2012 , respectively . we provided $ 375,000 for loan losses during the fiscal year ended september 30 , 2013 and $ 1.2 million during the fiscal year ended september 30 , 2012. business strategy our primary objective is to operate as a profitable , community-oriented financial institution serving customers in our market areas . we have sought to accomplish this objective by adopting a business strategy that is designed to maintain strong capital and high asset quality . this business strategy includes the following elements : · remaining a community-oriented financial institution while continuing to increase our customer base of small and medium-size businesses in our market area . we were established in 1913 and have operated continuously in the pittsburgh metropolitan area since that date . in 2006 , we acquired hoblitzell national bank ( hnb ) , which expanded our branch network to bedford county , pennsylvania and allegany county , maryland . we are committed to meeting the financial needs of the communities in which we operate , and we are dedicated to providing quality personal service to our customers . we provide a broad range of consumer and business financial services from our ten banking offices , and have expanded our commercial real estate staff to enhance our capacity to serve small businesses in our market area . · increasing commercial real estate lending while maintaining our conservative loan underwriting standards . our loan portfolio balance has increased in recent years due in part to the growth in our commercial real estate loan portfolio to $ 95.8 million , or 32.1 % of our gross loan portfolio at september 30 , 2013 , from $ 76.9 million , or 27.9 % of our gross loan portfolio at september 30 , 2009. in growing our commercial real estate loan portfolio , we have emphasized maintaining strong asset quality by following conservative loan underwriting guidelines . we underwrite all of our loans in our main office to ensure uniformity and consistency in underwriting decisions . · emphasizing core deposits by attracting new customers and enhancing existing customer relationships . in an effort to grow our banking franchise , we have enhanced our direct marketing efforts to local businesses and established a stronger culture of cross-selling our products to our existing customers . in addition , we attract and retain deposits by offering enhanced technology , such as online banking and remote deposit capture , with a continued emphasis on quality customer service . · expanding our branch network , primarily through branch purchases and de novo branching . we currently operate from ten banking offices . we intend to evaluate additional branch expansion opportunities , primarily through branch purchases and de novo branches , to expand our presence in our current market area . · pursuing future expansion and acquisition opportunities with the capital obtained in the conversion , although we have no current arrangements or agreements with respect to any such acquisitions . we intend to evaluate acquisitions of other financial institutions , as opportunities present themselves . critical accounting policies we consider accounting policies that require management to exercise significant judgment or discretion or make significant assumptions that have , or could have , a material impact on the carrying value of certain assets or on income , to be critical accounting policies . we consider the following to be our critical accounting policies . 22 allowance for loan losses . story_separator_special_tag cash and cash equivalents decreased $ 3.8 million , or 20.2 % , to $ 15.0 million at september 30 , 2013 from $ 18.8 million at september 30 , 2012. this decrease was due mainly to funds used to repurchase the company 's common stock , deposit outflows , net loan originations and the purchase of additional bank owned life insurance . loans . at september 30 , 2013 , net loans were $ 293.7 million , or 67.2 % of total assets , an increase of $ 2.6 million from $ 291.1 million at september 30 , 2012. this increase was primarily due to increases in home equity loans and commercial real estate loans . 23 loan portfolio composition . the following table sets forth the composition of our loan portfolio at the dates indicated , excluding loans held for sale . replace_table_token_6_th 24 loan portfolio maturities and yields . the following table summarizes the scheduled repayments of our loan portfolio at september 30 , 2013. demand loans , loans having no stated repayment schedule or maturity , and overdraft loans are reported as being due in one year or less . replace_table_token_7_th replace_table_token_8_th 25 fixed and adjustable rate loans . the following table sets forth the scheduled repayments of fixed- and adjustable-rate loans at september 30 , 2013 that are contractually due after september 30 , 2014. replace_table_token_9_th investment securities portfolio . the following table sets forth the composition of our investment securities portfolio at the dates indicated . replace_table_token_10_th at september 30 , 2013 and september 30 , 2012 , all of our investment securities were classified as available for sale and recorded at current fair value . purchases of securities during the fiscal year ended september 30 , 2013 of $ 18.3 million were offset by maturities , repayments , calls and sales of $ 24.6 million . at september 30 , 2013 and september 30 , 2012 , the company held 42 securities and 16 securities in unrealized loss positions of $ 1.0 million and $ 258,000 , respectively . the decline in the fair value of these securities resulted primarily from interest rate fluctuations . the company does not intend to sell these securities nor is it more likely than not that the company would be required to sell these securities before their anticipated recovery and the company believes the collection of the investment and related interest is probable . based on this analysis , the company considers all of the unrealized losses to be temporary impairment losses . 26 portfolio maturities and yields . the composition and maturities of the investment securities portfolio at september 30 , 2013 are summarized in the following table . maturities are based on the final contractual payment dates , and do not reflect the impact of prepayments or early redemptions that may occur . state and municipal securities yields have not been adjusted to a tax-equivalent basis . more than one year more than five years one year or less through five years through ten years more than ten years total securities weighted weighted weighted weighted weighted amortized average amortized average amortized average amortized average amortized fair average cost yield cost yield cost yield cost yield cost value yield ( dollars in thousands ) municipal obligations $ $ 4,932 3.17 % $ 25,498 3.47 % $ 1,708 2.92 % $ 32,138 $ 33,052 3.39 % u.s. government and agency obligations 10,997 1.33 % 12,000 1.51 % 22,997 22,358 1.43 % corporate bonds 7,000 1.58 % 7,000 7,047 1.58 % mortgage-backed securities : ginnie mae pass through certificates 10,443 1.80 % 10,443 10,504 1.80 % fannie mae pass through certificates 50 4.29 % 77 4.50 % 2,944 2.71 % 10,976 2.12 % 14,047 14,276 2.27 % freddie mac pass through certificates 31 4.00 % 194 4.50 % 1,689 4.52 % 1,914 2,029 4.51 % collateralized mortgage obligations 126 4.75 % 2,745 1.83 % 2,871 2,779 1.95 % private pass through certificates 114 0.88 % 114 113 0.88 % equity securities 1,468 2.72 % 1,468 1,595 2.72 % total $ 81 4.18 % $ 23,200 1.83 % $ 42,257 2.91 % $ 27,454 2.05 % $ 92,992 $ 93,753 2.39 % 27 bank owned life insurance . we invest in bank owned life insurance to provide us with a funding source for our benefit plan obligations . bank owned life insurance also generally provides us noninterest income that is non-taxable . at september 30 , 2013 , we had invested $ 13.7 million in bank owned life insurance of which $ 3.0 million was purchased during the year ended september 30 , 2013. deposits . we accept deposits primarily from the areas in which our offices are located . we have consistently focused on building broader customer relationships and targeting small business customers to increase our core deposits . we also rely on our customer service to attract and retain deposits . we offer a variety of deposit accounts with a range of interest rates and terms . our deposit accounts consist of savings accounts , certificates of deposit , money market accounts , commercial and regular checking accounts and individual retirement accounts . interest rates , maturity terms , service fees and withdrawal penalties are established on a periodic basis . deposit rates and terms are based primarily on current operating strategies and market interest rates , liquidity requirements and our deposit growth goals . we do not accept brokered deposits . deposits decreased $ 4.2 million , or 1.3 % , to $ 326.1 million at september 30 , 2013 from $ 330.3 million at september 30 , 2012. the decrease resulted from a $ 7.5 million , or 5.5 % decrease in certificate accounts partly offset by a $ 3.4 million , or 1.7 % increase in demand and savings accounts due to customer preferences for shorter term deposits .
| general . net income for the fiscal year ended september 30 , 2013 was $ 2.9 million or $ 0.97 per share compared to $ 3.0 million or $ 0.93 per share for the fiscal year ended september 30 , 2012. return on average assets and average equity were 0.66 % and 3.71 % , respectively , for the fiscal year ended september 30 , 2013 compared to 0.67 % and 3.73 % , respectively , for the fiscal year ended september 30 , 2012. net interest income . net interest income declined $ 1.0 million , or 8.1 % , to $ 11.9 million for the fiscal year ended september 30 , 2013 from $ 13.0 million for the fiscal year ended september 30 , 2012. our net interest rate spread and net interest margin were 2.81 % and 2.94 % , respectively for the fiscal year ended september 30 , 2013 compared to 3.00 % and 3.15 % for the prior year . the decreases in the net interest rate spread and net interest margin were the result of the yield on interest-earning assets declining more rapidly than the cost of interest-bearing liabilities . interest and dividend income . total interest and dividend income of $ 15.7 million for the fiscal year ended september 30 , 2013 decreased $ 1.6 million , or 9.1 % , from the prior fiscal year . the decrease was due to a decline in the average yield on interest-earning assets and a decrease in the average balance of interest-earning assets . the average yield on interest-earning assets decreased to 3.89 % for the fiscal year ended september 30 , 2013 from 4.21 % for the prior year . the average yield on all categories of interest earning assets decreased from the previous fiscal year due to the low interest rate environment .
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the company navidea biopharmaceuticals , inc. ( navidea , the company , or we ) , a delaware corporation , is a biopharmaceutical company focused on the development and commercialization of precision diagnostics . toward that end , we are currently developing five pharmaceutical platforms : lymphoseek ® ( technetium tc 99m tilmanocept ) injection is a novel , receptor-targeted , small-molecule radiopharmaceutical used in lymphatic mapping procedures that are performed to help evaluate patients with breast cancer and melanoma . lymphoseek is designed to identify the lymph nodes that drain from a primary tumor , which have the highest probability of harboring cancer . it was approved by the u.s. food and drug administration ( fda ) in march 2013 , and launched commercially in the united states in may 2013. navidea 's manocept platform is predicated on the ability to specifically target the cd206 mannose receptor expressed on macrophages . this flexible and versatile platform acts as an engine for the design of purpose-built molecules offering the potential to be utilized across a range of diagnostic modalities , including single photon emission computed tomography ( spect ) , positron emission tomography ( pet ) , intra-operative and or optical-fluorescence detection in a variety of disease states . nav4694 is a fluorine-18 ( f-18 ) radiolabeled pet imaging agent being developed as an aid in the diagnosis of patients with signs or symptoms of cognitive impairment such as alzheimer 's disease ( ad ) . nav5001 is an iodine-123 ( i-123 ) radiolabeled spect imaging agent being developed as an aid in the diagnosis of parkinson 's disease ( pd ) and other movement disorders , with potential use as a diagnostic aid in dementia . nav1800 ( formerly rigscan ) is a radiolabeled monoclonal antibody being developed as a diagnostic aid for use during surgery to help surgeons locate occult or metastatic cancer , with a primary focus on colorectal cancer . the last four of these drug product platforms are still in development and must be cleared for marketing by the appropriate regulatory authorities before they can be sold in any markets . executive summary we believe that the future prospects for navidea continue to improve as we execute our strategic vision to become a leader in precision diagnostics . our primary development efforts over the last few years have been focused on the development of our now-approved lymphoseek product , as well as more recently on our other pipeline programs , including nav4694 , nav5001 , nav1800 , and our manocept platform . we expect our overall research and development expenditures to be higher during 2014 as compared to 2013 due to the advances in our clinical , regulatory , and business development programs and activities , as well as personnel , contractors and consultants that support the global registration and commercialization of lymphoseek , further development of nav4694 , nav5001 , nav1800 , and our manocept platform . the level to which the expenditures rise will depend on the scope , requirements and timing of these strategic development initiatives in different territories around the world . our efforts in 2013 and to date in 2014 have resulted in the following milestone achievements : corporate/financial completed two underwritten public offerings totaling 3.6 million shares of common stock in february and april 2013 , resulting in net proceeds to the company of approximately $ 9.3 million . drew $ 4 million under the $ 50 million credit facility with platinum . platinum also exercised certain warrants in march 2013 , providing $ 1.4 million in proceeds . 41 closed on a $ 25 million debt financing transaction led by ge capital , healthcare financial services in june 2013. completed a $ 30 million registered direct offering of common stock led by crede cg iii , ltd. ( crede ) , a wholly-owned subsidiary of crede capital group , llc , a u.s.-based accredited , institutional investor , in september 2013. executed a $ 30 million debt financing transaction with oxford finance llc in march 2014 , resulting in full payoff of the ge capital debt and providing increased access to our working capital . appointed dr. thomas tulip president , in addition to his continuing duties as chief business officer , effective in may 2013. dr. mark pykett retained the title of chief executive officer . appointed dr. michael m. goldberg and perry a. karsen to our board of directors in november 2013 and february 2014 , respectively . pipeline lymphoseek ◦ launched lymphoseek in may 2013 with cardinal health , following the march 2013 approval by the fda . lymphoseek is indicated for use in lymphatic mapping for breast cancer and melanoma and will be sold and distributed by cardinal health to health care professionals in the united states through its network of nuclear pharmacies . ◦ reported top-line data from the planned interim analysis of the neo3-06 phase 3 head and neck cancer clinical study of lymphoseek demonstrating that lymphoseek met its primary endpoint in identification of sentinel lymph nodes as compared to the gold standard of pathology assessment of multi-level node resection . ◦ published results of lymphoseek phase 3 clinical trials in breast cancer in annals of surgical oncology showing that lymphoseek met its primary efficacy endpoint in assessment of lymphatic mapping performance in patients with breast cancer . ◦ announced commencement of an investigator-initiated study by maimonides medical center to evaluate the utility of lymphoseek in lymphatic mapping procedures for colorectal cancer . ◦ researchers highlighted results from lymphoseek clinical trials in 20 presentations and a sponsored lymphatic mapping symposium at the joint international oncology congress , the annual meeting of the american society of clinical oncology and the annual meeting of the society of nuclear medicine and molecular imaging ( snmmi ) including the utilization of lymphoseek to asses sln in head and neck cancer patients and the evaluation of human mannose receptor ( cd206 ) binding of lymphoseek . story_separator_special_tag 43 our outlook in connection with the u.s. approval of lymphoseek in march 2013 , the company has now undertaken the initial stages of commercial launch in the u.s. with our marketing partner , cardinal health , with an official announcement of launch in may 2013. we began reporting revenue from lymphoseek beginning in the second quarter of 2013 , though revenue for the second quarter consisted primarily of inventory stocking of cardinal health 's nuclear pharmacies . our sales margins since launch have reflected the negative impact of the comparatively higher proportion of sales of lower-margin inventory stocking units and testing activities associated with launch and required by the fda . our longer-term expectations for gross margins will increase as these charges diminish in proportion to revenue , and continue to be in line with previous estimates . as insight into the sales process with lymphoseek has grown over the initial quarters of sales , we anticipate revenue to navidea from lymphoseek will be between $ 5 million and $ 6 million during 2014. we expect to update this guidance on a quarterly basis over the remainder of 2014 , augmented where possible by data from certain primary metrics with which to assess lymphoseek 's performance . the company currently believes lymphoseek has the potential to achieve a market leadership position among lymphatic mapping agents in the u.s. by mid-2015 . following the sale of the gds business , our entire organization has been primarily focused on the development of radiopharmaceutical agents that are intended to assist us in fulfilling our vision of becoming a leader in precision diagnostics . our operating expenses in recent years have been focused primarily on support of lymphoseek , nav4694 and nav5001 product development , and to a lesser extent , on efforts to restart active development of nav1800 . in addition , we began initial evaluation of our manocept platform in 2013.we spent approximately $ 23.7 million , $ 16.9 million , and $ 15.2 million in total on research and development activities in the years ended december 31 , 2013 , 2012 and 2011 , respectively . of the total amounts we have spent on research and development over the last three years , excluding costs related to our internal research and development headcount and our general and administrative staff which we do not currently allocate among the various development programs that we have underway , we incurred out-of-pocket charges by program as follows : replace_table_token_4_th due to the advancement of our efforts with lymphoseek , our manocept platform , nav4694 , nav5001 , and nav1800 , we expect our total drug-related research and development expenses for 2014 to increase to approximately $ 25 million to $ 30 million . the levels of program expenditures will depend in part on efforts associated with advancing lymphoseek and accelerating enrollment and other activities related to our nav4694 program . in general , development expenses for lymphoseek in 2014 are expected to decrease as compared to 2013 ; expenses in some other programs are anticipated to increase in 2014 over 2013 , primarily driven by nav4694 , and to a lesser extent , manocept . we expect expenses for nav5001 to be largely steady and commensurate with our available resources . expenses related to nav1800 may increase in 2014 from 2013 , but in a manner consistent with funding available under our nih sbir grant . lymphoseek was approved and indicated for use in lymphatic mapping in patients with breast cancer and melanoma by the fda in march 2013. during 2014 , we expect to continue to incur significant general marketing support as well as medical education expenses related to lymphoseek . although our marketing partner will bear the direct marketing , sales and distribution costs related to the sale of lymphoseek , we expect to incur ongoing costs to support product launch and medical education-related and market outreach activities associated with lymphoseek commercialization . we expect to incur additional development expenses related to supporting the maa review of lymphoseek in the eu and support the other product , regulatory , manufacturing and commercial activities related to the potential marketing registration and sale of lymphoseek in other markets . additionally , we anticipate that we will incur costs related to the fda review and advancement of our two lymphoseek sndas . we can not assure you that lymphoseek will achieve regulatory approval in the eu or any other market outside the u.s. , or if approved , that it will achieve market acceptance in the u.s. or any other market . we are currently evaluating existing and emerging data on the potential use of manocept-related agents in the diagnosis and disease-staging of disorders in which macrophages are involved such as ks , tb , ra and other disease states , to define areas of focus , development pathways and partnering options to capitalize on the manocept platform . in the near-term , our development efforts with respect to the manocept platform will likely be limited to such evaluations . we will also be evaluating potential funding and other resources required for continued development , regulatory approval and commercialization of any manocept 44 platform product candidates that we identify for further development . we can not assure you that further evaluation or development will be successful , that any manocept platform product candidate will ultimately achieve regulatory approval , or if approved , the extent to which it will achieve market acceptance . we expect to incur significant expenses for nav4694 during 2014 related to ongoing phase 2 clinical trials and a pivotal phase 3 clinical trial in subjects with ad , as well as costs for manufacturing-related activities required prior to filing for regulatory clearance to market . we also expect to incur significant expenses for nav5001 during 2014 , primarily in support of our phase 3 clinical trials , as well as for manufacturing-related activities required to support our clinical trial and registration efforts .
| results of operations this discussion of our results of operations focuses on describing results of our operations as if we had not operated the discontinued operations discussed above during the periods being disclosed . in addition , since our radiopharmaceuticals only recently began generating commercial revenue , the discussion of our operating variances focuses primarily on our radiopharmaceutical development programs and the supporting general and administrative expenses . 45 years ended december 31 , 2013 and 2012 net sales and margins . net sales of lymphoseek were $ 614,000 during 2013. we did not record any sales revenue during the same period in 2012. gross margins on net sales of lymphoseek were 46 % for the year ended 2013. cost of goods sold included a royalty on net sales payable under our license agreement with ucsd . during the year ended december 31 , 2013 , margins on lymphoseek sales were negatively impacted due to the proportion of sales made up of lower margin inventory-stocking units , coupled with post-production testing activities at launch , required by regulatory authorities , which are charged as one-time period costs , including certain post-manufacture testing costs related to normal ongoing processes required by the fda . grant and other revenue . during 2013 , we recognized $ 440,000 of grant revenue related to sbir grants from the nih to support nav4694 and nav1800 development . grant revenue of $ 76,000 was received from ohio third frontier and provided $ 50,000 toward the development of alternative uses of lymphoseek and $ 26,000 supporting student internships . during the year ended december 31 , 2012 , we recognized $ 60,000 of revenue related to reimbursement of certain lymphoseek commercialization activities by our distribution partner , cardinal health , and $ 19,000 related to ohio third frontier grants supporting student internships . research and development expenses .
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due to the timing of payment of our capital expenditures and timing of borrowings under our 2017 senior credit facility , we reflected a working capital deficit of $ 21.0 million as of december 31 , 2018. to the extent we operate with a working capital deficit , we expect such deficit to be offset by the liquidity available under the 2017 senior credit facility . 39 outlook our total capital expenditures for 2019 are expected to be appro ximately $ 90 to $ 100 million with flexibility to increase or decrease this amount based on the movement of commodity prices . we plan to focus all of our capital on drilling and development of our haynesville shale trend natural gas properties in north louisiana , and we currently contemplate drilling and developing 11 gross ( 9.8 net ) w ells utilizing improved completion techniques . we believe the results of the capital investments we made in 2018 will generate additional cash flows and additional value that will allow us to raise capital to continue our capital development into 2019 and beyond . in addition , to support future cash flows , we entered into strategic derivative positions as of december 31 , 2018 covering approximatel y 53 % of our antic ipated oil and natural gas sales volumes for 2019. see note 9- “ derivative activities ” in the notes to consolidated financial statements in part ii item 8 of the annual report on form 10-k. we continuously monitor our balance sheet and coordinate our capital program with our expected cash flows and scheduled debt repayments . we will continue to evaluate funding alternatives as needed . alternatives available to us include : availability under the 2017 senior credit facility ; issuance of equity securities ; issuance of debt securities ; joint ventures in our tms and or haynesville shale trend acreage ; and sale of non-core assets . the table below summarizes our cash flows for the periods indicated ( in thousands ) : replace_table_token_19_th at december 31 , 2018 , our heavily weighted capital expenditures in the second half of 2018 resulted in a working capital deficit of $ 21.0 million , which was more than offset by the liquidity available under the 2017 senior credit facility . we had approximately $ 76.8 million in long-term debt as of december 31 , 2018. cash flows for the year ended december 31 , 2018 operating activities : production from our wells , the price of oil and natural gas and operating costs represent the main drivers of our cash flow from operations . changes in working capital and net cash settlements related to our derivative contracts also impacted cash flows . net cash provided by operating activities for the year ended december 31 , 2018 was $ 49.2 million including operating cash flows before working capital changes of $ 46.3 million reduced by net cash payments of $ 3.2 million for settlements of derivative contracts . the substantial increase in cash provided by operating activities in 2018 compared to 2017 was attributable to a 94 % increase in oil and natural gas revenues driven by a 112 % increase in equivalent production volumes . investing activities : net cash used in investing activities was $ 78.3 million for the year ended december 31 , 2018 , which reflected cash expended on capital projects of $ 105.1 million reduced by $ 26.8 million cash proceeds received from sales of oil and gas properties . we recorded $ 106.9 million in capital expenditures in this period , which reflected the utilization of $ 1.2 million of cash calls paid in the previous period , the utilization of $ 1.9 million from materials inventory , capitalization of $ 0.4 million in asset retirement obligation and capitalization of $ 0.7 million of non-cash internal cost reduced by a net $ 2.4 million in the change of the capital expenditure accrual . we conducted drilling and completion operations on 19 gross ( 12.1 net ) wells bringing 16 gross ( 7.5 net ) wells on production in the haynesville shale trend during the year ended december 31 , 2018 , and we capitalized $ 3.5 million in internal costs . we had 5 gross ( 4.6 net ) wells waiting completion at december 31 , 2018 . 40 financing activities : net cash provided by financing activities for the year ended december 31 , 2018 was $ 7.1 million consisting of net draws of $ 10.3 million on the 2017 senior credit facility reduced by $ 3.1 million for the purchase of shares withheld from employee stock awards for the payments of taxes and $ 0.1 million of debt issuance cost paid upon the amendment of the 2017 senior credit facility . for the year ended december 31 , 2017 operating activities : net cash provided by operating activities for the year ended december 31 , 2017 was $ 18.3 million . production from our wells , the price of oil and natural gas and operating costs represented the main drivers of our cash flow from operations . in addition , net cash settlements of $ 0.5 million related to our derivative contracts and a $ 0.5 million change in working capital also positively impacted cash flows . investing activities : net cash used in investing activities was $ 28.2 million for the year ended december 31 , 2017. we recorded $ 41.8 million in capital expenditures , of which we paid out cash amounts totaling $ 28.8 million for drilling and development operations in the year . the difference was attributed to the utilization of $ 0.4 million of cash calls paid in the previous period , the utilization of $ 1.8 million from materials inventory , $ 0.2 million in asset retirement obligation capitalized and a net $ 10.6 million increase in the capital expenditure accrual . the period also reflected the receipt of $ 0.6 million in proceeds from the story_separator_special_tag due to the timing of payment of our capital expenditures and timing of borrowings under our 2017 senior credit facility , we reflected a working capital deficit of $ 21.0 million as of december 31 , 2018. to the extent we operate with a working capital deficit , we expect such deficit to be offset by the liquidity available under the 2017 senior credit facility . 39 outlook our total capital expenditures for 2019 are expected to be appro ximately $ 90 to $ 100 million with flexibility to increase or decrease this amount based on the movement of commodity prices . we plan to focus all of our capital on drilling and development of our haynesville shale trend natural gas properties in north louisiana , and we currently contemplate drilling and developing 11 gross ( 9.8 net ) w ells utilizing improved completion techniques . we believe the results of the capital investments we made in 2018 will generate additional cash flows and additional value that will allow us to raise capital to continue our capital development into 2019 and beyond . in addition , to support future cash flows , we entered into strategic derivative positions as of december 31 , 2018 covering approximatel y 53 % of our antic ipated oil and natural gas sales volumes for 2019. see note 9- “ derivative activities ” in the notes to consolidated financial statements in part ii item 8 of the annual report on form 10-k. we continuously monitor our balance sheet and coordinate our capital program with our expected cash flows and scheduled debt repayments . we will continue to evaluate funding alternatives as needed . alternatives available to us include : availability under the 2017 senior credit facility ; issuance of equity securities ; issuance of debt securities ; joint ventures in our tms and or haynesville shale trend acreage ; and sale of non-core assets . the table below summarizes our cash flows for the periods indicated ( in thousands ) : replace_table_token_19_th at december 31 , 2018 , our heavily weighted capital expenditures in the second half of 2018 resulted in a working capital deficit of $ 21.0 million , which was more than offset by the liquidity available under the 2017 senior credit facility . we had approximately $ 76.8 million in long-term debt as of december 31 , 2018. cash flows for the year ended december 31 , 2018 operating activities : production from our wells , the price of oil and natural gas and operating costs represent the main drivers of our cash flow from operations . changes in working capital and net cash settlements related to our derivative contracts also impacted cash flows . net cash provided by operating activities for the year ended december 31 , 2018 was $ 49.2 million including operating cash flows before working capital changes of $ 46.3 million reduced by net cash payments of $ 3.2 million for settlements of derivative contracts . the substantial increase in cash provided by operating activities in 2018 compared to 2017 was attributable to a 94 % increase in oil and natural gas revenues driven by a 112 % increase in equivalent production volumes . investing activities : net cash used in investing activities was $ 78.3 million for the year ended december 31 , 2018 , which reflected cash expended on capital projects of $ 105.1 million reduced by $ 26.8 million cash proceeds received from sales of oil and gas properties . we recorded $ 106.9 million in capital expenditures in this period , which reflected the utilization of $ 1.2 million of cash calls paid in the previous period , the utilization of $ 1.9 million from materials inventory , capitalization of $ 0.4 million in asset retirement obligation and capitalization of $ 0.7 million of non-cash internal cost reduced by a net $ 2.4 million in the change of the capital expenditure accrual . we conducted drilling and completion operations on 19 gross ( 12.1 net ) wells bringing 16 gross ( 7.5 net ) wells on production in the haynesville shale trend during the year ended december 31 , 2018 , and we capitalized $ 3.5 million in internal costs . we had 5 gross ( 4.6 net ) wells waiting completion at december 31 , 2018 . 40 financing activities : net cash provided by financing activities for the year ended december 31 , 2018 was $ 7.1 million consisting of net draws of $ 10.3 million on the 2017 senior credit facility reduced by $ 3.1 million for the purchase of shares withheld from employee stock awards for the payments of taxes and $ 0.1 million of debt issuance cost paid upon the amendment of the 2017 senior credit facility . for the year ended december 31 , 2017 operating activities : net cash provided by operating activities for the year ended december 31 , 2017 was $ 18.3 million . production from our wells , the price of oil and natural gas and operating costs represented the main drivers of our cash flow from operations . in addition , net cash settlements of $ 0.5 million related to our derivative contracts and a $ 0.5 million change in working capital also positively impacted cash flows . investing activities : net cash used in investing activities was $ 28.2 million for the year ended december 31 , 2017. we recorded $ 41.8 million in capital expenditures , of which we paid out cash amounts totaling $ 28.8 million for drilling and development operations in the year . the difference was attributed to the utilization of $ 0.4 million of cash calls paid in the previous period , the utilization of $ 1.8 million from materials inventory , $ 0.2 million in asset retirement obligation capitalized and a net $ 10.6 million increase in the capital expenditure accrual . the period also reflected the receipt of $ 0.6 million in proceeds from the
| overview of 2018 results we conducted drilling or completion operations on 19 wells , adding 16 gross ( 7.5 net ) wells to production in the haynesville shale trend ; we ended the year with 480 bcfe of proved oil and natural gas reserves with a pv-10 of $ 418 million ; we achieved an average daily equivalent production rate of 70,537 mcfe per day representing a 112 % increase from 2017 ; we increased our oil and natural gas revenues to $ 87.9 million , representing an increase of 94 % from 2017 ; we generated net income of $ 1.8 million or $ 0.15 per share ( basic ) and $ 0.13 per share ( diluted ) . haynesville shale trend our relatively low risk development acreage in this trend is primarily centered in caddo , desoto and red river parishes , louisiana and angelina and nacogdoches counties , texas . we held approxim ately 41,000 gross ( 22,600 net ) acres as of december 31 , 2018 producing from or prospective for the haynesville shale trend . we incurred drilling or completion costs on 19 wells in 2018 , spending $ 103.3 million of which $ 0.1 million was leasehold cost . we added 16 gross ( 7.5 net ) wells to production in 2018. our net production volumes from our haynesville shale trend wells represented approximat ely 95 % of our total equivalent production on a mcfe basis and substantially all of our total natural gas production for the year ended december 31 , 2018. tuscaloosa marine shale trend we held approximately 50,500 gross ( 35,100 net ) acr es in the tms as of december 31 , 2018 with approximately 47,600 gross ( 32,900 net ) acres held by production .
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comprehensive ( loss ) income : in addition to net income or loss , comprehensive income or loss includes story_separator_special_tag and results of operations introduction this section of this annual report on form 10-k generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018 with a particular emphasis on 2019. for a discussion of our financial condition and results of operations for 2018 compared to 2017 , please refer to item 7 of part ii , “ management 's discussion and analysis of financial condition and results of operations ” in our annual report on form 10-k for the year ended december 31 , 2018 filed with the sec on february 20 , 2019. with regard to properties and projects that are not in production , we provide some details of our plan of operation . this section provides information up to the date of filing this report . the discussion contains financial performance measures that are not prepared in accordance with united states generally accepted accounting principles ( “ us gaap ” or “ gaap ” ) . each of the following is a non-gaap measure : cash gross profit , cash costs , cash cost per ounce , all-in sustaining costs , all-in sustaining cost per ounce , average realized price per ounce , and liquid assets . these non-gaap measures are used by management in running the business and we believe they provide useful information that can be used by investors to evaluate our performance and our ability to generate cash flows . these measures do not have standardized definitions and should not be relied upon in isolation or as a substitute for measures prepared in accordance with gaap . cash costs equals production costs applicable to sales and is used interchangeably throughout the document . for a reconciliation of these non-gaap measures to the amounts included in our statements of operations for the three months ended december 31 , 2019 and 2018 and the years ended december 31 , 2019 , 2018 and 2017 and to our balance sheets as of december 31 , 2019 and 2018 and certain limitations inherent in such measures , please see the discussion under “ non-gaap financial performance measures ” , on page 54. in the fourth quarter of 2019 , we implemented a new non-gaap measure : cash gross profit . we use cash gross profit to evaluate our operating performance and ability to generate cash flow ; we disclose cash gross profit as we believe this measure provides valuable assistance to investors and analysts in evaluating the company 's ability to finance its ongoing business and capital activities . the most directly comparable measure prepared in accordance with gaap is gross profit . this discussion also includes references to “ advanced-stage properties ” , which are defined as properties for which advanced studies and reports have been completed indicating the presence of mineralized material or proven and probable reserves , or that have obtained or are in the process of obtaining the required permitting . our designation of certain properties as “ advanced-stage properties ” should not suggest that we have or will have proven or probable reserves at those properties as defined by the guide 7. the information in this section should be read in conjunction with our consolidated financial statements and the notes thereto included in this annual report on form 10-k. in this report , “ au ” represents gold ; “ ag ” represents silver ; “ oz ” represents troy ounce ; “ t ” represents metric tonne ; “ gpt ” represents grams per metric tonne ; “ ft. ” represents feet ; “ m ” represents meter ; “ sq. ” represents square ; and c $ refers to canadian dollars . all of our financial information is reported in united states ( u.s. ) dollars , unless otherwise noted . throughout this management 's discussion and analysis ( “ mda ” ) , the reporting periods for the three months ended march 31 , 2019 , june 30 , 2019 , september 30 , 2019 , december 31 , 2019 , and december 31 , 2018 are abbreviated as q1/19 , q2/19 , q3/19 , q4/19 and q4/18 , respectively . in addition , in this report , gold equivalent ounces ( “ au eq . oz ” ) includes gold and silver ounces calculated based on a 75:1 silver to gold ratio for periods up to and including the first quarter of 2019 , 88:1 for the second quarter of 2019 , 87:1 for the third quarter of 2019 , and 85:1 for the fourth quarter of 2019. beginning with the second quarter of 2019 , we have adopted a variable silver : gold ratio for reporting that approximates the average price during each fiscal quarter . note : we ceased active mining and processing at the el gallo mine in the second quarter of 2018. where comparative results for mining operations are presented for prior periods , we continue to use the term “ el gallo mine. ” we use the term “ el gallo project ” to refer to the ongoing reclamation and residual heap-leaching that is taking place at the formerly-producing mine . 38 reliability of information : msc , the owner of the san josé mine , is responsible for and has supplied to us all reported results from the san josé mine . the technical information regarding the san josé mine contained herein is , with few exceptions as noted , based entirely on information provided to us by msc . our joint venture partner , a subsidiary of hochschild mining plc , and its affiliates other than msc do not accept responsibility for the use of project data or the adequacy or accuracy of this document . index to management 's discussion and analysis : i page 2019 and q4/19 operating and financial highlights 40 selected consolidated financial and operating results 41 consolidated performance 41 consolidated financial review 42 liquidity and capital resources 43 operations review 45 u.s.a story_separator_special_tag 3.9 million higher proceeds from the sale of investments , partially offset by slightly less dividends received from msc in 2019 . 43 during 2019 , we spent $ 29.7 million on mineral property and plant and equipment , with the spending mainly related to construction and pre-stripping prior to first production at the gold bar mine and underground development at the black fox mine . we also received $ 8.9 million in dividends from msc and net proceeds of $ 6.8 million from the sale of marketable securities in 2019. financing activities provided $ 70.0 million in cash in 2019 compared to $ 60.4 million in 2018 , including $ 71.4 million from share issuances , slightly offset by $ 1.9 million lease obligations payments . in 2018 , we completed a debt issuance for $ 50.0 million and a flow through financing for net proceeds of $ 14.1 million ( gross proceeds of c $ 20.0 million or $ 15.0 million ) . as at december 31 , 2019 , we spent the proceeds of the 2018 flow through financing in canadian eligible exploration expenses . on october 28 , 2019 , we amended the terms of the three year term loan facility . the amendment reduces the minimum working capital covenant to $ nil at december 31 , 2019 and september 30 , 2020. the remainder of the agreement remains in full force and effect . management believes that our working capital at december 31 , 2019 , combined with forecasted cash to be generated over the next 12 months , will be sufficient to satisfy our non-discretionary obligations related to our existing mining operations and corporate activities due in the next 12 months . for details of our consolidated contractual obligations as of december 31 , 2019 , see “ commitments and contingencies ” on page 53. with respect to the gold bar mine , if a significant reduction in cash flow results from changes to the reserve estimate and mine plan , as discussed on page 45 , it may be necessary to curtail , defer or suspend operational expenditures , and or raise capital through various financing methods , which may include incurring debt , issuing equity , and other forms of financing . management continues to evaluate exploration , capital and development expenditure requirements to advance los azules , black fox , froome and other timmins projects , gold bar and the fenix project in mexico . if the working capital is not sufficient to continue advancing these projects , we may defer these initiatives and other discretionary expenditures and will consider raising capital through various financing methods which may include incurring debt , issuing equity , and other forms of financing . furthermore , if we make a positive decision to develop one or more of these initiatives , we will require additional financing . 44 operations review u.s.a. segment the u.s.a. segment is comprised of the gold bar mine ( “ gold bar ” ) and certain exploration properties . we poured our first gold ingot from gold bar on february 16 , 2019 and achieved commercial production on may 23 , 2019 . gold bar mine the following table sets out operating results for the gold bar mine for the three months and year ended december 31 , 2019 ; as the first ingot was poured on february 16 , 2019 there are no comparatives for 2018 or 2017 : replace_table_token_11_th ( 1 ) as used here and elsewhere in this report , this is a non-gaap financial performance measure . cash costs for the company 's 100 % owned operations equal production costs applicable to sales . see “ non-gaap financial performance measures ” beginning on page 54 for additional information . due to long process cycles , actual recoveries from the heap are difficult to measure and may fluctuate significantly based on the timing , quantity and metallurgical attributes of the mineralized material placed on the leach pads , among other variables . the expected life of mine recovery rate at the gold bar mine is estimated at 82 % as per gold bar 's feasibility study . we produced 30,712 gold equivalent ounces at the gold bar mine in 2019. the ramp-up to full production saw delays , which adversely impacted our gold production in the first half of 2019. less ore was placed onto the heap leach pad than planned , which in turn delayed the application of solution to the ore , and the recovery of gold as a result . gold bar saw improvements during q3/19 , achieving several key performance benchmarks for ore production , crushing throughput , and gold production . gold production in q4/19 was negatively impacted by lower tonnes mined and lower grades of the mined mineralized material as we transitioned to a new open pit . with respect to our operational experience at gold bar , the majority of material mined during 2019 was from the cabin creek pits , which has reconciled positively to our block model for both gold grade ( +18 % ) and contained gold ounces ( +8 % ) , but negatively for ore tonnes ( -8 % ) . however , the recent transition to mining from the gold pick west pit has returned lower ore tonnes , gold grade and contained ounces from the upper benches as compared to the block model . this appears to be due to greater structural control of the mineralization than was previously expected , but which is now exposed in the newly developed pit . in light of the significant differences recently observed between the modeled ( expected ) and mined ( actual ) ore tonnage and gold grade from the gold pick west pit , the reserve estimate as at december 31 , 2018 and the future mine plan is being evaluated .
| cash flow and results of operations ● cash and cash equivalents of $ 46.5 million at december 31 , 2019 ; raised $ 75.0 million ( net proceeds of $ 69.5 million ) in two public offerings in 2019 . ● revenue from sales of $ 117.0 million in 2019 from the sale of 85,140 gold equivalent ounces from our 100 % owned properties ; average realized price ( 2 ) of $ 1,403 per gold equivalent ounce . ● cash gross profit ( 2 ) of $ 33.7 million in 2019 ; gross profit of $ 9.0 million . ● net loss of $ 59.7 million , including $ 47.3 million spent on exploration and advanced projects . exploration and reserves ● completed $ 37.7 million of exploration drilling and other exploration work in 2019 . ● completed 699 thousands feet ( 213 thousands meters ) of drilling , with approximately 90 % of the drilling in the black fox complex in timmins and the balance in nevada around the gold bar mine . ● results of drilling in timmins included an upward revision to the grey fox resource estimate in q2/19 , adjacent to the black fox mine , additional favorable high grade results at grey fox and a new mineralized zone identified at the stock property , the site of our current mill in timmins , announced during the second half of 2019 and subsequent to december 31 , 2019 . ● a review of our gold bar mine reserve is ongoing and a downward revision of the reserve estimate is anticipated . ● in nevada , exploration resulted in additional mineralization defined at gold bar south . ( 1 ) at our 49 % attributable interest . ( 2 ) as used here and elsewhere in this report , this is a non-gaap financial performance measure . see “ non-gaap financial performance measures ” beginning on page 54 .
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sales to this market totaled approximately $ 455.6 million or 65.8 % of our consolidated sales in 2015. maintaining and growing sales to the commercial transport market will depend on airlines ' capital spending budgets for cabin upgrades as well as the purchase of new aircraft by global airlines . this spending by the airlines is impacted by their profits , cash flow and available financing as well as competitive pressures between the airlines to improve the travel experience for their passengers . we expect that new aircraft will be equipped with more passenger and aircraft connectivity and in-seat power than previous generation aircraft . this market has experienced strong growth from airlines installing in-seat passenger power systems on their existing and newly delivered aircraft . our ability to maintain and grow sales to this market depends on our ability to maintain our technological advantages over our competitors and maintain our relationships with major ife suppliers and global airlines . military aerospace market sales to the military aerospace market include sales of lighting & safety products , avionics products , electrical power & motion products and other products . sales to this market totaled approximately 6.3 % of our consolidated revenue and amounted to $ 43.3 million in 2015. the military market is dependent on governmental funding which can change from year to year . risks are that overall spending may be reduced in the future , specific programs may be eliminated or that we fail to win new business through the competitive bid process . astronics does not have significant reliance on any one program such that cancellation of a particular program will cause material financial loss . we believe that we will continue to have opportunities similar to past years regarding this market . business jet market sales to the business jet aerospace market include sales of lighting & safety products , avionics products , and electrical power & motion products . sales to this market totaled approximately 4.7 % of our consolidated revenue in 2015 and amounted to $ 32.8 million . sales to the business jet market are driven by our ship set content on new aircraft and build rates of new aircraft . business jet oem build rates continue to be significantly impacted by slow global wealth creation and corporate profitability which have been negatively affected during the past several years by global economic uncertainty among prospective buyers . our sales to the business jet market will continue to be challenged in the upcoming year as business jet aircraft production rates are not expected to increase significantly during 2016 due to global macroeconomic conditions . despite the current market conditions , we continue to see opportunities on new aircraft currently in the design phase to employ our lighting & safety , electrical power and avionics technologies in the business jet market . there is risk involved in the development of any new aircraft including the risk that the aircraft will not ultimately be produced or that it will be produced in lower quantities than originally expected and thus impacting our return on our engineering and development efforts . other aerospace sales of our other aerospace products include sales of airfield lighting products and other peco products . sales to this market totaled approximately 2.6 % of our total revenue or $ 18.1 million in 2015 . 18 tests systems products our test systems segment accounted for approximately 20.6 % of our consolidated sales in 2015 and amounted to $ 142.5 million . sales to the semiconductor market were approximately $ 92.1 million , and were attributable to the acquisition of ats in february 2014. sales to the military test market were approximately $ 50.4 million in 2015. critical accounting policies our financial statements and accompanying notes are prepared in accordance with u.s. generally accepted accounting principles . the preparation of the company 's financial statements requires management to make estimates , assumptions and judgments that affect the amounts reported . these estimates , assumptions and judgments are affected by management 's application of accounting policies , which are discussed in the notes to consolidated financial statements , note 1 of item 8 , financial statements and supplementary data of this report . the critical accounting policies have been reviewed with the audit committee of our board of directors . revenue recognition the vast majority of our sales agreements are for standard products and services , with revenue recognized on the accrual basis at the time of shipment of goods , transfer of title and customer acceptance , where required . there are no significant contracts allowing for right of return . to a limited extent , as a result of the acquisition of ats , certain of our contracts involve multiple elements ( such as equipment and service ) . the company recognizes revenue for delivered elements when they have stand-alone value to the customer , they have been accepted by the customer , and for which there are only customary refund or return rights . arrangement consideration is allocated to the deliverables by use of the relative selling price method . the selling price used for each deliverable is based on vendor-specific objective evidence ( “ vsoe ” ) if available , third party-evidence ( “ tpe ” ) if vsoe is not available , or estimated selling price if neither vsoe nor tpe is available . estimated selling price is determined in a manner consistent with that used to establish the price to sell the deliverable on a standalone basis . for prepaid service contracts , sales revenue is recognized on a straight-line basis over the term of the contract , unless historical evidence indicates the costs are incurred on other than a straight-line basis . revenue of approximately $ 17.2 million , $ 2.7 million and $ 4.4 million for the years ending december 31 , 2015 , 2014 and 2013 , respectively , was recognized from long-term , fixed-price contracts using the percentage-of-completion method of accounting . story_separator_special_tag we consider allowable tax carryforward periods , historical earnings performance , tax planning strategies and recent earnings projections to determine the amount of the valuation allowance . changes in these factors could cause us to adjust our valuation allowance , which would impact our income tax expense and the carrying value of these assets when we determine that these factors have changed . as of december 31 , 2015 , we had net deferred tax liabilities of $ 13.4 million . included in the net deferred tax liabilities are approximately $ 19.6 million in deferred tax assets net of a $ 2.6 million valuation allowance . these deferred tax assets principally relate to goodwill and intangible assets , employee benefit liabilities , asset reserves , depreciation , deferred revenue , state net operating loss carry-forwards , and state general business tax credit carry-forwards . as of december 31 , 2014 , we had net deferred tax liabilities of $ 13.2 million . included in the net deferred tax liabilities are approximately $ 20.3 million in deferred tax assets net of a $ 3.1 million valuation allowance . these deferred tax assets 20 principally relate to goodwill and intangible assets , employee benefit liabilities , asset reserves , depreciation , deferred revenue , state net operating loss carry-forwards and state and foreign general business tax credit carry-forwards . because of the uncertainty as to the company 's ability to generate sufficient future taxable income in certain states , the company has recorded the valuation allowances accordingly in 2015 and 2014 . supplemental executive retirement plan ( serp ) assumptions we maintain two non-qualified defined benefit supplemental retirement plans ( “ serp ” and “ serp ii ” ) for certain executive officers and retired former executive officers . expense for these plans in 2015 was $ 2.1 million and in 2014 was $ 1.6 million . plan obligations and the related costs are determined using actuarial valuations that involve several assumptions that may be highly uncertain and may have a material impact on the financial statements if different reasonable assumptions had been used . the most critical assumptions include the discount rate , future wage increases , retirement age and life expectancy . the discount rate is used to state expected future cash flows at present value . using a lower discount rate increases the present value of pension obligations and increases pension expense . for determining the discount rate the company considers long-term interest rates for high-grade corporate bonds . the discount rate for determining the expense recognized in 2015 was 4.05 % compared with 5.10 % in 2014 . we will use a discount rate of 4.45 % in determining our 2016 expense . the assumption for compensation increases takes a long-term view of inflation and performance based salary adjustments based on the company 's approach to executive compensation . the rate used for future wage increases was 3-5 % . it was assumed that each participant retires after fully vesting in the plan at age 62 or 65. a 100 point increase in the discount rate we used would decrease our annual pension expense for 2016 by $ 0.4 million . if we had assumed annual wage increases of 4-6 % , our 2016 pension expense would increase approximately $ 0.2 million . stock-based compensation we have stock-based compensation plans , which include non-qualified stock options as well as incentive stock options . expense recognized for stock-based compensation was $ 2.3 million for 2015 , $ 1.7 million for 2014 and $ 1.4 million for 2013. we determine the fair value of the option awards at the date of grant using a black-scholes model . option pricing models require management to make assumptions and to apply judgment to determine the fair value of the award . these assumptions and judgments include estimating the future volatility of our stock price , expected dividend yield , future employee stock option exercise behaviors and future employee turnover rates . changes in these assumptions can materially affect the fair value estimate . acquisitions the company accounts for its acquisitions under asc topic 805 , business combinations and reorganizations ( “ asc topic 805 ” ) . asc topic 805 provides guidance on how the acquirer recognizes and measures the consideration transferred , identifiable assets acquired , liabilities assumed , non-controlling interests , and goodwill acquired in a business combination . asc topic 805 also expands required disclosures surrounding the nature and financial effects of business combinations . acquisition costs are expensed as incurred . acquisition related expenses were approximately $ 0.4 million , $ 0.3 million and $ 1.9 million in 2015 , 2014 and 2013 , respectively . when the company acquires a business , we allocate the purchase price to the assets acquired and liabilities assumed in the transaction at their respective estimated fair values . we record any premium over the fair value of net assets acquired as goodwill . the allocation of the purchase price involves judgments and estimates both in characterizing the assets and in determining their fair value . the way we characterize the assets has important implications , as long-lived assets with definitive lives , for example , are depreciated or amortized , whereas goodwill is tested annually for impairment , as explained previously . with respect to determining the fair value of assets , the most subjective estimates involve valuations of long-lived assets , such as property , plant , and equipment as well as identified intangible assets . we use all available information to make these fair value determinations and engage independent valuation specialists to assist in the fair value determination of the acquired long-lived assets . the fair values of long-lived assets are determined using valuation techniques that use discounted cash flow methods , independent market appraisals and other acceptable valuation techniques . with respect to determining the fair value of the purchase price , the most subjective estimates involve valuations of contingent consideration .
| overview astronics , through its subsidiaries , designs and manufactures advanced , high-performance electrical power generation , distribution and motion systems , lighting and safety systems , avionics products , systems certification and aircraft structures for the global aerospace industry as well as test , training and simulation systems primarily for the military and semiconductor markets . our strategy is to increase our value by developing technologies and capabilities either internally or through acquisition , and using those capabilities to provide innovative solutions to the aerospace & defense , semiconductor and other markets where our technology can be beneficial . 16 we have two reportable segments , aerospace and test systems . our aerospace segment has eleven principal operating facilities located in new york state , florida , illinois , two in new hampshire , two in oregon , two in washington state , quebec , canada and montierchaume , france . our test systems segment has facilities located in florida and california . our aerospace segment serves three primary markets . they are the military , commercial transport and business jet markets . our test systems segment serves the aerospace & defense and semiconductor markets . important factors affecting our growth and profitability are the rate at which new aircraft are produced , government funding of military programs , our ability to have our products designed into new aircraft and the rates at which aircraft owners , including commercial airlines , refurbish or install upgrades to their aircraft . new aircraft build rates and aircraft owners spending on upgrades and refurbishments is cyclical and dependent on the strength of the global economy . once designed into a new aircraft , the spare parts business is frequently retained by the company . with the acquisition of ats in 2014 , future growth and profitability of the test business is dependent on developing and procuring new and follow-on business in the semiconductor market as well as with the military .
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the new standard was effective for the company on january 1 , 2017. the adoption of this standard did not have an impact on our financial position or results of operations . in march 2016 , the fasb issued asu no . 2016-09 , compensation - stock compensation ( topic 718 ) : improvements to employee share-based payment accounting . the new standard involves several aspects of the accounting for share-based payment transactions , including the income tax consequences , classification of awards as either equity or liabilities and classification on the statement of cash flows . the company adopted the new standard effective january 1 , 2017 and the adoption did not have a material impact on the company 's financial statements . in may 2014 , the fasb issued asu no . 2014-09 , revenue from contracts with customers ( topic 606 ) . the asu is the result of a joint project by the fasb and the international accounting standards board ( `` iasb `` ) to clarify the principles f- 13 yield10 bioscience , inc. ( formerly known as metabolix , inc. ) notes to the consolidated financial statements ( in thousands , except for share and per share amounts ) for recognizing revenue and to develop a common revenue standard for gaap and international financial reporting standards ( `` ifrs `` ) that would : remove inconsistencies and weaknesses , provide a more robust framework for addressing revenue issues , improve comparability of revenue recognition practices across entities , jurisdictions , industries , and capital markets , improve disclosure requirements and resulting financial statements , and simplify the presentation of financial statements . the core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . the asu was effective for annual reporting periods beginning after december 15 , 2016 and early adoption was not permitted . on july 9 , 2015 , the fasb voted to delay the effective date of the new revenue standard by one year , but to permit entities to choose to adopt the standard as of the original date . the company will adopt the new standard effective january 1 , 2018 , electing to utilize the modified retrospective method of adoption . the company evaluated the effect the new revenue standard will have on its consolidated financial statements and related disclosures and has determined that its grant revenue , which is its sole source of revenue , does not fall within the guidance of the new standard . the company will review future sources of revenue agreements against the guidance provided by asu no . 2014-09 to ensure that revenue is recorded appropriately . in august 2016 , the fasb issued asu no . 2016-15 , statement of cash flows ( topic 230 ) : classification of certain cash receipts and cash payments . the new standard clarifies certain aspects of the statement of cash flows , including the classification of debt prepayment or debt extinguishment costs , settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing , contingent consideration payments made after a business combination , proceeds from the settlement of insurance claims , proceeds from the settlement of corporate-owned life insurance policies , distributions received from equity method investees and beneficial interests in securitization transactions . the new standard also clarifies that an entity should determine each separately identifiable source or use within the cash receipts and cash payments on the basis of the nature of the underlying cash flows . in situations in which cash receipts and payments have aspects of more than one class of cash flows and can not be separated by source or use , the appropriate classification should depend on the activity that is likely to be the predominant source or use of cash flows for the item . the new standard became effective for the company on january 1 , 2018 and is not expected to have a material impact on the company 's financial statements . in january 2016 , the fasb issued asu no . 2016-01 , financial instruments - overall ( subtopic 825-10 ) : recognition and measurement of financial assets and financial liabilities . the new standard amends certain aspects of accounting and disclosure requirements of financial instruments , including the requirement that equity investments with readily determinable fair values be measured at fair value with changes in fair value recognized in the company 's results of operations . the new standard does not apply to investments accounted for under the equity method of accounting or those that result in consolidation of the investee . equity investments that do not have readily determinable fair values may be measured at fair value or at cost minus impairment adjusted for changes in observable prices . a financial liability that is measured at fair value in accordance with the fair value option is required to be presented separately in other comprehensive income for the portion of the total change in the fair value resulting from change in the instrument-specific credit risk . in addition , a valuation allowance should be evaluated on deferred tax assets related to available-for-sale debt securities in combination with other deferred tax assets . the new standard became effective for yield10 bioscience on january 1 , 2018. the company does not expect the new guidance to have a material impact on its financial statements . story_separator_special_tag see note 9 to the consolidated financial statements for further discussion on the key assumptions used to determine the fair values of option grants pursuant to the black-scholes option pricing model . discontinued operations a discontinued operation is a component of an entity that has either been disposed of , or that is classified as held for sale , which represents a separate major line of business or geographical area of operations and is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations . in july 2016 , the company announced a strategic restructuring plan in which yield10 bioscience became its core business and which resulted in the sale of its biopolymer operations in september 2016. in accordance with the accounting guidance regarding the presentation of discontinued operations , the activity of our biopolymers component has been reclassified as a discontinued operation for the year ended december 31 , 2016. story_separator_special_tag company 's efforts to manage its available cash resources . we expect our general and administrative expenses from continuing operations to decrease during 2018 in comparison to 2017 since we will not incur the write off of aspire deferred offering costs again and as we continue efforts to carefully manage our use of cash resources . other income ( net ) replace_table_token_4_th 41 other income ( expense ) , net , reflects net expense of $ 113 and $ 38 for the years ended december 31 , 2017 and 2016 , respectively . the expense for 2017 and 2016 is primarily the result of imputed interest charges recorded in connection with payments we are making through may 2018 related to the early termination of a third party manufacturing agreement . income from discontinued operations , before income tax in july 2016 , our board of directors approved a restructuring plan under which yield10 bioscience became the company 's core business with a focus on the development of new technologies to enable step-change increases in crop yield to enhance global food security . as a result of this strategic shift , during 2016 we completed the sale of certain biopolymer intellectual property , equipment and inventory to an affiliate of cj cheiljedang corporation ( `` cj '' ) . the $ 10,000 purchase price paid by cj was primarily for the acquisition of intellectual property , including the company 's pha strains , patent rights , know-how and its rights , title and interest in certain license agreements . none of this intellectual property was previously capitalized on the company 's balance sheet , resulting in a gain on the sale of approximately $ 9,868 , net of equipment sold . the sale of our biopolymer assets contributed to income before income tax of $ 2,682 from discontinued operations for the year ended december 31 , 2016. income tax benefit and provision for the year ended december 31 , 2016 , the company recognized an income tax benefit within continuing operations of $ 1,097 and tax expense in discontinued operations of $ 1,097 related to taxable income generated during the year as a result of the sale of biopolymer assets to cj as discussed above . deemed dividend on series a convertible preferred stock issuance during december 2017 , the company closed on a public offering of securities that included 4,667,000 class a units , priced at a public offering price of $ 2.25 per unit , with each unit consisting of one share of common stock , a series a five-year warrant to purchase one share of common stock at an exercise price of $ 2.25 per share , and a series b nine-month warrant to purchase 0.5 share of common stock at an exercise price of $ 2.25 per share , and 3,987 class b units , priced at a public offering price of $ 1,000 per unit , with each unit consisting of one share of preferred stock convertible to 445 shares of common stock at a conversion price of $ 2.25 per common share , series a five-year warrants to purchase 445 shares of common stock at an exercise price of $ 2.25 per share , and series b nine-month warrants to purchase 223 shares of common stock with an exercise price of $ 2.25 per share . proceeds received from the offering were allocated to the various elements of the offering based on their relative fair values . the series a convertible preferred stock was valued on an as-if-converted basis based on the underlying common stock . the series a and series b warrants were valued using the black-scholes model with the following weighted-average input at the time of issuance : an expected term of 5.0 years and 0.75 years for the series a and series b warrants , respectively , risk free rates of 2.2 percent and 1.7 percent for the series a and series b warrants , respectively , based on the published rates of u.s. treasury bills with similar terms , and volatility of 125 percent based on the company 's historical volatility . after allocation of the proceeds , the effective conversion price of the series a convertible preferred stock was determined to be beneficial and , as a result , the company recorded a non-cash deemed dividend of approximately $ 1,427 equal to the intrinsic value of the beneficial conversion feature . the series a convertible preferred stock is considered a participating security .
| results of operations the consolidated financial statements for the year ending december 31 , 2016 , have been presented to reflect the former biopolymer operations of yield10 bioscience as a discontinued operation . comparison of the years ended december 31 , 2017 and 2016 revenue replace_table_token_2_th total revenue from continuing operations was $ 944 and $ 1,159 for the years ended december 31 , 2017 and 2016 , respectively , and was derived solely from our research grants . grant revenue for the year ended december 31 , 2017 was primarily from $ 913 earned from the company 's camelina grant with doe . during the year ended december 31 , 2016 , grant revenue consisted of $ 913 earned from the camelina grant and $ 246 from the company 's subcontract with north carolina state university . we do not anticipate that grant revenue will fluctuate significantly over the next twelve months . our work on the doe camelina grant is expected to wind down as it nears completion during 2018 as our billable work on the five-year 40 doe subcontract to be signed with michigan state university ramps up . we expect this subcontract will become effective during 2018. expenses replace_table_token_3_th research and development expenses research and development expenses from continuing operations were $ 4,597 and $ 5,670 for the years ended december 31 , 2017 and 2016 , respectively . the decrease of $ 1,073 was primarily due to a $ 841 reduction in research facility expenses from $ 1,835 during the year ended december 31 , 2016 to $ 994 for the year ended december 31 , 2017. the favorable variance is the result of the company 's move during mid-2016 from its more expensive cambridge , massachusetts research facility to its new woburn , massachusetts location . the year-over-year decrease in research and development expenses is also the result of lower employee compensation and related benefit expenses .
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” 58 factors affecting the comparability of our financial results our results of operations may not be comparable to our historical results of operations due to our acquisition activity , which is discussed in note 4 “ acquisitions ” of the notes to consolidated financial statements included in “ item 8. financial statements and supplementary data ” of this form 10-k , the idr restructuring , certain debt and equity transactions and our annual inflation adjustment to our commercial agreements . additionally , our results may not be comparative to prior periods due to the impact of the covid-19 pandemic on our business in 2020 , including lower throughput volumes at our terminals , as the industry reacts to the related economic downturn and volatile commodity market . furthermore , our results of operations may not be comparable to our historical results of operations due to the termination of the cpi processing agreement , which resulted in an impairment charge of $ 7.0 million to write-down the related processing unit assets and customer contract intangible asset of $ 3.0 million and $ 4.0 million , respectively . refer to note 6 “ property , plant and equipment , net ” and note 7 “ goodwill and intangibles ” of the notes to consolidated financial statements included in “ item 8. financial statements and supplementary data ” of this form 10-k for further discussion . approximately $ 35.2 million of our revenue for the year ended december 31 , 2020 was attributable to the cpi processing agreement . other factors that will significantly affect our results supply and demand for crude oil , refined products and natural gas . we generate revenue by charging fees for receiving , handling , transferring , storing , throughputting and processing crude oil , refined products and natural gas . a majority of our revenue is derived from mvc , fee-based commercial agreements with subsidiaries of pbf energy with initial terms ranging from one to fifteen years , which enhance the stability of our cash flows . the volume of crude oil , refined products and natural gas that is throughput depends substantially on pbf energy 's operational needs which are largely impacted by refining margins . refining margins are greatly dependent upon the price of crude oil or other refinery feedstocks , refined products and natural gas . factors driving the prices of petroleum-based commodities include supply and demand for crude oil , gasoline and other refined products . supply and demand for these products depend on numerous factors outside of our control , including changes in domestic and foreign economies , weather conditions , domestic and foreign political affairs , production levels , logistics constraints , availability of imports , marketing of competitive fuels , crude oil price differentials and government regulation . the impact of the unprecedented global health and economic crisis sparked by the covid-19 pandemic was amplified late in the first quarter of 2020 due to movements made by the world 's largest oil producers to increase market share . this created simultaneous shocks in oil supply and demand resulting in an economic challenge to our industry which has not occurred since our formation . these factors have resulted in significant demand destruction for refined petroleum products and atypical volatility in oil commodity prices through the end of 2020 and may continue for the foreseeable future . although the effects may be mitigated by mvc provisions in certain of our commercial contracts , this overall demand destruction and market environment could lead to lower storage or throughput volumes processed at our assets , which could negatively impact our results of operations and cash flows . while it is impossible to estimate the duration or complete financial impact of the covid-19 pandemic , a significant portion of the negative impacts and risk to us may be mitigated through our mvcs within the commercial agreements with pbf holding . refer to “ item 1a . risk factors ” of this form 10-k for more information on factors affecting margins and commodity pricing . acquisition and organic growth opportunities . we may acquire additional logistics assets from pbf energy or third parties . under our omnibus agreement , subject to certain exceptions , we have a right of first offer on certain logistics assets owned by pbf energy to the extent pbf energy decides to sell , transfer or otherwise dispose of any of those assets . we also have a right of first offer to acquire additional logistics assets that pbf energy may construct or acquire in the future . our commercial agreements provide us with options to 59 purchase certain assets at pbf holding 's refineries related to our business in the event pbf energy permanently shuts down pbf holding 's refineries . in addition , our commercial agreements provide us with the right to use certain assets at pbf holding 's refineries in the event of a temporary shutdown . furthermore , we may pursue strategic asset acquisitions from third parties or organic growth projects to the extent such acquisitions or projects complement our or pbf energy 's existing asset base or provide attractive potential returns . identifying and executing acquisitions and organic growth projects is a key part of our strategy , and we believe that we are well-positioned to acquire logistics assets from pbf energy and third parties should such opportunities arise . however , there is no guarantee that we will be able to identify attractive organic growth projects or acquisitions in the future , or be able to consummate any such opportunities identified . additionally , if we do not complete acquisitions or organic growth projects on economically acceptable terms , our future growth will be limited , and the acquisitions or projects we do complete may reduce , rather than increase , our cash available for distribution . these acquisitions and organic growth projects could also affect the comparability of our results from period to story_separator_special_tag ” 58 factors affecting the comparability of our financial results our results of operations may not be comparable to our historical results of operations due to our acquisition activity , which is discussed in note 4 “ acquisitions ” of the notes to consolidated financial statements included in “ item 8. financial statements and supplementary data ” of this form 10-k , the idr restructuring , certain debt and equity transactions and our annual inflation adjustment to our commercial agreements . additionally , our results may not be comparative to prior periods due to the impact of the covid-19 pandemic on our business in 2020 , including lower throughput volumes at our terminals , as the industry reacts to the related economic downturn and volatile commodity market . furthermore , our results of operations may not be comparable to our historical results of operations due to the termination of the cpi processing agreement , which resulted in an impairment charge of $ 7.0 million to write-down the related processing unit assets and customer contract intangible asset of $ 3.0 million and $ 4.0 million , respectively . refer to note 6 “ property , plant and equipment , net ” and note 7 “ goodwill and intangibles ” of the notes to consolidated financial statements included in “ item 8. financial statements and supplementary data ” of this form 10-k for further discussion . approximately $ 35.2 million of our revenue for the year ended december 31 , 2020 was attributable to the cpi processing agreement . other factors that will significantly affect our results supply and demand for crude oil , refined products and natural gas . we generate revenue by charging fees for receiving , handling , transferring , storing , throughputting and processing crude oil , refined products and natural gas . a majority of our revenue is derived from mvc , fee-based commercial agreements with subsidiaries of pbf energy with initial terms ranging from one to fifteen years , which enhance the stability of our cash flows . the volume of crude oil , refined products and natural gas that is throughput depends substantially on pbf energy 's operational needs which are largely impacted by refining margins . refining margins are greatly dependent upon the price of crude oil or other refinery feedstocks , refined products and natural gas . factors driving the prices of petroleum-based commodities include supply and demand for crude oil , gasoline and other refined products . supply and demand for these products depend on numerous factors outside of our control , including changes in domestic and foreign economies , weather conditions , domestic and foreign political affairs , production levels , logistics constraints , availability of imports , marketing of competitive fuels , crude oil price differentials and government regulation . the impact of the unprecedented global health and economic crisis sparked by the covid-19 pandemic was amplified late in the first quarter of 2020 due to movements made by the world 's largest oil producers to increase market share . this created simultaneous shocks in oil supply and demand resulting in an economic challenge to our industry which has not occurred since our formation . these factors have resulted in significant demand destruction for refined petroleum products and atypical volatility in oil commodity prices through the end of 2020 and may continue for the foreseeable future . although the effects may be mitigated by mvc provisions in certain of our commercial contracts , this overall demand destruction and market environment could lead to lower storage or throughput volumes processed at our assets , which could negatively impact our results of operations and cash flows . while it is impossible to estimate the duration or complete financial impact of the covid-19 pandemic , a significant portion of the negative impacts and risk to us may be mitigated through our mvcs within the commercial agreements with pbf holding . refer to “ item 1a . risk factors ” of this form 10-k for more information on factors affecting margins and commodity pricing . acquisition and organic growth opportunities . we may acquire additional logistics assets from pbf energy or third parties . under our omnibus agreement , subject to certain exceptions , we have a right of first offer on certain logistics assets owned by pbf energy to the extent pbf energy decides to sell , transfer or otherwise dispose of any of those assets . we also have a right of first offer to acquire additional logistics assets that pbf energy may construct or acquire in the future . our commercial agreements provide us with options to 59 purchase certain assets at pbf holding 's refineries related to our business in the event pbf energy permanently shuts down pbf holding 's refineries . in addition , our commercial agreements provide us with the right to use certain assets at pbf holding 's refineries in the event of a temporary shutdown . furthermore , we may pursue strategic asset acquisitions from third parties or organic growth projects to the extent such acquisitions or projects complement our or pbf energy 's existing asset base or provide attractive potential returns . identifying and executing acquisitions and organic growth projects is a key part of our strategy , and we believe that we are well-positioned to acquire logistics assets from pbf energy and third parties should such opportunities arise . however , there is no guarantee that we will be able to identify attractive organic growth projects or acquisitions in the future , or be able to consummate any such opportunities identified . additionally , if we do not complete acquisitions or organic growth projects on economically acceptable terms , our future growth will be limited , and the acquisitions or projects we do complete may reduce , rather than increase , our cash available for distribution . these acquisitions and organic growth projects could also affect the comparability of our results from period to
| results of operations a discussion and analysis of the factors contributing to our results of operations are presented below . the financial statements , together with the following information , are intended to provide investors with a reasonable basis for assessing our historical operations but should not serve as the only criteria for predicting our future performance . combined overview . the following tables summarize our results of operations and financial data for the years ended december 31 , 2020 , 2019 and 2018. the following data should be read in conjunction with our consolidated financial statements and the notes thereto included in “ item 8. financial statements and supplementary data ” of this form 10-k. replace_table_token_0_th reconciliation of non-gaap financial measures . as described in “ management 's discussion and analysis of financial condition and results of operations—how we evaluate our operations , ” our management uses ebitda , ebitda attributable to pbfx , adjusted ebitda and distributable cash flow to 61 analyze our performance . the following table presents a reconciliation of ebitda , ebitda attributable to pbfx and distributable cash flow to net income , which is the most directly comparable gaap financial measure of operating performance on a historical basis , for the periods indicated . replace_table_token_1_th the following table presents a reconciliation of ebitda , ebitda attributable to pbfx and distributable cash flow to net cash provided by operating activities , which is the most directly comparable gaap financial measure of liquidity on a historical basis , for the periods indicated . replace_table_token_2_th 62 the following table presents a reconciliation of ebitda , ebitda attributable to pbfx and adjusted ebitda to net income , which is the most directly comparable gaap financial measure of operating performance on a historical basis , for the periods indicated . replace_table_token_3_th the following table presents a reconciliation of net income attributable to noncontrolling interest and noncontrolling interest ebitda , for informational purposes , for the periods indicated .
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consistent with the company 's measurement of impairment of modified loans on a pooled basis , the discount rate used for credit card loans in internal programs is the average current annual percentage rate applied to non-impaired credit card loans , which approximates what would have applied to story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis constitutes forward-looking statements that involve risks and uncertainties . actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to these differences include , but are not limited to , those discussed below and elsewhere in this annual report on form 10-k particularly under “ risk factors ” and “ special note regarding forward-looking statements , ” which immediately follows “ risk factors. ” unless otherwise specified , references to notes to our consolidated financial statements are to the notes to our audited consolidated financial statements as of december 31 , 2016 and 2015 and for years ended december 31 , 2016 , 2015 and 2014 . introduction and overview discover financial services ( `` dfs '' ) is a direct banking and payment services company . we provide direct banking products and services and payment services through our subsidiaries . we offer our customers credit card loans , private student loans , personal loans , home equity loans and deposit products . we also operate the discover network , the pulse network ( “ pulse ” ) and diners club international ( “ diners club ” ) . the discover network processes transactions for discover-branded credit cards and provides payment transaction processing and settlement services . pulse operates an electronic funds transfer network , providing financial institutions issuing debit cards on the pulse network with access to atms domestically and internationally , as well as point-of-sale ( `` pos '' ) terminals at retail locations throughout the u.s. for debit card transactions . diners club is a global payments network of licensees , which are generally financial institutions , that issue diners club branded charge cards and or provide card acceptance services . our primary revenues consist of interest income earned on loan receivables and fees earned from customers , merchants and issuers . the primary expenses required to operate our business include funding costs ( interest expense ) , loan loss provisions , customer rewards and expenses incurred to grow , manage and service our loan receivables and networks . our business activities are funded primarily through consumer deposits , securitization of loan receivables and the issuance of unsecured debt . change in fiscal year in december 2012 , our board of directors approved a change in our fiscal year end from november 30 to december 31 of each year . this fiscal year change was effective january 1 , 2013. as a result of the change , we had a one month transition period in december 2012. the results for the one month ended december 31 , 2012 is included in this section . story_separator_special_tag style= '' font-family : futura lt medium , sans-serif ; font-size:10pt ; '' > in recent years , federal banking regulators have implemented and continue to propose and finalize new regulations and supervisory guidance , including under the dodd-frank wall street reform and consumer protection act ( the `` dodd-frank act '' ) , and have increased their examination and enforcement action activities . the dodd-frank act creates a framework for regulation of large systemically significant financial firms , including discover , through a variety of measures , including increased capital and liquidity requirements , limits on leverage and enhanced supervisory authority . the dodd-frank act contains comprehensive provisions governing the practices and oversight of financial institutions and other participants in the financial markets . we expect regulators to continue taking formal enforcement actions against financial institutions in addition to addressing concerns through non-public supervisory actions or findings . while the new congress and administration have expressed support for dodd-frank modifications that could reduce regulatory burdens through a variety of channels including executive actions , rulemaking and legislation , prospects for the enactment of significant changes are uncertain . - 50 - the impact of the evolving regulatory environment on our business and operations depends upon a number of factors including supervisory priorities and actions , our actions and those of our competitors and other marketplace participants and the behavior of consumers . regulatory developments , enforcement actions , findings and ratings could affect supervisory priorities , actions , and rule-making as well as negatively impact our business strategies , require us to limit or change our business practices , limit our product offerings , invest more management time and resources in compliance efforts , limit the fees we can charge for services , limit our ability to pursue certain business opportunities and obtain related required regulatory approvals , or change how we compensate certain of our employees . for example , from april to may 2016 , federal banking regulators issued an interagency notice of proposed rulemaking on incentive compensation arrangements that replaces rules proposed in 2011 and incorporates consideration of supervisory experience with the 2010 interagency guidance on sound incentive compensation policies ( `` 2010 guidance '' ) . unlike the principles-based 2010 guidance , the proposed rules are prescriptive in nature and would require an extensive restructuring of certain incentive compensation practices for “ senior executive officers ” and “ significant risk takers. ” any changes to our business or compensation structure arising out of this rule could impact our ability to attract , hire or retain certain personnel . comments on the proposed rules were due july 22 , 2016. the timing and substance of the final rule are unknown . for additional information regarding bank regulatory limitations on acquisitions and investments , see `` business — supervision and regulation — acquisitions and investments . '' story_separator_special_tag on july 22 , 2015 , the cfpb issued a consent order with respect to certain student loan servicing practices of discover bank , the student loan corporation and discover products , inc. see note 20 : litigation and regulatory matters to our consolidated financial statements for more information . recent areas of regulatory attention include servicing , payments and collection practices , originations at for-profit schools , and other matters . in september 2016 , california enacted a student loan servicing law that imposes new licensing , servicing , reporting and regulatory oversight requirements on non-bank servicers . the enactment of new legislation or the adoption of new regulations or guidance may increase the complexity and expense of servicing student loans . legislators and regulators may take additional actions that impact the student loan market in the future , which could cause us to change our private student loan products or servicing practices in ways that we may not currently anticipate . mortgage lending the mortgage industry continues to be an area of supervisory focus and the cfpb has stated that it will concentrate its examinations on the variety of mortgage-related topics including steering consumers to less favorable products , discrimination , abusive or unfair lending practices , predatory lending , origination disclosures , minimum mortgage underwriting standards , mortgage loan origination compensation and servicing practices . the cfpb has recently published several final rules impacting the mortgage industry . for example , on august 4 , 2016 , the cfpb issued final rules amending its 2013 mortgage servicing rules to expand the obligations of servicers and resolve some ambiguities . these changes will generally take effect in 2017. the cfpb has also recently proposed changes to the rules for integrated mortgage origination disclosures and expects to issue a final rule on or before april 1 , 2017. payment networks the dodd-frank act contains several provisions impacting the debit card market , including network participation requirements and interchange fee limitations . the changing debit card environment , including competitor actions related to merchant and acquirer pricing and transaction routing strategies , has adversely affected and is expected to continue to adversely affect our pulse network 's business practices , network transaction volume , revenue and prospects for future growth . we continue to closely monitor competitor pricing strategies in order to assess their impact on our business and on competition in the marketplace . the u.s. department of justice is examining some of these competitor pricing strategies . in addition , pulse filed a lawsuit against visa in late 2014 with respect to these competitive concerns , which will significantly impact expenses for the payment services segment . in addition , the dodd-frank act 's network participation requirements impact pulse 's ability to enter into exclusivity arrangements , which affects pulse 's current business practices and may materially adversely affect its network transaction volume and revenue . - 52 - european interchange fee regulation entered into force in june 2015. the regulation , among other things , caps interchange fees of `` four-party '' networks such as visa and mastercard . however , the regulation provides that “ three-party ” networks should be treated as “ four-party ” networks when they license third-party providers to issue cards and or acquire merchants or when they issue cards with a co-brand partner or through an agent . this means the caps apply to elements of the financial arrangements agreed to between diners club and each of our stand-alone acquirers in western europe . the caps took effect in december 2015. the regulation excludes commercial card transactions from the scope of the caps . the regulation also contains a number of business rules , which we have , to the extent applicable , implemented in our diners club business . there are additional initiatives in europe that may have an impact on our diners club business , including revisions to the payment services directive ( `` psd2 '' ) and the new general data protection regulation ( `` gdpr '' ) . the psd2 was published in the official journal of the eu in december 2015. each european union member state will transpose the psd2 into its national law , and in january 2018 the psd2 will enter into force . among other terms , the psd2 includes provisions that once transposed into local law will regulate surcharging and network access requirements , which may result in differential surcharging of diners club cards and may impact diners club licensing arrangements in europe . the european parliament 's civil liberties , justice and home affairs committee approved the final draft of the gdpr in december 2015. the final gdpr , was published in the official journal of the european union on may 4 , 2016. organizations have two years to prepare before the legislation comes into force on may 25 , 2018. we are analyzing the impact of the final gdpr on our business and preparing for its implementation . the chinese state council previously announced that foreign payments companies would be able to participate in the chinese domestic market and be eligible to apply for a license to operate a bank card clearing institution ( `` bcci '' ) in china . in june 2016 the people 's bank of china , in conjunction with the china banking regulatory commission , promulgated the administrative measures on bccis , but implementation guidelines are yet to be published . we are analyzing any potential impact on our business strategy in china . capital , liquidity and funding capital discover financial services and discover bank are subject to regulatory capital requirements that became effective january 1 , 2015 under final rules issued by the board of governors of the federal reserve system ( the `` federal reserve '' ) and the fdic to implement the provisions under the basel committee 's december 2010 framework ( referred to as “ basel iii ” ) .
| 2016 highlights net income was $ 2.4 billion , or $ 5.77 per diluted share , compared to $ 2.3 billion , or $ 5.13 per diluted share , in the prior year . net interest income increased 8.0 % compared to the prior year . total loans grew $ 4.9 billion , or 6.7 % , from the prior year to $ 77.3 billion . net charge-off rate for total loans increased 15 basis points from the prior year to 2.16 % and the total loans delinquency rate for loans over 30 days past due increased 30 basis points to 1.97 % . credit card loans grew $ 3.6 billion , or 6.3 % , to $ 61.5 billion and discover card sales volume increased 2.5 % from the prior year . net charge-off rate for credit card loans increased 12 basis points from the prior year to 2.34 % and the credit card delinquency rate for loans over 30 days past due increased 32 basis points to 2.04 % . payment services transaction dollar volume for the segment was $ 180.4 billion , down 5 % from the prior year . we repurchased approximately 34 million shares , or 8 % , of our outstanding common stock for $ 1.9 billion . - 49 - 2015 and 2014 highlights net income was $ 2.3 billion , or $ 5.13 and $ 4.90 , respectively , per diluted share in both 2015 and 2014. return on equity was 21 % in both 2015 and 2014. during 2015 , our net interest income increased 3.4 % compared to 2014. total loans grew $ 2.4 billion in 2015 , or 3.5 % , from 2014 to $ 72.4 billion . net charge-off rate for our total loans decreased 3 basis points in 2015 from 2014 to 2.01 % and the total loans delinquency rate for loans over 30 days past due increased 1 basis point to 1.67 % .
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since most of our customers are domestic governmental entities , we rarely incur story_separator_special_tag forward-looking statements this document contains “ forward-looking statements ” within the meaning of section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934 that are not historical in nature and typically address future or anticipated events , trends , expectations or beliefs with respect to our financial condition , results of operations or business . forward-looking statements often contain words such as “ believes , ” “ expects , ” “ anticipates , ” “ foresees , ” “ forecasts , ” “ estimates , ” “ plans , ” “ intends , ” “ continues , ” “ may , ” “ will , ” “ should , ” “ projects , ” “ might , ” “ could ” or other similar words or phrases . similarly , statements that describe our business strategy , outlook , objectives , plans , intentions or goals also are forward-looking statements . we believe there is a reasonable basis for our forward-looking statements , but they are inherently subject to risks and uncertainties and actual results could differ materially from the expectations and beliefs reflected in the forward-looking statements . we presently consider the following to be among the important factors that could cause actual results to differ materially from our expectations and beliefs : ( 1 ) changes in the budgets or regulatory environments of our clients , primarily local and state governments , that could negatively impact information technology spending ; ( 2 ) our ability to protect client information from security breaches and provide uninterrupted operations of data centers ; ( 3 ) our ability to successfully achieve growth or operational synergies through the integration of acquired businesses , while avoiding unanticipated costs and disruptions to existing operations ; ( 4 ) material portions of our business require the internet infrastructure to be adequately maintained ; ( 5 ) our ability to achieve our financial forecasts due to various factors , including project delays by our clients , reductions in transaction size , fewer transactions , delays in delivery of new products or releases or a decline in our renewal rates for service agreements ; ( 6 ) general economic , political and market conditions ; ( 7 ) technological and market risks associated with the development of new products or services or of new versions of existing or acquired products or services ; ( 8 ) competition in the industry in which we conduct business and the impact of competition on pricing , client retention and pressure 21 for new products or services ; ( 9 ) the ability to attract and retain qualified personnel and dealing with the loss or retirement of key members of management or other key personnel ; and ( 10 ) costs of compliance and any failure to comply with government and stock exchange regulations . a detailed discussion of these factors and other r isks that affect our business are described in item 1a , “ risk factors. ” we expressly disclaim any obligation to publicly update or revise our forward-looking statements . story_separator_special_tag style= '' margin-bottom:0pt ; margin-top:6pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; font-size:10pt ; '' > · selling , general and administrative ( “ sg & a ” ) expenses – the primary components of sg & a expenses are administrative and sales personnel salaries and commissions , share-based compensation expense , marketing expense , rent and professional fees . sales commissions typically fluctuate with revenues and share-based compensation expense generally increases when the market price of our stock increases . other administrative expenses tend to grow at a slower rate than revenues . in 2015 , sg & a expenses include approximately $ 5.9 million for financial advisory , legal , accounting , due diligence , valuation and other various services necessary to complete the nws acquisition . · liquidity and cash flows – the primary driver of our cash flows is net income . uses of cash include acquisitions , capital investments in property and equipment and discretionary purchases of treasury stock . our working capital needs are fairly stable throughout the year with the significant components of cash outflows being payment of personnel expenses offset by cash inflows representing collection of accounts receivable and cash receipts from clients in advance of revenue being earned . in recent years , we have also received significant amounts of cash from employees exercising stock options and contributing to our employee stock purchase plan . · balance sheet – cash , accounts receivable and days sales outstanding and deferred revenue balances are important indicators of our business . new accounting pronouncements on may 28 , 2014 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update ( “ asu ” ) no . 2014-09 , “ revenue from contracts with customers. ” this asu is the result of a convergence project between the fasb and the international accounting standards board . the core principle behind asu 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for delivering those goods and services . this model involves a five-step process that includes identifying the contract with the customer , identifying the performance obligations in the contract , determining the transaction price , allocating the transaction prices to the performance obligations in the contract and recognizing revenue when ( or as ) the entity satisfies the performance obligations . the guidance in the asu supersedes existing revenue recognition guidance and is effective for annual reporting periods beginning after december 15 , 2016 with early application not permitted . story_separator_special_tag we believe reasonably dependable estimates of revenue and costs and progress applicable to various stages of a contract can be made . at times , we perform additional and or non-contractual services for little to no incremental fee to satisfy customer expectations . if changes occur in delivery , productivity or other factors used in developing our estimates of expected costs or revenues , we revise our cost and revenue estimates , and any revisions are charged to income in the period in which the facts that give rise to that revision first become known . in connection with these and certain other contracts , we may perform the work prior to when the services are billable and or payable pursuant to the contract . the termination clauses in most of our contracts provide for the payment for the value of products delivered and services performed in the event of an early termination . for saas arrangements , we evaluate whether the customer has the contractual right to take possession of our software at any time during the hosting period without significant penalty and whether the customer can feasibly maintain the software on the customer 's hardware or enter into another arrangement with a third-party to host the software . if we determine that the customer has the contractual right to take possession of our software at any time during the hosting period without significant penalty and can feasibly maintain the software on the customer 's hardware or enter into another arrangement with a third-party to host the software , we recognize the license , professional services and hosting services revenues pursuant to asc 985-605 , software revenue recognition . for saas arrangements that do not meet the criteria for recognition under asc 985-605 , we account for the elements under asc 605-25 , multiple element arrangements using all applicable facts and circumstances , including whether ( i ) the element has stand-alone value , ( ii ) there is a general right of return and ( iii ) the revenue is contingent on delivery of other elements . we allocate the contract value to each element of the arrangement that qualifies for treatment as a separate element based on vendor-specific objective evidence of fair value ( “ vsoe ” ) , and if vsoe is not available , third-party evidence , and if third-party evidence is unavailable , estimated selling price . for professional services associated with saas arrangements that we determine do not have stand-alone value to the customer or are contingent on delivery of other elements , we recognize the services revenue ratably over the remaining contractual period once hosting has gone live and we may begin billing for the hosting services . we record amounts that have been invoiced in accounts receivable and in deferred revenue or revenues , depending on whether the revenue recognition criteria have been met . 24 in connection with certain of our contracts , we have recorded retentions receivable or unbilled receivables consisting of costs and estimated profit in excess of billings as of the balance s heet date . many of the contracts which give rise to unbilled receivables at a given balance sheet date are subject to billings in the subsequent accounting period . we review unbilled receivables and related contract provisions to ensure we are justified in recognizing revenue prior to billing the customer and that we have objective evidence which allows us to recognize such revenue . in addition , we have a sizable amount of deferred revenue , which represents billings in excess of revenue earned . the majority of this liability consists of maintenance billings for which payments are made in advance and the revenue is ratably earned over the maintenance period , generally one year . we also have deferred revenue for those contracts in which we receive a deposit an d the conditions in which to record revenue for the service or product has not been met . on a periodic basis , we review by customer the detail components of our deferred revenue to ensure our accounting remains appropriate . intangible assets and goodwill . our business acquisitions typically result in the creation of goodwill and other intangible asset balances , and these balances affect the amount and timing of future period amortization expense , as well as expense we could possibly incur as a result of an impairment charge . the cost of acquired companies is allocated to identifiable tangible and intangible assets based on estimated fair value , with the excess allocated to goodwill . accordingly , we have a significant balance of acquisition date intangible assets , including software , customer related intangibles , trade name , leases and goodwill . these intangible assets ( other than goodwill ) are amortized over their estimated useful lives . we currently have no intangible assets with indefinite lives other than goodwill . when testing goodwill for impairment quantitatively , we first compare the fair value of each reporting unit with its carrying amount . if the carrying amount of a reporting unit exceeds its fair value , a second step is performed to measure the amount of potential impairment . in the second step , we compare the implied fair value of reporting unit goodwill with the carrying amount of the reporting unit 's goodwill . if the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill , an impairment loss is recognized . the fair values calculated in our impairment tests are determined using discounted cash flow models involving several assumptions . the assumptions that are used are based upon what we believe a hypothetical marketplace participant would use in estimating fair value . we base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain . we evaluate the reasonableness of the fair value calculations of our reporting units by comparing the total of the fair value of all of our reporting units to our total market capitalization .
| overview general we provide integrated information management solutions and services for the public sector , with a focus on local governments . we develop and market a broad line of software products and services to address the it needs of cities , counties , schools and other local government entities . in addition , we provide professional it services to our clients , including software and hardware installation , data conversion , training and for certain clients , product modifications , along with continuing maintenance and support for clients using our systems . we also provide subscription-based services such as software as a service ( “ saas ” ) , which utilizes the tyler private cloud , and electronic document filing solutions ( “ e-filing ” ) , which simplify the filing and management of court related documents . revenues for e-filing are derived from transaction fees and in some cases fixed fee arrangements . we also provide property appraisal outsourcing services for taxing jurisdictions . our products generally automate six major functional areas : ( 1 ) financial management and education , ( 2 ) courts and justice , ( 3 ) public safety ( 4 ) property appraisal and tax , ( 5 ) planning , regulatory and maintenance , and ( 6 ) land and vital records management . we report our results in two segments . the enterprise software solutions ( “ ess ” ) segment provides municipal and county governments and schools with software systems and services to meet their information technology and automation needs for mission-critical “ back-office ” functions such as financial management ; courts and justice processes ; public safety ; planning , regulatory and maintenance ; and land and vital records management . the appraisal and tax software solutions and services ( “ atss ” ) segment provides systems and software that automate the appraisal and assessment of real and personal property as well as property appraisal outsourcing services for local governments and taxing authorities .
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a reconciliation of the beginning and ending amount of allowance for doubtful accounts for the years ended december 31 , 2013 , 2012 and 2011 , is as follows ( in thousands ) : replace_table_token_27_th property and equipment , net property and equipment are recorded at historical cost , less accumulated depreciation and amortization . depreciation is computed using the straight-line method based upon the estimated useful lives of the assets , generally two to seven years ( see note 7 ) . the company leases equipment under capital lease arrangements . the assets and liabilities under capital lease are recorded at the lesser of the present value of aggregate future minimum lease payments , including estimated bargain purchase options , or the fair value of the asset under lease . assets under capital lease are depreciated using the straight-line method over the lesser of the estimated useful life of the asset or the term of the lease . leasehold improvements are depreciated on a straight-line basis over the story_separator_special_tag ” for additional information about common stock warrants that are accounted for as reductions of revenue . the following table sets forth our revenue and key metrics that we use to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections and make strategic decisions : metrics replace_table_token_7_th 51 net and gross revenue increased $ 67.2 million , or 57 % , for the year ended december 31 , 2013 as compared to the same period in 2012 . the increase was primarily the result of a $ 45.0 million increase in revenue from existing clients , specifically , revenue from client agreements that were entered into prior to january 1 , 2013. in addition , net and gross revenue increased by $ 22.2 million from the acquisition of new clients during the year ended december 31 , 2013 . net revenue increased by $ 44.9 million , or 61 % , for the year ended december 31 , 2012 as compared to the same period in 2011. gross revenue increased $ 42.4 million , or 56 % , for the year ended december 31 , 2012 as compared to the same period in 2011. the increase in net and gross revenue was primarily the result of a $ 27.9 million increase in revenue from existing clients , specifically , revenue from client agreements that were entered into prior to january 1 , 2012. in addition , net and gross revenue increased by $ 14.5 million from the acquisition of new clients during the year ended december 31 , 2012 and net revenue also increased by $ 2.5 million from the reduction of revenue related to a non-cash charge for a common stock warrant issued during the second quarter of 2011. see “ — critical accounting policies and estimates—fair value of warrants ” for further discussion of common stock warrants accounted for as reductions of revenue . net and gross revenue generated in the united states was $ 129.0 million , or 70 % , of total revenue for the year ended december 31 , 2013 as compared to $ 81.8 million , or 69 % , for the same period in 2012 , resulting in a 58 % increase . net and gross revenue generated outside of the united states was $ 56.1 million , or 30 % , of total revenue for the year ended december 31 , 2013 as compared to $ 36.1 million , or 31 % , for the same period in 2012 , resulting in a 56 % increase . revenue generated outside of the united states increased primarily due to an increase in our sales efforts internationally . net and gross revenue generated in the united states increased $ 47.1 million and revenue generated outside of the united states increased $ 20.1 million for the year ended december 31 , 2013 as compared to the same period in 2012. net revenue in the united states for 2011 was impacted by the $ 2.5 million in reduction of revenue related to the common stock warrants described above . net revenue in the united states increased by $ 31.0 million , or 61 % , in 2012 as compared to 2011 , while international net and gross revenue , increased by $ 13.9 million , or 63 % . gross revenue in the united states increased by $ 28.5 million , or 53 % , in 2012 as compared to 2011. as a percentage of total net revenue , international net revenue accounted for 31 % in 2012 as compared to 30 % in 2011. as a percentage of total gross revenue , international gross revenue accounted for 31 % in 2012 as compared 29 % in 2011. bookings increased $ 77.4 million , or 50 % for the year ended december 31 , 2013 as compared to the same period in 2012 , reflecting the increase in revenue for the period , and an increase in deferred revenue at december 31 , 2013 from december 31 , 2012 compared to the increase at december 31 , 2012 from december 31 , 2011 . the growth rates for revenue and bookings are not correlated with each other in a given period due to the seasonality of when we enter into client agreements , the varied timing of billings , the recognition generally of subscription revenue on a straight-line basis over the term of each client agreement , and the recognition of consulting revenue generally on a proportional performance basis over the period the services are performed . as discussed above under the heading “ metrics , ” bookings is a non-gaap financial measure defined as the sum of gross revenue and the change in the deferred revenue balance for the period . story_separator_special_tag we capitalize a portion of our software development costs related to the development and enhancements of our solutions , which are then amortized to cost of revenue . the timing of our capitalizable development and enhancement projects may affect the amount of development costs expensed in any given period . we capitalized $ 7.9 million , $ 5.7 54 million and $ 3.3 million of software development costs and amortized $ 4.3 million , $ 2.8 million and $ 1.9 million in 2013 , 2012 and 2011 , respectively . story_separator_special_tag associated with our intended secondary offering . as a result of our withdrawal from the offering , we expensed such costs . other , net is comprised of foreign exchange gains and losses related to transactions denominated in foreign currencies and unrealized gains and losses related to our intercompany loans . foreign exchange gains and losses for the years ended december 31 , 2013 , 2012 and 2011 , respectively , were primarily driven by fluctuations in the british pound and euro in relation to the u.s. dollar . income tax benefit ( provision ) replace_table_token_16_th we have recorded a full valuation allowance against our united states and united kingdom net deferred tax assets and therefore have not recorded a benefit ( provision ) for income taxes for any of the periods presented , other than provisions for certain foreign income taxes . during the years ended december 31 , 2013 and 2012 , we recorded an income tax benefit primarily due to the amortization of deferred tax liabilities assumed as part of the sonar acquisition . liquidity and capital resources in june 2013 , we issued $ 253 million of 1.5 % convertible notes due july 1 , 2018 ( the “ notes ” ) and concurrently entered into convertible notes hedges and separate warrant transactions . the notes mature on july 1 , 2018 , unless earlier converted . upon conversion of any notes , we will deliver cash up to the principal amount , and we have the right to settle any amounts in excess of the principal in cash or shares . we received proceeds of $ 246.0 million from the issuance of the notes , net of associated fees , received $ 23.2 million from the issuance of the warrants and paid $ 49.5 million for the note hedges . the notes are classified as a non-current liability on our consolidated balance sheet as of december 31 , 2013 . 56 at december 31 , 2013 , our principal sources of liquidity were $ 109.6 million of cash and cash equivalents , short-term investments of $ 199.9 million , and $ 67.2 million of accounts receivable . we intend to use our cash for general corporate purposes , including potential future acquisitions or other transactions . depending on certain growth opportunities , we may choose to accelerate investments in sales and marketing , research and development , technology and services , which may require the use of proceeds for such additional expansion and expenditures . based on our current level of operations and anticipated growth , we believe our future cash flows from operating activities and existing cash and cash equivalents will provide adequate funds for our ongoing operations and general corporate purposes for at least the next twelve months . our future capital requirements will depend on many factors , including our rate of revenue , billings growth and collections , the level of our sales and marketing efforts , the timing and extent of spending to support product development efforts and expansion into new territories , the timing of introductions of new services and enhancements to existing services , the timing of general and administrative expenses as we grow our administrative infrastructure , and the continuing market acceptance of our solution . to the extent that existing cash and cash from operations are not sufficient to fund our future activities , we may need to raise additional funds or utilize our cash resources . although we are not currently a party to any agreement or letter of intent with respect to potential investments in , or acquisitions of , complementary businesses , services or technologies , we may enter into these types of arrangements in the future , which could also require us to seek additional financing or utilize our cash resources . the following table sets forth a summary of our cash flows for the periods indicated ( in thousands ) : replace_table_token_17_th net cash provided by operating activities our cash flows from operating activities are significantly influenced by our growth , ability to maintain our contractual billing and collection terms , and our investments in headcount and infrastructure to support anticipated growth . given the seasonality and continued growth of our business , our cash flows from operations will vary from period to period . cash provided by operating activities of $ 17.4 million during 2013 was a result of the continued growth of our business and our continued investments for further growth . in the year ended december 31 , 2013 , $ 32.2 million , or 80 % , of our net loss of $ 40.4 million consisted of non-cash items , including $ 20.8 million of stock-based compensation , $ 9.7 million of depreciation and amortization , and $ 4.3 million of accretion of debt discount and amortization of debt issuance costs . these non-cash expenses were partially offset by a purchased premium of $ 2.0 million related to investment securities , net of amortization . cash provided by operating activities includes a $ 45.2 million increase in deferred revenue due to increased billings during the year ended december 31 , 2013 , a $ 6.8 million increase in accrued liabilities primarily due to the timing of payments , an increase in accounts payable of $ 5.1 million attributable to increased expenses associated with our growth , and an increase in other liabilities of $ 0.7 million .
| general and administrative replace_table_token_12_th general and administrative expenses increased $ 7.7 million , or 30 % , in 2013 as compared to 2012 . the increase was driven by higher costs to support our growing business . we incurred increased employee-related costs of $ 4.6 million as a result of increased headcount and stock-based compensation awards at december 31 , 2013 compared to december 31 , 2012. in addition , we incurred increased software license subscription fees of $ 1.6 million . general and administrative expenses are expected to increase with the growth of our company . general and administrative expenses increased $ 10.8 million , or 71 % , in 2012 as compared to 2011. the increase was driven by higher employee-related costs to support our growing business . we incurred increased employee-related costs of $ 5.8 million as a result of increased headcount and stock-based compensation awards at december 31 , 2012 compared to december 31 , 2011. in addition , we incurred increased professional fees of $ 2.3 million for accounting , audit , legal and tax services , increased subscription fees of $ 0.6 million , and increased expenses related to travel and entertainment of $ 0.6 million . amortization of certain acquired intangible assets replace_table_token_13_th amortization of acquired intangibles increased $ 0.3 million for the year ended december 31 , 2013 as compared to the same period in 2012 due to the amortization of intangible assets acquired through the april 2012 acquisition of sonar .
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some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . you should review the risk factors section of this annual report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we develop and are commercializing proprietary systems that generate electricity by harnessing the renewable energy of ocean waves . our powerbuoy ® systems use proprietary technologies to convert the mechanical energy created by the rising and falling of ocean waves into electricity . we currently market two powerbuoy products , which consist of our utility powerbuoy system and our autonomous powerbuoy system . we also market operations and maintenance services for our powerbuoy systems to our customers , which are expected to provide a source of recurring revenues . in addition , we expect to market our undersea substation pod and undersea power connection infrastructure services to other companies in the marine energy sector . we market our utility powerbuoy system , which is designed to supply electricity to a local or regional power grid , to utilities and other electrical power producers seeking to add electricity generated by wave energy to their existing electricity supply . we market our autonomous powerbuoy system , which is designed to generate power for use independent of the power grid , to customers that require electricity in remote locations . we believe there are a variety of potential applications for our autonomous powerbuoy system , including sonar and radar surveillance , tsunami warning , oceanographic data collection , offshore platforms and offshore aquaculture . we were incorporated in new jersey in april 1984 , began commercial operations in 1994 , and were re-incorporated in delaware in 2007. we currently have three wholly-owned subsidiaries , which include ocean power technologies ltd. , reedsport opt wave park llc , and oregon wave energy partners i , llc , and we own approximately 88 % of the ordinary shares of ocean power technologies ( australasia ) pty ltd. the development of our technology has been funded by capital we raised and by development engineering contracts we received starting in fiscal 1995. in fiscal 1996 , we received the first of several research contracts with the us navy to study the feasibility of wave energy . as a result of those research contracts , we entered into our first development and construction contract with the us navy in fiscal 2002 under a still on-going project for the development and testing of our wave power systems at the us marine corps base in oahu , hawaii . we generated our first revenue relating to our autonomous powerbuoy system from contracts with lockheed martin corporation in fiscal 2003 , and we entered into our first development and construction contract with lockheed martin in fiscal 2004 for the development and construction of a prototype demonstration autonomous powerbuoy system . at april 30 , 2011 , our total negotiated backlog was $ 8.9 million compared with $ 5.7 million at april 30 , 2010. we anticipate that a majority of our backlog will be recognized as revenue over the next 12 months . our backlog includes both funded amounts , which are unfilled firm orders for our products and services for which funding has been both authorized and appropriated by the customer ( congress , in the case of us government agencies ) and unfunded amounts , which are unfilled firm orders from the us department of energy for which funding has not been appropriated . if any of our contracts were to be terminated , our backlog would be reduced by the expected value of the remaining terms of such contracts . funded backlog was $ 6.9 million and $ 5.2 million at april 30 , 2011 and 2010 , respectively . our fiscal year ends on april 30. for fiscal 2011 , we generated revenues of $ 6.7 million and incurred a net loss attributable to ocean power technologies , inc. of $ 20.4 million , and for fiscal 2010 , we generated revenues of $ 5.1 million and incurred a net loss attributable to ocean power technologies , inc. of $ 19.2 million . as of april 30 , 2011 , our accumulated deficit was $ 110.8 million . we have not been profitable since inception , and we do not know 42 whether or when we will become profitable because of the significant uncertainties with respect to our ability to successfully commercialize our powerbuoy systems in the emerging renewable energy market . since fiscal 2002 , the us navy has accounted for a significant portion of our revenues . we expect that over time , revenues derived from utilities and other non-government commercial customers will increase more rapidly than sales to government customers and may , in the future , represent the majority of our revenues . the marine energy industry , including wave , tidal and ocean current energy technologies , is expected to benefit from various legislative initiatives that have been undertaken or are planned by state and federal agencies . for example , the production tax credit was expanded to include marine energy , as part of the energy improvement and extension act of 2008 , signed into law in october 2008. production tax credit provisions that were previously in place served only to benefit other renewable energy sources such as wind and solar . this new legislation will , for the first time , enable owners of wave power projects in the us to receive federal production tax credits , which , by their prospective effect of lowering income taxes for our customers based on energy produced , should improve the comparative economics of wave power as a renewable energy source . story_separator_special_tag the revenue increase for fiscal 2010 reflected a significant increase in revenue from the us navy related to autonomous powerbuoy projects and also an increase in revenue related to our project off the coast of reedsport , oregon . the increased revenue was partially offset by a decrease in revenue from our construction project in spain and our hawaii project for the us navy . the us navy has been our largest customer since fiscal 2002. the us navy accounted for 52 % of our revenues in fiscal 2011 , 80 % of our revenues in fiscal 2010 and 67 % of our revenues in fiscal 2009. we anticipate that , if our commercialization efforts are successful , the relative contribution of the us navy to our revenue may decline in the future . 44 we currently focus our sales and marketing efforts on north america , the west coast of europe , australia and the east coast of japan . the following table shows the percentage of our revenues by geographical location of our customers for fiscal years 2011 , 2010 and 2009 : replace_table_token_6_th cost of revenues our cost of revenues consists primarily of incurred material , labor and manufacturing overhead expenses , such as engineering expense , equipment depreciation and maintenance and facility related expenses , and includes the cost of powerbuoy parts and services supplied by third-party suppliers . cost of revenues also includes powerbuoy system delivery and deployment expenses and may include anticipated losses at completion on some contracts . we operated at a gross profit of $ 0.4 million in fiscal 2011 , a gross profit of $ 0.8 million in fiscal 2010 and a gross loss of $ 0.8 million in fiscal 2009. our ability to generate a gross profit will depend on the nature of future contracts , our success at increasing sales of our powerbuoy systems and on our ability to manage costs incurred on fixed price commercial contracts . during fiscal 2011 , we reduced revenue by approximately $ 0.2 million due to a change in estimated revenue to be recognized in connection with the spain construction agreement , and there was no corresponding reduction in cost of revenues . additionally , approximately $ 0.4 million of costs related to revenue activity during fiscal 2009 had been previously anticipated and accrued as contract loss reserves as of april 30 , 2009. these loss reserves were no longer necessary and , accordingly , reversed in fiscal year 2010 , contributing to the increase in gross profit . product development costs our product development costs consist of salaries and other personnel-related costs and the costs of products , materials and outside services used in our product development and unfunded research activities . our product development costs primarily relate to our efforts to increase the output and reliability of our utility powerbuoy system , including the 150kw powerbuoy system and to our research and development of new products , product applications and complementary technologies . we expense all of our product development costs as incurred , except for external patent costs , which we capitalize and amortize over a 17-year period commencing with the issuance date of each patent . patents are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the patent may not be recoverable . selling , general and administrative costs our selling , general and administrative costs consist primarily of professional fees , salaries and other personnel-related costs for employees and consultants engaged in sales and marketing and support of our powerbuoy systems and costs for executive , accounting and administrative personnel , professional fees and other general corporate expenses . interest income , net interest income consists of interest received on cash and cash equivalents , investments in commercial bank-issued certificates of deposit and us treasury bills and notes . total cash , cash equivalents , restricted cash , and marketable securities were $ 48.3 million as of april 30 , 2011 , $ 66.8 million as of april 30 , 2010 and $ 82.7 million as of april 30 , 2009. interest income decreased due to a decline in interest rates and a decline in cash , cash equivalents and marketable securities . 45 foreign exchange ( loss ) gain we transact business in various countries and have exposure to fluctuations in foreign currency exchange rates . foreign exchange gains and losses arise in the translation of foreign-denominated assets and liabilities , which may result in realized and unrealized gains or losses from exchange rate fluctuations . since we conduct our business in us dollars and our functional currency is the us dollar , our main foreign exchange exposure , if any , results from changes in the exchange rate between the us dollar and the british pounds sterling , the euro and the australian dollar . we invest in certificates of deposit and maintain cash accounts that are denominated in british pounds sterling , euros and australian dollars . these foreign denominated certificates of deposit and cash accounts had a balance of $ 4.8 million as of april 30 , 2011 and $ 4.1 million as of april 30 , 2010 , compared to our total cash , cash equivalents , restricted cash , and marketable securities balances of $ 48.3 million as of april 30 , 2011 and $ 66.8 million as of april 30 , 2010. in addition , a portion of our operations is conducted through our subsidiaries in countries other than the united states , specifically ocean power technologies ltd. in the united kingdom , the functional currency of which is the british pounds sterling , and ocean power technologies ( australasia ) pty ltd. in australia , the functional currency of which is the australian dollar . both of these subsidiaries have foreign exchange exposure that results from changes in the exchange rate between their functional currency and other foreign currencies in which they conduct business .
| results of operations fiscal years ended april 30 , 2011 and 2010 the following table contains statement of operations information , which serves as the basis of the discussion of our results of operations for the years ended april 30 , 2011 and 2010 : replace_table_token_7_th ( 1 ) certain subtotals may not add due to rounding . revenues revenues increased by $ 1.6 million in fiscal 2011 , or 31 % , to $ 6.7 million as compared to $ 5.1 million in fiscal 2010. the change in revenues was attributable primarily to the following factors : revenues relating to our utility powerbuoy system increased by $ 1.1 million due primarily to an increase in billable work on our pb500 powerbuoy development project and our 150kw powerbuoy project off the coast of reedsport , oregon . this was partially offset by a decrease in revenue related to our hawaii project for the us navy and our wave power project off the coast of spain , as these projects were completed . also , during fiscal 2011 , there was a reduction in revenue of approximately $ 0.2 million due to a change in estimated revenue to be recognized in connection with the spain construction agreement . revenues relating to our autonomous powerbuoy system increased by $ 0.5 million as a result of an increase in billable work on our project to provide our powerbuoy technology to the us navy 's leap program . this was partially offset by a decrease in billable work on the us navy 's dwads project .
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without limiting the generality of the foregoing , the words `` projected , '' `` anticipated , '' `` planned , '' `` expected '' and similar expressions are intended to identify forward-looking statements . in particular , statements regarding future financial targets or trends are forward-looking statements . forward-looking statements are not guarantees of our future financial performance , and undue reliance should not be placed on them . our actual results , performance or achievements may differ significantly from the results , performance and achievements discussed in or implied by the forward-looking statements . factors that could cause such a difference include material changes to j.jill 's business or prospects , in consumer spending , fashion trends or consumer preferences , or in general political , economic , business or capital market conditions and other risks and uncertainties , including but not limited to the other factors that are detailed in `` item 1a . risk factors . '' we disclaim any intent or obligation to update any forward-looking statements . restatement of prior financial information we have restated the consolidated balance sheet at december 27 , 2003 , and the consolidated statements of operations , changes in stockholders ' equity and cash flows for the years ended december 27 , 2003 and december 28 , 2002 in this annual report on form 10-k. we have also restated our quarterly financial information for fiscal 2003 and the first three quarters of fiscal 2004. see `` note m '' to the accompanying consolidated financial statements . the restatement also affects periods prior to fiscal 2002. the impact of the restatement on such prior periods has been reflected as an adjustment of $ 1.5 million to retained earnings as of december 29 , 2001 in the accompanying consolidated statement of changes in stockholders ' equity . we have also restated the applicable financial information for fiscal 2000 , fiscal 2001 , fiscal 2002 and fiscal 2003 in `` item 6. selected consolidated financial data . '' the restatement corrects our historical accounting for operating leases . in light of views expressed by the securities and exchange commission on february 7 , 2005 we , like many other retailers , reviewed our accounting practices in this regard . based on our review , we determined that certain adjustments were needed . as a result , we changed our lease accounting practice in fiscal 2004 and restated certain historical financial information . the restatement adjustments are non-cash and had no impact on revenues , comparable store sales or operating cash flows . our historical accounting practice had been to recognize straight-line rent expense for operating leases beginning on the commencement date specified in the lease , which had the effect of excluding the build-out period for our stores and our corporate office from the calculation of the period over which we expensed rent . based on our re-examination of the applicable accounting literature , we determined that the proper accounting practice is to include the build-out period in the amortization period for straight-line rent expense on all operating leases and we changed our lease accounting practice accordingly . the restatement includes adjustments to costs of products and merchandising , gross margin , selling , general and administrative expenses , operating income , income before taxes , income tax provision , net income and earnings per share . this change in our lease accounting practice reduced net income by $ 17,000 in fiscal 2004 and had no effect on diluted earnings per share in fiscal 2004. the restatement adjustments decreased our net income and earnings per share in fiscal 2003 by approximately $ 0.2 million or $ 0.01 per diluted share , and reduced net income and earnings per share in fiscal 2002 by approximately $ 0.5 million or $ 0.02 per diluted share . for information with respect to the restatement adjustments , see `` note b '' to the accompanying consolidated financial statements . 21 we did not amend our previously filed annual reports on form 10-k or quarterly reports on form 10-q for the restatement , and the financial statements and related financial information contained in such reports should no longer be relied upon . throughout `` management 's discussion and analysis of financial condition and results of operations , '' all referenced amounts for prior periods and prior period comparisons reflect the balances and amounts on a restated basis . overview we are a multi-channel specialty retailer of women 's apparel , including accessories and footwear . we market our products through retail stores , catalogs and our website jjill.com . we currently have two reportable business segments , retail and direct . each segment is separately managed and utilizes distinct distribution , marketing and inventory management strategies . the retail segment markets merchandise through retail stores . the direct segment markets merchandise through catalogs and our website . for more information about our reportable business segments , please see `` note l '' to the accompanying consolidated financial statements . our fiscal year ends on the last saturday in december . the 12 months ended december 25 , 2004 ( `` fiscal 2004 '' ) , december 27 , 2003 ( `` fiscal 2003 '' ) and december 28 , 2002 ( `` fiscal 2002 '' ) were 52-week fiscal years . net sales for fiscal 2004 increased by 15.4 % to $ 434.9 million from $ 376.9 million in fiscal 2003. operating income for fiscal 2004 was $ 15.3 million , or 3.5 % of net sales , compared to $ 12.6 million , or 3.4 % of net sales , in fiscal 2003. net income for fiscal 2004 was $ 8.7 million , or $ 0.42 per diluted share , compared to $ 7.0 million , or $ 0.35 per diluted share , for fiscal 2003. our performance in fiscal 2004 was mixed . while we experienced a very strong spring season , the fall season fell short of our expectations . story_separator_special_tag we attribute this weakness to several factors including , poor response to our early spring marketing campaigns and product offerings . we believe that our first spring marketing message , with its focus on boating , may have been too summery and our current marketing campaign is facing some very difficult comparisons as we anniversary our highly successful `` tickled pink '' campaign from last year . we believe that our ongoing design initiatives , combined with our fit evolution , may be creating the appearance that we are shifting our focus to a different or younger customer . while this is not our strategy , we acknowledge that any change in the look , feel or fit of our merchandise has the potential to confuse the customer . we will continue to closely monitor our customers ' response to the changes we are making in order to mitigate risk during this transition period and to better understand the customers ' recent preferences and perception of the j. jill brand . we plan to continue to evolve our fit and styling mix , by channel , to best serve both our existing and new customers . based on the sales trends we have experienced since the beginning of 2005 we currently expect to generate a loss in the first quarter of 2005 of between $ 0.25 and $ 0.28 per share . our gross 23 margin as a percentage of net sales is expected to decline significantly compared to the first quarter of fiscal 2004 primarily as a result of increased off price selling and promotional activity , higher inventory markdowns associated with current season overstocks and the de-leveraging of operating expenses over lower than expected net sales . selling , general and administrative expenses are also expected to de-leverage on lower than expected net sales . we currently expect these trends to continue beyond the first quarter of 2005. this forward-looking financial information is not a guarantee of actual performance . historically , our performance has deviated , often materially , from our projections . these statements do not include the potential for any business risks , opportunities or other developments that may occur after march 10 , 2005. story_separator_special_tag percentage point increase in product costs and a 0.8 percentage point increase in operating costs , both as a percentage of net sales . product costs as a percentage of net sales increased primarily as a result of increased off price selling in both segments and deeper sales discounts taken on off price merchandise in our retail segment during fiscal 2003. in addition , higher inventory markdowns also contributed to the increase in product costs as a percentage of net sales . operating costs as a percentage of net sales increased primarily as a result of lower sales productivity in both segments . gross margin was also affected by the shift in the mix of the business toward retail and the fact that retail segment operating costs are higher as a percentage of net sales than direct segment operating costs . during fiscal 2003 , selling , general and administrative expenses increased by $ 14.6 million , or 14.6 % , to $ 114.0 million from $ 99.5 million during fiscal 2002. as a percentage of net sales , selling , general and administrative expenses increased to 30.2 % during fiscal 2003 from 28.6 % during fiscal 2002. the 1.6 percentage point increase in selling , general and administrative expenses as a percentage of net sales was attributable to a 2.0 percentage point increase in selling expenses partially offset by a 0.4 percentage point decrease in general and administrative expenses , both as a percentage of net sales . selling expenses as a percentage of net sales increased primarily as a result of lower sales productivity experienced in both the direct and retail segments as well as the shift in the mix of the business toward retail and the fact that retail segment selling expenses are higher as a percentage of net sales than direct segment selling expenses . general and administrative expenses as a percentage of net sales decreased primarily as a result of the leveraging of such expenses over greater total company net sales . during fiscal 2003 , spending on infrastructure investments , insurance and professional fees was $ 2.6 million higher than in fiscal 2002 , but this spending increase was partially offset by cost savings associated with two significant charges taken in fiscal 2002 that were not repeated in fiscal 2003. during fiscal 2002 , general and administrative expenses included approximately $ 1.2 million for cost incurred related to a potential strategic acquisition by us that 26 was abandoned and a charge of $ 1.0 million for a fully vested discretionary contribution to our deferred compensation plan . interest income decreased to $ 0.5 million during fiscal 2003 from $ 0.6 million during fiscal 2002. interest expense decreased to $ 1.2 million during fiscal 2003 from $ 1.4 million during fiscal 2003. the decrease in interest income and interest expense resulted primarily from lower interest rates . income taxes we provide for income taxes at an effective tax rate that includes the full federal and state statutory tax rates . our effective tax rates for fiscal 2004 , fiscal 2003 and fiscal 2002 , were 42.0 % , 41.0 % and 40.9 % , respectively . our effective tax rate for fiscal 2004 was negatively affected as a result of conducting business in states with higher tax rates . our effective tax rate for fiscal 2004 was also negatively affected by an increase in the projected amount of non-deductible expenses and a valuation allowance that we established at december 25 , 2004 for $ 0.2 million . this valuation allowance relates to certain state net operating loss ( `` nol '' ) carryforwards where we believe that it is more likely than not that the associated tax benefit will not be realized . the effective tax rate for fiscal 2003 includes the impact of the reversal of a $ 0.1 million valuation allowance .
| results of operations the following table presents our consolidated statements of operations expressed as a percentage of net sales : replace_table_token_4_th the following table summarizes net sales by segment ( in thousands ) : replace_table_token_5_th ( 1 ) other represents outlet store net sales . comparison of fiscal 2004 to fiscal 2003 net sales increased by $ 58.0 million , or 15.4 % , to $ 434.9 million during fiscal 2004 from $ 376.9 million during fiscal 2003 primarily as a result of increased store count and higher sales productivity in both segments partially offset by lower circulation in our direct segment . retail segment net sales increased by $ 62.0 million , or 35.1 % , during fiscal 2004. this increase is attributable to a 25.7 % increase in the weighted average square footage of retail stores open during the year and a 7.5 % increase in retail segment sales productivity , as measured by net sales per weighted average square foot . during fiscal 2004 , we opened 28 24 retail stores and ended the year with 150 retail stores . comparable store sales for stores open at least one full fiscal year increased by 11.1 % during fiscal 2004. direct segment net sales decreased by $ 3.9 million , or 2.0 % , during fiscal 2004 , as square inches circulated decreased by 15.2 % while direct segment sales productivity , as measured by net sales per 1,000 square inches circulated increased by 15.5 % . the increases in the sales productivity of the retail and direct segments during fiscal 2004 are primarily attributable to the positive customer reaction to our spring season merchandise . in addition , direct segment sales productivity was also positively affected by planned page count reductions and lower customer return rates .
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these risks and uncertainties include but are not limited to those risks and uncertainties set forth in item 1a of this form 10-k. in light of the significant risks and uncertainties inherent in the forward-looking statements included in this form 10-k , the inclusion of such statements should not be regarded as a representation by us or any other person that our objectives and plans will be achieved . further , these forward-looking statements reflect our view only as of the date of this report . except as required by law , we undertake no obligations to update any forward-looking statements and we disclaim any intent to update forward-looking statements after the date of this report to reflect subsequent developments . accordingly , you should also carefully consider the factors set forth in other reports or documents that we file from time to time with the sec . presentation on july 12 , 2019 , ohr completed the merger . at the closing of the merger , each outstanding share of legacy neubase 's capital stock was converted into the right to receive 1.019055643 shares of our common stock . shares of our common stock commenced trading on the nasdaq capital market under the ticker symbol “ nbse ” as of market open on july 15 , 2019. our previous ticker symbol was “ ohrp ” . as a result of the merger , our going-forward operations will be primarily those of legacy neubase . accordingly , the results of operations reported for the fiscal year ended september 30 , 2019 , in this management 's discussion and analysis of financial condition and results of operations are not indicative of the results of operations expected for future years due to the transition of our historic business operations to primarily those of legacy neubase . overview neubase therapeutics , inc. ( the “ company ” , “ we ” , “ us ” and “ our ” ) is a biotechnology company accelerating the genetic revolution using a new class of synthetic medicines . our modular peptide-nucleic acid antisense oligo ( “ patrol ” ) platform which outputs “ anti-gene ” candidate therapies is designed to combine the specificity of genetic sequence-based target recognition with a modularity that enables use of various in vivo delivery technologies to enable broad and also selective tissue distribution capabilities . given that every human disease may have a genetic component , we believe that our differentiated platform technology has the potential for broad impact by increasing , decreasing or changing gene function at either the dna or rna levels to resolve the progression to disease , as appropriate in a particular indication . we plan to use our platform to address diseases driven by a genetic abnormality and we are initially focused on huntington 's disease ( “ hd ” ) and myotonic dystrophy type 1 ( “ dm1 ” ) . mutated proteins resulting from errors in deoxyribonucleic acid ( “ dna ” ) sequences cause rare genetic diseases and cancer . dna in each cell of the body is transcribed into pre-messenger ribonucleic acid ( “ pre-mrna ” ) , which is then processed ( spliced ) into mrna , which is exported into the cytoplasm of the cell and translated into a protein . this is termed the “ central dogma ” of biology . therefore , when errors in a dna sequence occur , they are often propagated into rnas and can produce a damaging protein . we are developing “ anti-gene ” therapies . anti-genes are similar , but distinct , from antisense oligonucleotides ( asos ) . asos are short single strands of nucleic acids ( traditionally thought of as single-stranded rna molecules ) which bind to defective rna targets in cells and inhibit their ability to form defective proteins . we believe we are a leader in the discovery and development of this new class of anti-gene drugs derived from peptide-nucleic acids ( “ pnas ” ) . the key differentiator between asos and anti-genes is that the scaffold is not derived from a natural sugar-phosphate nucleic acid backbone , rather is a synthetic polyamide which is charge-neutral ( and thus high affinity to allow invasion of double-stranded targets ) , semi-rigid , and apparently non-biodegradable and immunologically inert . these features provide potential advantages over asos and other genetic therapies for modulating disease-causing genes including increased unique target opportunities , improved target specificity and a reduction in both sequence-dependent and independent toxicities . in addition , as these anti-genes are manufactured via standard peptide synthesis methods , they efficiently leverage the advancements in the synthetic peptide industry to enable modulating pharmacophore delivery , pharmacokinetics , sub-cellular placement and endosomal escape . 80 in addition to the scaffold , we also have a kit of natural nucleobases , chemically modified nucleobases which add further precision to a nucleic acid target of interest , and proprietary bi-specific nucleobases which can be added to the scaffold to allow precise target engagement . these bi-specific nucleobases , in particular , can be used in any combination to more specifically access double stranded dna targets and rna targets comprised of secondary structures such as hairpins ( double stranded rna targets which are folded upon themselves ) . this allows us to potentially access regions of the target transcript which may be unique in secondary structure to allow enhanced selectivity for the target ( mutant ) rna as compared to the normal rna . enhanced selectivity for mutant rnas as compared to normal rnas is critical as normal rnas are likely required for effective functioning of the cell . these bi-specific nucleotides can also target genomic loci and micrornas in their double-stranded form . a component of the modular platform is the ability to add delivery technology to the pharmacophores so as to reach a desired cell or tissue upon in vivo administration . there is flexibility to append various delivery technologies to the pharmacophore to allow either broad tissue distribution or narrow cell and or tissue targeting if so desired based on targets . story_separator_special_tag the collective population of people with rare diseases stands to benefit profoundly from the emergence of a scalable and modular treatment development platform that allows for a more efficient discovery of drug product candidates to address these conditions cohesively . mutated proteins resulting from errors in deoxyribonucleic acid ( “ dna ” ) sequences cause many rare genetic diseases and cancer . dna in each cell of the body is transcribed into pre-rna , which is then processed ( spliced ) into mrna which is exported into the cytoplasm of the cell and translated into protein . this is termed the “ central dogma ” of biology . therefore , when errors in a dna sequence occur , they are propagated to rnas and can become a damaging protein . conceptually , we have learned that asos can inactivate target rnas before they can produce harmful proteins by binding them in a sequence-specific manner , which can delay disease progression or even eliminate genetic disease symptoms . asos designed by others to target known disease-related mutant rna sequences have been shown to be able to degrade these transcripts and have a positive clinical impact . similarly , applications in modifying splicing of pre-rna in the nucleus of the cell have been developed by others to exclude damaging exons from the final mrna product and have been approved by the food and drug administration ( “ fda ” ) . we plan to extend upon these conceptual breakthroughs by utilizing our first-in-class technology which we believe has significant benefits in certain application areas to better resolve a clinical disorder with well tolerated anti-gene therapies . 82 we believe the breadth of the patrol platform gives us the ability to potentially address a multitude of inherited genetic diseases . the technology may also allow us to target and inactivate gain-of-function and change-of-function mutations , and address targets in recessive disease and haploinsufficiencies by altering splicing to remove damaging exons/mutations or increasing expression of wild-type alleles by various means . gamma-modified scaffolds , an optimized version of which we utilize , have demonstrated preclinical in vivo efficacy in several applications which we believe can be translated across many targets and into humans . for example , in oncology such scaffolds have reduced expression of an activated oncogene ( the epidermal growth factor receptor of the egfr gene ) and have modified gene regulation by targeting micrornas to slow tumor growth . such scaffolds have also demonstrated in vivo engagement with the double-stranded genome in studies done by others to perform in vivo single-base genome editing . announcement of positive preclinical data on march 31 , 2020 , we announced positive preclinical data from our pharmacokinetics studies in non-human primates ( “ nhps ” ) and in vitro pharmacodynamics data in patient-derived cell lines . our pharmacokinetics studies in nhps demonstrated , among other things : · rapid uptake of our patrol-enabled compound out of the body 's circulation after systemic intravenous administration , with a half-life in circulation of approximately 1.5 hours ; · penetration by our patrol-enabled compound in every organ system studied , including the central nervous system and skeletal muscle ; and · retention of therapeutically relevant doses for greater than one week after single-dose injection . our pharmacodynamics studies in patient-derived cell lines demonstrated , among other things : · activity in engaging target disease-causing transcripts and knocking-down resultant malfunctioning mutant htt protein levels preferentially over normal htt protein knock-down ; and · dose-limiting toxicities were not observed relative to a control either at or above the doses demonstrating activity in human cells in vitro . in addition , patrol enabled compounds were generally well-tolerated in vivo after systemic administration , both after single-dose administration in nhps and multi-dose administration in mice for over a month . product pipeline nt0100 program - patrol enabled anti-gene for huntington 's disease hd is a devastating rare neurodegenerative disorder . after onset , symptoms such as uncontrolled movements , cognitive impairments and emotional disturbances worsen over time . hd is caused by toxic aggregation of mutant huntingtin protein , leading to progressive neuron loss in the striatum and cortex of the brain . the wild-type huntingtin gene ( htt ) has a region in which a three-base dna sequence , cag , is repeated many times . when the dna sequence cag is repeated 26 or fewer times in this region , the resulting protein behaves normally . while the wild-type function of htt protein is largely uncharacterized , it is known to be essential for normal brain development . when the dna sequence cag is repeated 40 times or more in this region , the resulting protein becomes toxic and causes hd . every person has two copies , or alleles , of the htt gene . only one of the alleles ( the “ mutant ” allele ) needs to bear at least 40 cag repeats for hd to occur . hd is one of many known repeat expansion disorders , which are a set of genetic disorders caused by a mutation that leads to a repeat of nucleotides exceeding the normal threshold . current therapies for patients with hd can only manage individual symptoms . 83 there is no approved therapy that has been shown to delay or halt disease progression . there are approximately 30,000 symptomatic patients in the u.s. and more than 200,000 at-risk of inheriting the disease globally . one especially important advantage of the patrol platform that makes it promising for the treatment of repeat expansion disorders like hd is the ability of our small anti-genes to potentially target the rna hairpin . as the number of repeats increases , the patrol anti-genes bind more tightly to each other and the mutant rna . this allows our therapies to potentially inactivate mutant htt mrna before it can be translated into harmful protein via selective binding to the expanded cag repeats while leaving the normal htt mrna largely unbound to drug and producing functional protein .
| results of operations results of operations for the fiscal year ended september 30 , 2020 reflect the following changes from the year ended september 30 , 2019. replace_table_token_1_th until we are able to generate revenues , our management expects to continue to incur net losses . general and administrative expense general and administrative expense consists primarily of legal and professional fees , wages and stock-based compensation . general and administrative expenses increased by $ 1.0 million for the fiscal year ended september 30 , 2020 , as compared to the fiscal year ended september 30 , 2019 , primarily due to an increase in employee head count and additional legal and professional services . 86 research and development expense research and development expense consist primarily of professional fees , manufacturing expenses , wages and stock-based compensation . research and development expenses increased by $ 3.5 million for the fiscal year ended september 30 , 2020 , as compared to the fiscal year ended september 30 , 2019 , primarily due to an increase in employee headcount and the ramp up of research and development activities . research and development expense- licenses acquired research and development expense- licenses acquired consists of licenses acquired from cmu and in the merger with ohr . research and development expense- licenses acquired decreased by $ 13.0 million for the fiscal year ended september 30 , 2020 , as compared to the fiscal year ended september 30 , 2019 , primarily due to our acquisition of license rights in 2019. interest expense interest expense consists primarily of interest on convertible notes and notes payable . interest expense decreased by $ 0.1 million for the fiscal year ended september 30 , 2020 , as compared to the fiscal year ended september 30 , 2019 , primarily due to the decrease in convertible notes .
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our global cellulose fibers business is on track to achieve the estimated transaction synergies . we continued to grow value for our shareholders with our return on invested capital solidly exceeding our cost of capital for the eighth consecutive year . we made substantial progress in further strengthening our portfolio during 2017. we accelerated strategic investments for growth in the industrial packaging business , providing the company with the flexibility we need around capacity , products and geography to support our customers . in addition , the company made an important strategic move to transfer the north american consumer packaging business , which included the north american coated paperboard and foodservice businesses , to a subsidiary of graphic packaging holding company . this strategic move enables us to focus on growing value in our core businesses and establish a 20.5 % ownership interest in the subsidiary of graphic packaging holding company that holds the assets of the combined business . finally , we generated strong free cash flow which enabled us to increase our annual dividend for the sixth consecutive year . our 2017 results reflect significant pricing and mix improvement , which accelerated throughout the year . the improvement in price and mix was primarily driven by price realization on price increases announced in prior quarters in our north american industrial packaging and global cellulose fibers businesses . operations were negatively impacted by hurricanes and the pensacola event earlier in the year ; however , 2017 was a lower maintenance outage year . input costs were higher compared to 2016 , driven by significantly higher recovered fiber costs , as well as , higher energy and transportation costs during the latter part of the year . our ilim joint venture delivered solid operational and financial results , driven by pricing and strong volume , and provided more than $ 130 million in cash dividends to international paper in 2017. finally , our 2017 results reflect the provisional net tax benefit associated with the impact of the december 2017 enactment of the tax cuts and jobs act . looking ahead to the 2018 first quarter , overall industry conditions are expected to remain strong , and we should continue to benefit from announced price increases , cost reduction initiatives and additional synergies . we expect higher export price realization in our north american industrial packaging business and improved pricing in our printing papers segment , as price increases implemented in 2017 are realized . we also expect 2018 first quarter sales volumes for north american industrial packaging and brazil papers to be down due to seasonally lower demand . our north american mill operations have been affected by the severe cold weather experienced at the beginning of 2018 which is expected to impact operating costs . costs will be higher in our european packaging business related to the madrid mill conversion . in addition , planned maintenance outages are expected to increase due to a heavy outage quarter , as 70 % of the company outages are planned during the first half of 2018. input costs are expected to increase across our businesses , driven by higher wood , energy and transportation costs . additionally , we expect equity earnings for ilim to be sequentially higher , driven by price realization across the pulp portfolio which will be partly offset by seasonally lower volumes . looking to full year 2018 , our focus will be on value creation in our growth businesses . we anticipate another year of strong growth , driven by a continued strong outlook in our core businesses and the full-year price flow through of the 2017 increases . we continue to see healthy demand and solid fundamentals across our portfolio . we expect higher maintenance outage expenses due to the calendar impact of mills on an eighteen-month cycle and extended outages at several of our mills , as we position them for longer maintenance cycle schedules in the future . we are planning for $ 1.5 billion in capital expenditures in 2018 , including approximately $ 500 million that will be invested in strategic projects , including the madrid mill conversion and the riverdale conversion . also , we will see the positive cash tax impact associated with tax reform . our ilim joint venture is well positioned for another strong year of performance , and we will start to see the benefits of our investment in graphic packaging . all in , we expect another year of strong cash generation enabling us to continue to allocate capital to grow value for our shareholders . adjusted operating earnings and adjusted operating earnings per share are non-gaap measures and are defined as net earnings from continuing operations ( a gaap measure ) excluding special items and non-operating pension expense . diluted earnings ( loss ) and diluted earnings ( loss ) per share attributable to common shareholders are the most direct comparable gaap measures . the company calculates adjusted operating earnings by excluding the after-tax effect of items considered by management to be unusual , from the earnings reported under gaap , non-operating pension expense ( includes all u.s. pension costs , excluding service costs and prior service costs ) , and discontinued operations . adjusted operating earnings per share is calculated by dividing adjusted operating earnings by diluted average shares of common stock outstanding . management uses this measure to focus on on-going operations , and believes that it is useful to investors 17 because it enables them to perform meaningful comparisons of past and present operating results . the company believes that using this information , along with the most direct comparable gaap measure , provides for a more complete analysis of the results of operations . the following are reconciliations of diluted earnings ( loss ) attributable to common shareholders to adjusted operating earnings attributable to common shareholders . replace_table_token_11_th replace_table_token_12_th replace_table_token_13_th replace_table_token_14_th free cash flow is a non-gaap measure and the most directly comparable gaap measure is cash provided by operations . story_separator_special_tag liquidity and capital resources for the year ended december 31 , 2017 , international paper generated $ 1.8 billion of cash flow from operations compared with $ 2.5 billion in 2016 and $ 2.6 billion in 2015 . cash flow from operations included $ 1.25 billion , $ 750 million and $ 750 million of cash pension contributions in 2017 , 2016 and 2015 , respectively . capital spending for 2017 totaled $ 1.4 billion , or 98 % of depreciation and amortization expense . our liquidity position remains strong , supported by approximately $ 2.1 billion of credit facilities that we believe are adequate to meet future liquidity requirements . maintaining an investment-grade credit rating for our long-term debt continues to be an important element in our overall financial strategy . we expect strong cash generation again in 2018 , including the benefits of u.s. tax reform , and will continue our balanced use of cash through the payment of dividends , reducing total debt and making investments for future growth . capital spending for 2018 is targeted at $ 1.5 billion , or about 111 % of depreciation and amortization . legal see note 11 commitments and contingent liabilities on pages 60 through 63 of item 8. financial statements and supplementary data for a discussion of legal matters . results of operations while the operating results for international paper 's various business segments are driven by a number of business-specific factors , changes in international paper 's operating results are closely tied to changes in general economic conditions in north america , europe , russia , latin america , india , north africa and the middle east . factors that impact the demand for our products include industrial non-durable goods production , consumer spending , commercial printing and advertising activity , white-collar employment levels , and movements in currency exchange rates . product prices are affected by general economic trends , inventory levels , currency exchange rate movements and 20 worldwide capacity utilization . in addition to these revenue-related factors , net earnings are impacted by various cost drivers , the more significant of which include changes in raw material costs , principally wood , recycled fiber and chemical costs ; energy costs ; freight costs ; salary and benefits costs , including pensions ; and manufacturing conversion costs . the following is a discussion of international paper 's results of operations for the year ended december 31 , 2017 , and the major factors affecting these results compared to 2016 and 2015 . for the year ended december 31 , 2017 , international paper reported net sales of $ 21.7 billion , compared with $ 19.5 billion in 2016 and $ 20.7 billion in 2015 . international net sales ( including u.s. exports ) totaled $ 8.4 billion or 39 % of total sales in 2017 . this compares with international net sales of $ 6.9 billion in 2016 and $ 7.6 billion in 2015 . full year 2017 net earnings attributable to international paper company totaled $ 2.1 billion ( $ 5.13 per diluted share ) , compared with net earnings of $ 904 million ( $ 2.18 per diluted share ) in 2016 and $ 938 million ( $ 2.23 per diluted share ) in 2015 . amounts in all periods include the results of discontinued operations . earnings from continuing operations attributable to international paper company after taxes in 2017 , 2016 and 2015 were as follows : in millions 2017 2016 2015 earnings from continuing operations attributable to international paper company $ 2,110 ( a ) $ 802 ( b ) $ 853 ( c ) ( a ) includes $ 952 million of net special items income which included a provisional net tax benefit of $ 1.2 billion related to the enactment of the tax cut and jobs act and $ 298 million of non-operating pension expense which included a pre-tax charge of $ 376 million ( $ 232 million after taxes ) for a settlement accounting charge associated with an annuity purchase and transfer of pension obligations for approximately 45,000 retirees . ( b ) includes $ 108 million of net special items charges and $ 375 million of non-operating pension expense which included a pre-tax charge of $ 439 million ( $ 270 million after taxes ) for a settlement accounting charge associated with payments under a term-vested lump sum buyout . ( c ) includes $ 439 million of net special items charges and $ 157 million of non-operating pension expense . compared with 2016 , the benefits from higher sales volumes , higher average sales price realizations and mix , lower maintenance outage costs , incremental earnings from the acquisition of weyerhaeuser 's pulp business , lower other costs , and lower tax expense were partially offset by higher operating costs , higher input costs and higher net interest expense . in addition , 2017 results included lower equity earnings , net of taxes , relating to the company 's investment in ilim holding , sa . see business segment results on pages 24 through 27 for a discussion of the impact of these factors by segment . discontinued operations 2017 : on january 1 , 2018 , the company completed the transfer of its north american consumer packaging business , which includes its north american coated paperboard and foodservice businesses , to a subsidiary of graphic packaging holding company . international paper received a 20.5 % ownership interest in a subsidiary of graphic packaging holding company that holds the assets of the combined business . as a result of this transfer , all current and prior year amounts have been adjusted to reflect the north american consumer packaging business as a discontinued operation . see note 7 on pages 53 through 55 of item 8. financial statements and supplementary data for further discussion .
| business segment results the following tables present net sales and operating profit ( loss ) which is the company 's measure of segment profitability . the tables include a detail of special items in each year , where applicable , in order to show operating profit before special items . industrial packaging demand for industrial packaging products is closely correlated with non-durable industrial goods production , as well as with demand for processed foods , poultry , meat and agricultural products . in addition to prices and volumes , major factors affecting the profitability of industrial packaging are raw material and energy costs , freight costs , manufacturing efficiency and product mix . replace_table_token_20_th industrial packaging net sales for 2017 increased 6 % to $ 15.1 billion compared with $ 14.2 billion in 2016 , and 4 % compared with $ 14.6 billion in 2015 . operating profits in 2017 were 11 % lower than in 2016 and 20 % lower than in 2015 . comparing 2017 with 2016 , benefits from higher average sales price realizations and mix ( $ 593 million ) and higher sales volumes ( $ 75 million ) were offset by higher operating costs ( $ 245 million ) , higher maintenance outage costs ( $ 1 million ) , higher input costs ( $ 304 million ) and higher other costs ( $ 17 million ) . replace_table_token_21_th ( a ) includes intra-segment sales of $ 172 million for 2017 and $ 143 million for 2016. north american industrial packaging 's sales volumes increased in 2017 compared with 2016 reflecting higher box shipments and higher shipments of containerboard to export markets . in 2017 , the business took about 416,000 tons of total downtime of which about 35,000 were economic downtime and 381,000 were maintenance downtime . the business took about 914,000 tons of total downtime in 2016 of which 445,000 were economic downtime and 469,000 were maintenance downtime .
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offshore projects : although commodity prices have been volatile , we have begun to see increasing customer activity on offshore projects and more final investment decisions being made . subsea tree awards increased in 2018 , and we expect tree awards to be roughly flat in 2019 , though still at levels significantly below prior 2012 and 2013 peaks . we expect customers to continue to evaluate the timing of final investment decisions , and in light of increased commodity price volatility , there may be some project delays . liquefied natural gas ( lng ) projects : we remain optimistic on the lng market . while currently oversupplied , we believe a significant number of final investment decisions are needed to fill the projected supply-demand imbalance in the early to middle part of the next decade . in 2018 , we saw positive final investment decisions for new lng capacity . we continue to view the long-term economics of the lng industry as positive given our outlook for supply and demand . refinery , petrochemical and industrial projects : in refining , we believe large , complex refineries should gain advantage in a more competitive , oversupplied landscape in 2019 as the industry globalizes and refiners position to meet local demand and secure export potential . in petrochemicals , we continue to see healthy demand and cost-advantaged supply driving projects forward in 2019. the industrial market continues to grow as outdated infrastructure is replaced , policy changes come into effect and power is decentralized . we continue to see growing demand across these markets in 2019. we have other segments in our portfolio that are more correlated with different industrial metrics such as our digital solutions business . overall , we believe our portfolio is uniquely positioned to compete across the value chain , and deliver comprehensive solutions for our customers . we remain optimistic about the long-term economics of the industry , but are continuing to operate with flexibility given our expectations for volatility and changing assumptions in the near term . solar and wind net additions continued to exceed coal and gas throughout 2018 . governments may change or may not continue incentives for renewable energy additions . in the long term , renewables ' cost decline may accelerate to compete with new-built fossil capacity . however , we do not anticipate any significant impacts to our business in the foreseeable future . despite the near-term volatility , the long-term outlook for our industry remains positive . we believe the world 's demand for energy will continue to rise , and the supply of energy will continue to increase in complexity , requiring greater service intensity and more advanced technology from oilfield service companies . as such , we remain focused on delivering innovative , cost-efficient solutions that deliver step changes in operating and economic performance for our customers . business environment the following discussion and analysis summarizes the significant factors affecting our results of operations , financial condition and liquidity position as of and for the year ended december 31 , 2018 , 2017 and 2016 , and bhge llc 2018 form 10-k | 25 should be read in conjunction with the consolidated and combined financial statements and related notes of the company . we operate in more than 120 countries helping customers find , evaluate , drill , produce , transport and process hydrocarbon resources . our revenue is predominately generated from the sale of products and services to major , national , and independent oil and natural gas companies worldwide , and is dependent on spending by our customers for oil and natural gas exploration , field development and production . this spending is driven by a number of factors , including our customers ' forecasts of future energy demand and supply , their access to resources to develop and produce oil and natural gas , their ability to fund their capital programs , the impact of new government regulations and most importantly , their expectations for oil and natural gas prices as a key driver of their cash flows . oil and natural gas prices oil and natural gas prices are summarized in the table below as averages of the daily closing prices during each of the periods indicated . replace_table_token_2_th ( 1 ) energy information administration ( eia ) europe brent spot price per barrel ( 2 ) eia cushing , ok wti ( west texas intermediate ) spot price ( 3 ) eia henry hub natural gas spot price per million british thermal unit 2018 demonstrated the volatility of the oil and gas market . through the first three quarters of 2018 , we experienced stability in the north american and international markets . however , in the fourth quarter of 2018 commodity prices dropped nearly 40 % resulting in increased customer uncertainty . from an offshore standpoint , through most of 2018 , we saw multiple large offshore projects reach positive final investment decisions , and the lng market and outlook improved throughout 2018 , driven by increased demand globally . in 2018 , the first large north american lng positive final investment decision was reached . outside of north america , customer spending is highly driven by brent oil prices , which increased on average throughout the year . average brent oil prices increased to $ 71.34/bbl in 2018 from $ 54.12/bbl in 2017 , and ranged from a low of $ 50.57/bbl in december 2018 , to a high of $ 86.07/bbl in october 2018. for the first three quarters of 2018 , brent oil prices increased sequentially . however , in the fourth quarter , brent oil prices declined 39 % versus the end of the third quarter , as a result of increased supply from the u.s. , worries of a global economic slowdown , and lower than expected production cuts . in north america , customer spending is highly driven by wti oil prices , which similar to brent oil prices , on average increased throughout the year . story_separator_special_tag all dollar amounts in tabulations in this section are in millions of dollars , unless otherwise stated . certain columns and rows may not add due to the use of rounded numbers . the results of operations for the company include the results of baker hughes from july 3 , 2017 , the date of acquisition , through the year ended december 31 , 2018 . our results of operations are evaluated by the chief executive officer on a consolidated basis as well as at the segment level . the performance of our operating segments is evaluated based on segment operating income ( loss ) , which is defined as income ( loss ) before income taxes and equity in loss of affiliate and before the following : net interest expense , net other non operating income , corporate expenses , restructuring , impairment and other charges , inventory impairment , merger and related costs , and certain gains and losses not allocated to the operating segments . in evaluating the segment performance , the company uses the following : volume : volume is the increase or decrease in products and or services sold period-over-period excluding the impact of foreign exchange and price . the volume impact on profit is calculated by multiplying the prior period profit rate by the change in revenue volume between the current and prior period . it also includes price , defined as the change in sales price for a comparable product or service period-over-period and is calculated as the period-over-period change in sales prices of comparable products and services . foreign exchange ( fx ) : fx measures the translational foreign exchange impact , or the translation impact of the period-over-period change on sales and costs directly attributable to change in the foreign exchange rate compared to the us dollar . fx impact is calculated by multiplying the functional currency amounts ( revenue or profit ) with the period-over-period fx rate variance , using the average exchange rate for the respective period . ( inflation ) /deflation : ( inflation ) /deflation is defined as the increase or decrease in direct and indirect costs of the same type for an equal amount of volume . it is calculated as the year-over-year change in cost ( i.e . price paid ) of direct material , compensation & benefits and overhead costs . productivity : productivity is measured by the remaining variance in profit , after adjusting for the period-over-period impact of volume & price , foreign exchange and ( inflation ) /deflation as defined above . improved or lower period-over-period cost productivity is the result of cost efficiencies or inefficiencies , such as cost decreasing or increasing more than volume , or cost increasing or decreasing less than volume , or changes in sales mix among segments . this also includes the period-over-period variance of transactional foreign exchange , aside from those foreign currency devaluations that are reported separately for business evaluation purposes . orders and remaining performance obligations orders : we recognized orders of $ 23,904 million , $ 17,159 million , and $ 11,066 million in 2018 , 2017 and 2016 , respectively . in 2018 , service orders were up 36 % and equipment orders were up 45 % , compared to 2017 . in 2017 , service orders were up 39 % and equipment orders were up 88 % , compared to 2016 . the increase in orders in 2018 and 2017 was driven primarily by the acquisition of baker hughes . remaining performance obligations ( rpo ) : as of december 31 , 2018 and 2017 , the aggregate amount of the transaction price allocated to the unsatisfied ( or partially unsatisfied ) performance obligations was $ 21.0 billion in each year , respectively . bhge llc 2018 form 10-k | 28 revenue and segment operating income ( loss ) before tax revenue and segment operating income ( loss ) for each of our four operating segments is provided below . replace_table_token_4_th replace_table_token_5_th ( 1 ) inventory impairments and related charges are reported in the `` cost of goods sold '' caption of the consolidated and combined statements of income ( loss ) . 2017 includes $ 87 million of adjustments to write-up the acquired inventory to its estimated fair value on acquisition of baker hughes as this inventory was used or sold in the six months ended december 31 , 2017. fiscal year 2018 to fiscal year 2017 revenue in 2018 was $ 22,877 million , an increase of $ 5,698 million , or 33 % , from 2017 . this increase in revenue was largely a result of the incremental baker hughes revenue in 2018. ofs increased $ 5,736 million , ds increased $ 262 million , ofe decreased $ 20 million , and tps decreased $ 280 million . total segment operating income in 2018 was $ 1,796 million , an increase of $ 681 million , or 61 % , from 2017 . the increase was primarily driven by ofs , which increased $ 718 million , and ds , which increased $ 33 million , partially offset by tps , which decreased $ 44 million , and ofe , which decreased $ 26 million . bhge llc 2018 form 10-k | 29 oilfield services ofs 2018 revenue was $ 11,617 million , an increase of $ 5,736 million from 2017 , primarily as a result of having the full year of baker hughes revenue in 2018. in addition to the incremental revenue from baker hughes , the improvement in revenue was also due to increased activity in the north american and international markets compared to the prior year as evidenced by the 9 % increase in the worldwide rig counts . ofs 2018 segment operating income was $ 785 million , compared to $ 67 million in 2017 . the additional contribution resulting from the acquisition of baker hughes , and to a lesser extent higher activity and synergy benefits , drove the increase in operating income .
| executive summary on july 3 , 2017 , we closed the transactions to combine ge o & g and baker hughes , creating a fullstream oilfield technology provider that has a unique mix of integrated oilfield products , services and digital solutions . the transactions were executed using a partnership structure , pursuant to which ge o & g and baker hughes each contributed their operating assets to the company . as of december 31 , 2018 , ge holds an approximate 50.4 % interest in us and bhge holds an approximate 49.6 % interest . ge 's interest is held through a voting interest of class b common stock in bhge and its economic interest through a corresponding number of our common units . the results of operations for the company include the results of baker hughes from july 3 , 2017 , the date of acquisition , through december 31 , 2018 . the majority of the baker hughes business operations are included in the oilfield services segment . the transactions were treated as a “ reverse acquisition ” for accounting purposes and , as such , the historical financial statements of the accounting acquirer , ge o & g , are the historical financial statements of the company . the current year results may not be comparable to prior years as the prior years include the results of baker hughes only from july 3 , 2017. we operate through our four business segments : oilfield services ( ofs ) , oilfield equipment ( ofe ) , turbomachinery & processing solutions ( tps ) , and digital solutions ( ds ) . as of december 31 , 2018 , bhge llc employs approximately 66,000 employees and operates in more than 120 countries . in june 2018 , ge announced their intention to pursue an orderly separation from bhge over time .
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on the statement of cash flows , changes in the balances of available-for-sale securities are shown as purchases , story_separator_special_tag results of operations : fourth quarter of 2012 versus fourth quarter of 2011 story_separator_special_tag style= '' font-family : times new roman '' > sales by product category were as follows ( amounts in thousands , except percentages ) : replace_table_token_17_th sales increased in latin america due to improved geographic coverage with notable increases in supplies , mobile , and card printer sales compared to 2011. sales in north america increased due to increased sales of supplies and continued demand for desktop , card and tabletop printers . zebra continues to build a broader base of customers to penetrate targeted industries more deeply . movements in foreign exchange rates decreased sales by $ 12,139,000 in the europe , middle east and africa regions due principally to a weaker euro against the u.s. dollar . 24 sales to customers by geographic region were as follows ( in thousands , except percentages ) : replace_table_token_18_th gross profit gross profit increased 1.0 % due to higher volumes and lower material costs . lower freight costs in 2012 of $ 5,042,000 versus 2011 helped improve gross profit while unfavorable movements in foreign currency decreased gross profit by $ 9,923,000. the above factors contributed to the slight decrease in gross margin from 49.5 % to 49.4 % . printer unit volumes and average selling price information is summarized below : replace_table_token_19_th product unit volumes increased 6.0 % in 2012 over the prior year . this was due to increased volumes in desktop , mobile and card printers . the average selling price reflects a change in product mix toward lower priced products from year to year . operating expenses operating expenses are summarized below ( in thousands , except percentages ) : replace_table_token_20_th operating expenses for 2012 increased 7.4 % . this is primarily due to greater selling and marketing and general and administrative expenses . the asset impairment charge was accounted for 40.4 % of the total increase in 2012. several categories accounted for these increases , including compensation costs , outside professional services , rent , depreciation and information systems expenses . acquisition costs are related to investigated and completed acquisitions during the period . exit and restructuring costs in 2012 relate to the restructuring of the location solutions business management structure while costs in 2011 relate to the relocation and consolidation of administrative , accounting and distribution functions of our location solutions operations to illinois . the asset impairment charge in 2012 relates to the goodwill associated with zebra 's smaller reporting unit . 25 selling and marketing expenses selling and marketing expenses are summarized below ( in thousands ) : replace_table_token_21_th selling and marketing expenses were higher in 2012 primarily due to increased payroll and benefit costs related to the addition of more sales-related zebra personnel in geographic regions with high-growth opportunities . payroll and benefit cost increases include salaries , commissions , benefits , and payroll taxes . other selling and marketing expense categories also increased over 2011 levels due to higher expenses relating to the addition of zebra sales representatives to expand zebra 's global reach into new developing geographic regions . research and development costs the development of new products and enhancement of existing products are important to zebra 's business and growth prospects . to maintain and build our product pipeline , we continue to make investments in research and development . in 2012 we introduced 14 new printer related products and 19 location software and hardware releases . zebra introduced its latest generation of print engine during the year which enables zebra to expand into new markets . the ze500 is designed for reliable operations in mission critical applications and is well suited for use in the food and beverage industries and other environments where dust and moisture can create printing challenges . zebra has enhanced its printers for cloud based connectivity through zebra 's link-os , an ecosystem enabled by zebra 's printer architecture which makes zebra printers significantly easier to integrate , manage and use in a company 's operations , with greater capabilities for customization with the development of specialized apps . quarterly product development expenses fluctuate depending on the status of ongoing projects . we are committed to a long-term strategy of significant investment in product development . research and development costs are summarized below ( in thousands ) : replace_table_token_22_th the decreases in research and development costs relate to decreased payroll and benefit costs and project expenses . project expenses decreased due primarily due to the completion on new mid-range and print engine products in 2012. general and administrative expenses general and administrative expenses are summarized below ( in thousands ) : replace_table_token_23_th 26 general and administrative expenses increased over 2011due to larger incentive costs related to merit increases and equity incentives . professional fees increased slightly due to the acquisition of laserband and other long-term investments in 2012. professional services were also utilized for the implementation of zebra 's new international structure and to expand geographic regions . information systems costs increased slightly in the maintenance and service contracts area . amortization of intangible assets amortization of intangible assets increased $ 1,353,000 during 2012 due to additions of current technology , patent and patent rights and customer relationships during the year as a result of the acquisition of laserband . exit and restructuring costs exit and restructuring costs in 2012 of $ 960,000 relate to the restructuring of our location solutions business management structure . costs in 2011 of $ 2,041,000 relate to the consolidation of our location solutions operations following the divestiture of navis in the first quarter of 2011. operating income the operating income decrease for 2012 was the result of operating expense increases as noted above . story_separator_special_tag we are committed to a long-term strategy of significant investment in product development . research and development costs are summarized below ( in thousands ) : replace_table_token_31_th the increases in research and development costs relate to increased payroll and benefit costs , compliance and project expenses to bring new products to market . 30 general and administrative expenses general and administrative expenses are summarized below ( in thousands ) : replace_table_token_32_th general and administrative expenses increased over 2010 amounts from larger incentive costs related to merit increases and equity incentives . professional fees increased slightly due to the navis and proveo dispositions in 2011 , and the utilization of professional services in the expanding geographic regions . information systems costs increased slightly primarily in the maintenance and service contracts area . amortization of intangible assets amortization of intangible assets increased $ 109,000 during 2011 due to additions of patents during the year . litigation settlement in 2010 zebra received litigation settlement proceeds of $ 1,082,000 related to our acquisition of mssi in 2008. exit and restructuring costs exit and restructuring costs in 2011 of $ 2,041,000 relate to the consolidation of our location solutions product line following the divestiture of navis in the first quarter of 2011. costs in 2010 of $ 2,262,000 relate to the completion of the production transfer to jabil . see note 10 of the consolidated financial statements included in this annual report on form 10-k for a more detailed discussion of exit and restructuring charges . operating income the operating income increase for 2011 was the result of increased sales and gross profit as noted above . other income ( expense ) zebra 's non-operating income and expense items are summarized in the following table ( in thousands ) : replace_table_token_33_th investment income declined overall from lower short-term interest rates in 2011 compared with 2010 even though cash and investment balances were higher in 2011 versus 2010 . 31 income taxes the effective income tax rate for 2011 was 27.5 % compared with an income tax rate of 30.1 % for 2010. zebra 's effective tax rate for the first quarter of 2010 included a $ 2,764,000 reduction of federal taxes related to improperly accounting for the tax impact on intercompany profit generated from intercompany sales in 2009. this adjustment reduced our effective rate for 2010 by approximately 1.8 % . zebra 's effective rate has also decreased in 2011 due to higher profits in lower rate international jurisdictions . income ( loss ) discontinued operations the income from discontinued operations in 2011 relates to the sale of navis llc and proveo ag , offset by losses on discontinued operations . the loss from discontinued operations for 2010 represents the results of operations for the entities we divested in 2011. critical accounting policies and estimates management prepared the consolidated financial statements of zebra under accounting principles generally accepted in the united states of america . these principles require the use of estimates , judgments and assumptions . we believe that the estimates , judgments and assumptions we used are reasonable , based upon the information available . our estimates and assumptions affect the reported amounts in our financial statements . the following accounting policies comprise those that we believe are the most critical in understanding and evaluating zebra 's reported financial results . revenue recognition product revenue is recognized once four criteria are met : ( 1 ) we have persuasive evidence that an arrangement exits ; ( 2 ) delivery has occurred and title has passed to the customer , which happens at the point of shipment ( except in asia where the terms are fob destination ) provided that no significant obligations remain ; ( 3 ) the price is fixed and determinable ; and ( 4 ) collectability is reasonably assured . other items that affect our revenue recognition include : customer returns customers have the right to return products that do not function properly within a limited time after delivery . we monitor and track product returns and record a provision for the estimated future returns based on historical experience and any notification received of pending returns . returns have historically been within expectations and the provisions established , but zebra can not guarantee that it will continue to experience return rates consistent with historical patterns . historically , our product returns have not been significant . however , if a significant issue should arise , it could have a material impact on our financial statements . growth rebates some of our channel program partners are offered incentive rebates based on the attainment of specific growth targets related to products they purchase from us over a quarter or year . these rebates are recorded as a reduction to revenue . each quarter , we estimate the amount of outstanding rebates and establish a reserve for them based on shipment history . historically , actual rebates have been in line with our estimates . price protection some of our customers are offered price protection by zebra as an incentive to carry inventory of our product . these price protection plans provide that if we lower prices , we will credit them for the price decrease on inventory they hold . we estimate future payments under price protection programs quarterly and establish a reserve , which is charged against revenue . our customers typically carry limited amounts of inventory , and zebra infrequently lowers prices on current products . as a result , the amounts paid under these plans have been minimal . software revenue we sell four types of software and record revenue as follows : our printers contain embedded firmware , which is part of the hardware purchase . we consider the sale of this firmware to be incidental to the sale of the printer and do not attribute any revenue to it . we sell a limited amount of prepackaged , or off-the-shelf , software for the creation of barcode labels using our printers .
| consolidated results of operations ( amounts in thousands , except percentages ) replace_table_token_10_th consolidated results of operations fourth quarter sales net sales for the fourth quarter of 2012 compared with the 2011 quarter increased 2.4 % primarily due to increased sales in supplies and aftermarket services . printer unit volume increased 2.9 % for 2012 compared to 2011 principally from unit volume increases in desktop and tabletop printers . sales by product category were as follows ( amounts in thousands , except percentages ) : replace_table_token_11_th 21 sales declines in europe , middle east and africa , and asia pacific , primarily from a challenged business environment , were offset by increased sales in north america and latin america . sales increased in latin america in part from improved geographic coverage , with notable increases in supplies , tabletop , desktop , and mobile printers . sales in north america increased due to increased sales in supplies and aftermarket services . zebra continues to build a broader base of customers to penetrate targeted industries more deeply . movements in foreign exchange rates decreased sales by $ 1,858,000 in the europe , middle east and africa region for the quarter , due to a weaker euro against the u.s. dollar compared to the same period in the prior year . sales to customers by geographic region were as follows ( in thousands , except percentages ) : replace_table_token_12_th gross profit gross profit increased 2.4 % reflecting reduced overhead and freight costs , partially offset by unfavorable movements in foreign exchange rates and product mix . unfavorable foreign currency movements decreased fourth quarter gross profit by $ 1,806,000. as a percentage of sales , gross margin improved from 49.1 % to 49.2 % . printer unit volumes and average selling price information is summarized below : replace_table_token_13_th for the fourth quarter of 2012 , unit volumes increased in tabletop and desktop printers . desktop printers achieved record sales .
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bonuses 2016 cash bonuses for 2016 , the compensation committee established with mr. gill the following corporate performance objectives for mr. gill 's 2016 bonus payments : ( i ) maximize value and return to the company 's stockholders resulting from the final satisfaction of the obligations of siga to the company resulting from the delaware court proceedings ; ( ii ) maximize value to the stockholders of the anthrax vaccine program and ( iii ) plan and commence execution of a process that is intended to capture the value of the remaining assets of the company . the committee did not establish corporate performance objectives for the vice president , chief financial officer , treasurer and secretary . instead , bonuses earned under the 2016 bonus program for the chief financial officer was based solely on personal performance objectives . john gill . on february 15 , 2016 , in accordance with the recommendation of the compensation committee , our board approved the award of a $ 125,000 bonus to mr. gill , based upon its conclusion that mr. gill had satisfied 100 % of the following pre-determined performance objectives for a 2015 bonus : ( i ) progress toward approval of a reorganization plan for siga by the bankruptcy court that provides for payment to us by siga upon the completion of the litigation ; ( ii ) progress toward a decision by the delaware supreme court with respect to the appeal and cross-appeal in our litigation with siga that allows for a payment story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements , which present our results of operations for the years ended december 31 , 2016 , 2015 and 2014 , as well as our financial positions at december 31 , 2016 and 2015 , contained elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . you should review the “ special note regarding forward looking statements ” and “ risk factors ” sections of this annual report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a biotechnology company engaged in developing a next generation anthrax vaccine . the next generation vaccine is intended to have more rapid time to protection , fewer doses for protection and less stringent requirements for temperature controlled storage and handling than the currently used vaccine . since 2006 , we were engaged in legal proceedings with siga . on december 23 , 2015 , the delaware supreme court affirmed the delaware court of chancery 's judgment against siga . on november 16 , 2016 , the company received the final payment from siga of $ 83.9 million which fully satisfied the judgment owed to pharmathene . in total , the company received payment of approximately $ 217.1 million including interest from siga . the receipt of the award from siga did generate substantial taxable income to the company , a portion of which was offset by the company 's tax net operating loss carryforwards . at december 31 , 2016 we had available $ 176.1 million in accumulated losses available to offset income , subject to a 382 limitation of approximately $ 1 million . on november 25 , 2015 , the company adopted a shareholders rights plan to help ensure that the nols remain available to help maximize the value for our shareholders of any amount received from the siga litigation . on august 5 , 2016 , the company filed a formal protest against the department of health and human services “ dhhs ” challenging its solicitation for a next-generation anthrax vaccine provider . according to the protest , filed with the u.s. government accountability office ( the “ gao ” ) , the government 's `` request for proposals '' was written in a way that eliminated competition . the company spent approximately $ 1 million in related proposal , legal and professional consulting services . after discussions with dhhs , the company agreed to withdraw the protest on august 25 , 2016 when barda agreed to participate in conversations with niaid and the company on mechanisms to advance the sparvax-l vaccine program . on january 18 , 2017 , we entered into the merger agreement in connection with the proposed mergers with altimmune , as further described below under the section entitled `` — merger agreement `` . 29 special dividend on november 17 , 2016 , the company 's board of directors declared a special one-time cash dividend of $ 2.91 per share of common stock , paid on february 3 , 2017. the special dividend , totaled an aggregate payment of approximately $ 200 million , which represented approximately 98 % of the after tax net cash proceeds received from siga . the special dividend was approved by the company 's board of directors following the company 's receipt of $ 83.9 million as final payment from siga in satisfaction of the judgment owed by it to pharmathene . in total , pharmathene received payment of approximately $ 217.1 million ( including interest ) from siga in connection with the judgment . merger agreement on january 18 , 2017 , pharmathene entered into the merger agreement , pursuant to which altimmune will merge into merger sub corp , with altimmune as the surviving entity in merger 1 , and immediately thereafter , altimmune will be merged with and into merger sub llc , with merger sub llc as the surviving entity in merger 2. upon consummation of the mergers , merger sub corp and altimmune will cease to exist , and merger sub llc will continue as a direct wholly owned subsidiary of pharmathene . story_separator_special_tag the percentage-of-completion method recognizes revenue as the contract progresses based on the total costs expended as compared to an estimate of the total costs on the contract the use of the percentage-of-completion method depends on the ability to make reasonable dependable estimates and the fact that circumstances may necessitate frequent revision of estimates does not indicate that the estimates are unreliable for the purpose for which they are used . 31 revenue on fixed price contracts with substantive milestones as described above is recognized as each milestone is achieved . revenue may be recognized upon completion of the contract , when substantive delivery is achieved , transfer of title takes place and payment is reasonably assured . as a result of our revenue recognition policies and the billing provisions contained in our contracts , the timing of customer billings may differ from the timing of recognizing revenue . amounts recognized as revenue in excess of amounts billed to customers are reflected on the balance sheet as unbilled accounts receivable . amounts invoiced to customers in excess of revenue recognized are reflected on the balance sheet as deferred revenue . share-based payments we have a long-term incentive compensation plan ( “ ltip ” ) under which options to purchase shares of our common stock may be granted to employees , consultants and nonemployee directors at a price no less than the quoted market value on the date of grant . the ltip also provides for awards in the form of stock appreciation rights , restricted or unrestricted stock awards , stock-equivalent units or performance-based stock awards . we account for share-based awards to employees , consultants and non-employee directors at fair value . the amount of compensation expense recognized using the fair value method requires us to exercise judgment and make assumptions relating to the factors that determine the fair value of our stock option grants . we use the black-scholes option-pricing model to estimate the fair value of our option grants . the fair value calculated by this model is a function of several factors , including grant price , the risk-free interest rate , the expected term of the option and the anticipated volatility of the option . goodwill we continually assess the realizability and recoverability of our goodwill . recoverability of goodwill is reviewed by comparing our market value ( as measured by our stock price multiplied by the number of outstanding shares as of the assessment date ) to the net book value of our equity . if our market value exceeds our net book value , no further analysis is required . we completed our annual impairment assessment of goodwill on december 31 , 2016 and determined that there was no impairment at that date . financial instruments our financial instruments , and or embedded features contained in those instruments , often are classified as derivative liabilities and are recorded at their fair values . the determination of fair value of these instruments and features requires estimates and judgments . some of our stock purchase warrants are considered to be derivative liabilities due to the presence of net settlement features and or non-standard anti-dilution provisions . generally the fair value of our warrants is determined based on the black-scholes option-pricing model . use of the black-scholes option-pricing model requires the use of unobservable inputs such as the expected term , anticipated volatility and expected dividends . story_separator_special_tag value : 1 -- > 33 other income ( expense ) other income was $ 216.3 million and $ 0.02 million for the years ended december 31 , 2016 and 2015 , respectively . other income for the year ended december 31 , 2016 primarily consists of payments of approximately $ 217.1 million received from siga , interest income from our short-term investments of approximately $ 0.2 million , offset by approximately $ 1.0 million of unrealized losses from the change in fair value of our derivative financial instruments . other income for the year ended december 31 , 2015 primarily consists of the realization of cumulative translation adjustments on the substantial liquidation of our wholly owned united kingdom subsidiary , pharmathene uk limited , changes in the fair value of our derivative financial instruments and interest expense on our debt and other financial obligations . in june 2015 , we substantially liquidated our united kingdom subsidiary , pharmathene uk limited , which we had acquired in 2008. prior to substantially liquidating the uk subsidiary , currency fluctuations were recorded as foreign currency translation adjustments , a component of other comprehensive income . as a result of the substantially completed liquidation , we realized an approximate loss of $ 0.2 million in our consolidated statement of operations , which represents the amount of previously recorded foreign currency translation adjustments related to our uk subsidiary . income taxes the provision for income taxes was approximately $ 11.2 million and $ 0.1 million during the years ended december 31 , 2016 and 2015. our provision for income taxes for 2016 relates to income generated from payments received from siga primarily offset by the usage of the majority of our net operating losses and for 2015 it results from the difference between the treatment of goodwill for income tax purposes and for u.s. gaap purposes . year ended december 31 , 2015 compared to december 31 , 2014 revenue we recognized revenue of $ 10.6 million and $ 10.2 million during the years ended december 31 , 2015 and 2014 , respectively . replace_table_token_7_th during 2015 , our revenue was derived from contracts with the u.s. government for the development of anthrax vaccine programs . during 2014 , our revenue was derived from contracts with the u.s. government for the development of anthrax vaccine programs , our rbche bioscavenger , and valortim ® .
| results of operations year ended december 31 , 2016 compared to december 31 , 2015 revenue we recognized revenue of $ 5.2 million and $ 10.6 million during the years ended december 31 , 2016 and 2015 , respectively . during 2016 and 2015 , our revenue was derived primarily from contracts with the u.s. government for the development of anthrax vaccine programs . our revenue changed in 2016 from 2015 primarily due to the following : 32 · under our existing contract with niaid for the development of a next generation lyophilized anthrax vaccine ( “ sparvax-l ” ) based on the company 's proprietary technology platform which contributes the rpa bulk drug substance that is used in the liquid sparvax ® formulation , we recognized $ 4.4 million and $ 4.5 million of revenue during the years ended december 31 , 2016 and 2015 , respectively . revenue recognized to date under this contract is $ 9.5 million . the contract is incrementally funded . over the base period of the agreement , we were awarded initial funding of approximately $ 5.2 million , which includes a cost reimbursement component and a fixed fee component payable upon achievement of certain milestones . niaid exercised the first and second options under this agreement in the third and fourth quarters of 2015 , respectively , and exercised the third and fourth options under this agreement in the third and fourth quarters of 2016 , respectively . the exercised options provide additional funding of approximately $ 8.8 million and an extension of the period of performance through december 31 , 2017. the contract has a total value of up to approximately $ 28.1 million , if all technical milestones are met and all eight contract options are exercised by niaid . if niaid exercises all options , the contract would last approximately five years . if niaid does not exercise any additional options , the contract would expire by its terms on december 31 , 2017 .
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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 . 34 story_separator_special_tag the original calculation of the loan request . for the year ended december 31 , 2020 , there has been no material impact to the company 's operations or cash flows due to the ppp note . if and when the ppp note is , in part or wholly forgiven , and legal release is received , the company expects to record a gain in an amount proportionate to its share of payroll costs and other eligible expenses incurred during the covered period . the company expects the loan forgiveness to reduce such expenses and reduce related reimbursements to mmc and winco accordingly . we expect in the near-term there may be a lower volume of acquisition transactions in the self storage sector generally due to uncertainty from the covid-19 pandemic . however , we continue to actively review a number of store and store portfolio acquisition opportunities and have been working to further develop and expand our current stores . we did not make any acquisitions in the year ended december 31 , 2020. we believe that our third-party management platform , global maxmanagement sm , will provide an additional revenue stream through management fees and tenant insurance premiums and will help expand our brand awareness , and may also allow us to build a captive acquisition pipeline . despite the challenges presented by the covid-19 pandemic , we continue to actively market our third-party management platform to developers , single-property self storage operators , and small-portfolio self storage operators , and we believe these discussions may lead to the addition of new properties to our owned and or third-party management portfolios . in light of reduced in-person marketing opportunities due to the covid-19 pandemic , we have pivoted resources to digital and print marketing of our third-party management program . in addition , we may pursue third-party management opportunities of properties owned by certain affiliates or joint venture partners for a fee , and utilize such relationships with third-party owners as a source for future acquisitions and investment opportunities . as of december 31 , 2020 , we managed one third-party owned property , which was rebranded as “ global self storage , ” had 137,118-leasable square feet and was comprised of 618 climate-controlled and non-climate-controlled units located in edmond , oklahoma . in addition to actively reviewing a number of store and portfolio acquisition opportunities , we have been working to further develop and expand our current stores . in the year ending december 31 , 2020 , we completed expansion / conversion projects at our properties located in millbrook , ny , mccordsville , in , and west henrietta , ny . in 2019 , the company broke ground on the millbrook , ny expansion , which , upon completion in february 2020 , added approximately 11,800 leasable square feet of all-climate-controlled units . upon completion in february 2020 of the millbrook , ny store expansion project , its area occupancy dropped from approximately 88.6 % to approximately 45.5 % . lease-up of the millbrook , ny expansion has gone faster than expected . as of december 31 , 36 2020 , the millbrook , ny store 's total area occupancy stood at 96.1 % and as of february 28 , 2021 total area occupancy was 97.5 % . in the first quarter of 2020 , the company began reviewing plans to convert certain commercially-leased space to all-climate-controlled units at the mccordsville , in property . in april 2020 , the company commenced such conversion , which was completed in june 2020 , resulting in a new total of 535 units and 76,360 leasable square feet at the mccordsville , in property . upon completion in june 2020 of the mccordsville , in store conversion project , its total area occupancy dropped from what would have been approximately 97.4 % to approximately 79.1 % . as of december 31 , 2020 , the mccordsville , in store 's total area occupancy stood at 90.3 % and as of february 28 , 2021 total area occupancy was 91.2 % . story_separator_special_tag the extent to which our financial condition and results of operations operating will continue to be affected by the covid-19 pandemic will largely depend on future developments , which are highly uncertain and can not be accurately predicted . results of operations for the year ended december 31 , 2020 compared with the year ended december 31 , 2019 revenues total revenues increased from $ 8,668,322 during the year ended december 31 , 2019 to $ 9,196,524 during the year ended december 31 , 2020 , an increase of $ 528,202 , or 6.1 % . rental income increased from $ 8,371,292 during the year ended december 31 , 2019 to $ 8,789,548 during the year ended december 31 , 2020 , an increase of $ 418,256 , or 5.0 % . the increase in total revenues was due primarily to a 6.0 % increase in net leased square footage , and the results of our revenue rate management program of raising existing tenant rates . this increase in net leased square feet , which is primarily the result of our expansions at west henrietta , ny and millbrook , ny and our conversion at mccordsville , in , is expected to positively affect combined revenues in 2021. other store related income consists of customer insurance fees , sales of storage supplies , and other ancillary revenues . other store related income increased from $ 283,570 in the year ended december 31 , 2019 to $ 337,166 in the year ended december 31 , 2020 , an increase of $ 53,596 , or 18.9 % . this increase was primarily attributable to increased insurance fees due to the acquisition of the west henrietta , ny property , an increase in net leased square feet , which is primarily the result of our expansions at west henrietta , ny and millbrook , ny and our conversion at mccordsville , in , and increased insurance participation at our wholly-owned and managed properties. operating expenses total expenses increased from $ 7,267,498 during the year ended december 31 , 2019 to $ 7,976,312 during the year ended december 31 , 2020 , an increase of $ 708,814 , or 9.8 % , which was primarily due to increased depreciation and amortization attributable to the acquisition of the west henrietta , ny property , and to a lesser extent , an increase in certain general and administrative expenses . store operating expenses increased from $ 3,577,358 in the year ended december 31 , 2019 to $ 3,586,593 in the year ended december 31 , 2020 , an increase of $ 9,235 , or 0.3 % . depreciation and amortization increased from $ 1,438,908 in the year ended december 31 , 2019 to $ 1,989,761 in the year ended december 31 , 2020 , an increase of $ 550,853 , or 38.3 % , which was primarily attributable to depreciation of the building and fixtures at our west henrietta , ny acquisition and millbrook , ny expansion , and amortization of the in-place customer leases related to the 2019 store acquisition in west henrietta , ny. general and administrative expenses increased 12.3 % or $ 262,156 for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019. the change is primarily attributable to an increase in certain professional fees , and to a lesser extent , increased employment expenses. 38 business development , capital raising , and store acquisition expenses decreased from $ 124,428 to $ 10,998 during the year ended december 31 , 2020 as compared to the year ended december 31 , 2019. these costs primarily consisted of consulting costs in connection with business development , capital raising , and future potential store acquisitions , and expenses related to our third party management platform marketing initiatives . the majority of these expenses are non-recurring and fluctuate based on business development activity during the time period . operating income operating income decreased from $ 1,400,824 during the year ended december 31 , 2019 to $ 1,220,212 during the year ended december 31 , 2020 , a decrease of $ 180,612 or 12.9 % , which was primarily due to increased depreciation and amortization attributable to the acquisition of the west henrietta , ny property , and to a lesser extent , an increase in certain general and administrative expenses . other income ( expense ) interest expense on loans increased from $ 1,075,576 during the year ended december 31 , 2019 to $ 1,180,341 during the year ended december 31 , 2020 , an increase of $ 104,765. this increase was primarily attributable to increased borrowings under our credit facility loan agreement for the year ended december 31 , 2020. dividend and interest income was $ 79,331 during the year ended december 31 , 2020 compared to $ 71,666 during the year ended december 31 , 2019. the company recognizes changes in the fair value of its investments in equity securities with readily determinable fair values in net income and , as such , recorded an unrealized gain of $ 155,139 for the year ended december 31 , 2020 compared to $ 193,705 during the year ended december 31 , 2019. net income ( loss ) for the year ended december 31 , 2020 , net income was $ 274,341 or $ 0.03 per fully diluted share . for the year ended december 31 , 2019 , net income was $ 590,619 or $ 0.08 per fully diluted share . non-gaap measures funds from operations ( “ ffo ” ) and ffo per share are non-gaap measures defined by the national association of real estate investment trusts ( “ nareit ” ) and are considered helpful measures of reit performance by reits and many reit analysts . nareit defines ffo as a reit 's net income , excluding gains or losses from sales of property , and adding back real estate depreciation and amortization .
| 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 , 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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overview limbach holdings , inc. ( the “ company , ” “ limbach , ” “ we ” , “ us ” or “ our ” ) is an integrated building systems solutions firm whose expertise is in the design , modular prefabrication , installation , management and maintenance of heating , ventilation , air-conditioning ( “ hvac ” ) , mechanical , electrical , plumbing and control systems for commercial , institutional and light industrial markets . our customers are primarily located throughout florida , california , massachusetts , new jersey , pennsylvania , delaware , maryland , washington dc , virginia , west virginia , ohio and michigan . we operate in two segments , ( i ) construction , in which we generally manage new construction or renovation projects that involve primarily hvac , plumbing , or electrical services , and ( ii ) service , in which we provide maintenance or services primarily on hvac , plumbing , electrical systems , and building controls direct for building owners and direct contracting projects . our market sectors primarily include the following : healthcare , including research , acute care and inpatient hospitals , for regional and national hospital groups ; education , including both public and private colleges , universities , research centers and k-12 facilities ; sports and entertainment , including sports arenas , entertainment facilities ( including casinos ) and amusement rides ; infrastructure , including passenger terminals and maintenance facilities for rail and airports ; government , including various facilities for federal , state and local agencies facilities ; hospitality , including hotels and resorts ; commercial , including office buildings and other commercial structures ; multi-family apartments ; mission critical facilities , including data centers ; and industrial manufacturing facilities , including indoor grow farms . the limbach business was founded in 1901 , and maintains an established brand within the industry . we believe we are viewed as a value added and trusted partner by our customers , which include building owners , general contractors ( “ gcs ” ) and construction managers ( “ cms ” ) . 29 we also construct new buildings , additions and provide renovations of existing buildings for owners , gcs and cms . in addition , we provide services to building owners that are centered on hvac , plumbing , and electrical building systems , which typically include ongoing maintenance , upgrades to existing building systems , energy retrofits and delivering general construction services . construction segment our construction offerings for owners , gcs , and cms include the following : competitive lump sum bidding ( including plan and specification bidding with select qualified competitors ) ; design/assist services , for which we typically contract on a negotiated basis to maintain a project budget , and occasionally are contracted on a lump sum basis ; design/build , which services are provided on either a negotiated basis or through competitive bidding ; and performance contracting , for which we assess a building owner 's facilities and offer a proposal to reduce energy and operating costs , and when successful , we often perform ongoing maintenance of the building systems . our specialty contracting is provided through either our special projects division or our construction segment . special projects typically range in value up to $ 1 million . construction projects typically range in value up to $ 100 million . actual contracts may be below or above these stated ranges depending upon the actual project requirements . we possess the ability to provide design services in-house through our design center located in orlando , florida . we sell the majority of our services by leading with our engineered solutions , which we believe are highly valued by our select customer base and drive higher margin outcomes . service segment our services within the service segment primarily include the following categories : maintenance of hvac , plumbing and or electrical systems ; service projects for system and equipment upgrades , including energy retrofits ; emergency service work , which we refer to as “ spot work ” ; automatic temperature controls ( “ atc ” ) ; specialty contracting , including the design and construction of hvac , plumbing and or electrical systems within commercial and institutional buildings ; and energy monitoring . typical maintenance agreements range in value up to approximately $ 200,000. service projects typically range in value up to $ 500,000. spot work varies in value and is typically billed at pre-approved billing rates . atc projects vary in size up to $ 250,000. specialty contracting , general contracting and performance contracting can range up to $ 100 million . outlook for 2021 for 2021 , the company has reviewed its operations and has determined that it is continuing to take steps to focus on the following key areas ( i ) increasing profitability , operating cash flows and actions oriented to maintaining sufficient liquidity , ( ii ) continuing to emphasize owner-direct construction and service work and ( iii ) targeting projects in its construction segment and pursuing processes that avoid or reduce exposure to jobs that create potential financial challenges for the company . in focusing on profitability and cash flows , among other things , the company will continue to aggressively pursue claims that it has asserted against project contractors , owners , engineers , consultants , subcontractors or others involved in projects where the company has incurred additional costs exceeding the contract price or for amounts not included in the original contract price . management believes that the resolution of such currently existing and possible future claims will be a significant part of the company 's success related to profitability , liquidity and financial performance . additionally , the 2019 refinancing agreement ( as defined below ) and the 2019 abl credit agreement ( as defined below ) were both refinanced in february 2021 ( as more fully described in note 20 - subsequent events in the notes to consolidated financial statements ) . story_separator_special_tag our long-term business strategies provide additional protection , as we shift to generate a greater share of total revenue from the delivery of value-added solutions to building owners as compared to general contractors and construction managers . we describe this approach as the owner-direct strategy . we believe that revenues generated from the owner-direct strategy are more consistent and predictable ; generate higher margins and greater cash flow ; and lead to greater customer lifetime value . however , the impact of the covid-19 pandemic on our customers and vendors continues to evolve and may continue to impact new sales opportunities , and make it difficult to obtain materials and equipment in future periods . while we believe our remaining performance obligations are firm , customers may also slow down decision-making , delay planned work or seek to 31 terminate existing agreements . in addition , the construction industry has begun to experience significant escalation of material prices , particularly for the purchase of typical commodities and raw materials . this price escalation is driven in large part by covid-19 related impacts to the companies and industries that supply our business . macroeconomic forecasting and prediction for the industries we serve are that inflation is also likely to be experienced in the near term , and potentially longer , which may curtail spending in the construction and service industries . therefore , it is the company 's view that limbach 's projects will continue to be impacted , despite the “ essential , ” nature of our services , due to the ongoing covid-19 pandemic and other national and world economic trends . any of these events could have a material adverse effect on our business , financial condition , and or results of operations . trends that could affect the company 's business are discussed in this annual report on form 10-k under the caption item 1a . key components of consolidated statements of operations revenue we generate revenue principally from fixed-price construction contracts to deliver hvac , plumbing , and electrical construction services to our customers . the duration of our contracts generally ranges from six months to two years . revenue from fixed price contracts is recognized on the cost-to-cost method , measured by the relationship of total cost incurred to total estimated contract costs . revenue from time and materials service contracts is recognized as services are performed . we believe that our extensive experience in hvac , plumbing , and electrical projects , and our internal cost review procedures during the bidding process , enable us to reasonably estimate costs and mitigate the risk of cost overruns on fixed price contracts . we generally invoice customers on a monthly basis , based on a schedule of values that breaks down the contract amount into discrete billing items . costs and estimated earnings in excess of billings are recorded as a contract asset until billable under the contract terms . billings in excess of costs and estimated earnings are recorded as a contract liability until the related revenue is recognizable . cost of revenue cost of revenue primarily consists of the labor , equipment , material , subcontract , and other job costs in connection with fulfilling the terms of our contracts . labor costs consist of wages plus taxes , fringe benefits , and insurance . equipment costs consist of the ownership and operating costs of company-owned assets , in addition to outside-rented equipment . if applicable , job costs include estimated contract losses to be incurred in future periods . due to the varied nature of our services , and the risks associated therewith , contract costs as a percentage of contract revenue have historically fluctuated and we expect this fluctuation to continue in future periods . selling , general and administrative expenses selling , general and administrative expenses consist primarily of personnel costs for our administrative , estimating , human resources , safety , information technology , legal , finance and accounting employees and executives . also included are non-personnel costs , such as travel-related expenses , legal and other professional fees and other corporate expenses to support the growth of our business and to meet the compliance requirements associated with operating as a public company . those costs include accounting , human resources , information technology , legal personnel , additional consulting , legal and audit fees , insurance costs , board of directors ' compensation and the costs of achieving and maintaining compliance with section 404 of the sarbanes-oxley act of 2002. amortization of intangibles amortization expense represents periodic non-cash charges that consist of amortization of various intangible assets primarily including favorable leasehold interests and certain customer relationships in the service segment . other income/expense other income/expense consists primarily of interest expense incurred in connection with our debt , net of interest income , loss on debt extinguishment , gain on embedded derivative , gains on the sale of property and equipment , change in fair value of warrant liability and impairment of goodwill . deferred financing costs are amortized to interest expense using the effective interest method . provision for income taxes 32 we are taxed as a c corporation and our financial results include the effects of federal income taxes which will be paid at the parent level . the company 's provision for income taxes includes federal , state and local taxes . the company accounts for income taxes in accordance with asc topic 740 - income taxes , which requires the use of the asset and liability method . under this method , deferred tax assets and liabilities and income or expense is recognized for the expected future tax consequences of temporary differences between the financial statement carrying values and their respective tax bases , using enacted tax rates expected to be applicable in the years in which the temporary differences are expected to reverse . changes in deferred tax assets and liabilities are recorded in the provision for income taxes . operating segments we manage and measure the performance of our business in two operating segments : construction and service .
| cash flow summary cash provided by operating activities for the year ended december 31 , 2020 was primarily driven by our $ 19.2 million decrease in accounts receivable ( cash inflow ) and $ 10.1 million decrease in contract assets ( cash inflow ) and $ 19.5 million decrease in accounts payable , including retainage ( cash outflow ) as compared to the same period ended december 31 , 2019. the $ 19.2 million decrease in accounts receivable is due to better collection efforts and lower fourth quarter 2020 construction revenues than the same period in 2019 ; and , the $ 10.1 million decrease in contract assets were mostly attributable to unapproved change orders and claims of $ 33.6 million and $ 38.4 million as of december 31 , 2020 and 2019 , respectively . debt and related obligations the company refinanced its credit agreement revolver on april 12 , 2019 under the 2019 refinancing agreement , described below and therefore had no amounts outstanding under its credit agreement at december 31 , 2020 and december 31 , 2019. the company also refinanced its 2019 refinancing agreement on february 24 , 2021. see note 20 - subsequent events in the notes to consolidated statements . credit agreement effective july 20 , 2016 , a subsidiary of the company , limbach facility services llc ( “ lfs ” ) entered into the credit agreement . the credit agreement consisted of a $ 25.0 million revolving line of credit ( “ credit agreement revolver ” ) and a $ 24.0 million term loan ( “ credit agreement term loan ” ) , both with a maturity date of july 20 , 2021. it was collateralized by substantially all of the assets of lfs and its subsidiaries . principal payments of $ 750,000 on the term loan were due quarterly through june 30 , 2018. principal payments of $ 900,000 were due at the end of subsequent quarters through maturity of the loan , with any remaining amounts due at maturity .
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our services help identify and recover delinquent or defaulted assets and improper payments for both government and private clients in a broad range of markets . our clients typically operate in complex and regulated environments and outsource their recovery needs in order to reduce losses on billions of dollars of defaulted student loans , improper healthcare payments and delinquent state tax and 27 federal treasury and other receivables . we generally provide our services on an outsourced basis , where we handle many or all aspects of our clients ' recovery processes . our revenue model is generally success-based as we earn fees on the aggregate amount of funds that we enable our clients to recover . our services do not require any significant upfront investments by our clients and offer our clients the opportunity to recover significant funds otherwise lost . because our model is based upon the success of our efforts and the dollars we enable our clients to recover , our business objectives are aligned with those of our clients and we are generally not reliant on their spending budgets . furthermore , our business model does not require significant capital expenditures and we do not purchase loans or obligations . sources of revenues we derive our revenues from services for clients in a variety of different markets . these markets include our two largest markets , student lending and healthcare , as well as our other markets which include but are not limited to delinquent state taxes and federal treasury and other receivables . replace_table_token_4_th student lending we derive the majority of our revenues from the recovery of student loans . these revenues are contract-based and consist primarily of contingency fees based on a specified percentage of the amount we enable our clients to recover . our contingency fee percentage for a particular recovery depends on the type of recovery facilitated . our clients in the student loan recovery market mainly consist of several of the largest guaranty agencies , or gas . in addition , we have a long history of also providing recovery services to the department of education . however , in december 2016 , the department of education awarded contracts for student loan recovery services to seven contractors and we were not a recipient of one of these contract awards . we , along with 19 other contractors who did not receive contract awards from the department of education , have filed protests with the gao regarding the department of education 's award of these contracts . the outcome of our protest is pending , with a decision expected in april 2017. we believe the size and the composition of our student loan inventory at any point provides us with a significant degree of revenue visibility for our student loan revenues . based on data compiled from over two decades of experience with the recovery of defaulted student loans , at the time we receive a placement of student loans , we are able to make a reasonably accurate estimate of the recovery outcomes likely to be derived from such placement and the revenues we are likely able to generate based on the anticipated recovery outcomes . our key metric in evaluating our student lending business is placement volume . our placement volume represents the dollar volume of defaulted student loans first placed with us during the specified period by public and private clients for recovery . placement volume allows us to measure and track trends in the amount of inventory our clients in the student lending market are placing with us during any period . the revenues associated with the recovery of a portion of these loans may be recognized in subsequent accounting periods , which assists management in estimating future revenues and in allocating resources necessary to address current placement volumes . 28 replace_table_token_5_th there are five potential outcomes to the student loan recovery process from which we generate revenues . these outcomes include : full repayment , recurring payments , rehabilitation , loan restructuring and wage garnishment . of these five potential outcomes , our ability to rehabilitate defaulted student loans is the most significant component of our revenues in this market . generally , a loan is considered successfully rehabilitated after the student loan borrower has made nine consecutive qualifying monthly payments and our client has notified us that it is recalling the loan . once we have structured and implemented a repayment program for a defaulted borrower , we ( i ) earn a percentage of each periodic payment collected up to and including the final periodic payment prior to the loan being considered “ rehabilitated ” by our clients , and ( ii ) if the loan is “ rehabilitated , ” then we are paid a one-time percentage of the total amount of the remaining unpaid balance or in the case of our work for the department of education , a fixed fee of $ 1,710 for each rehabilitated loan . the fees we are paid vary by recovery outcome as well as by contract . for non-government-supported student loans we are generally only paid contingency fees on two outcomes : full repayment or recurring repayments . the table below describes our typical fee structure for each of these five outcomes . student loan recovery outcomes full repayment recurring payments rehabilitation loan restructuring wage garnishment repayment in full of the loan regular structured payments , typically according to a renegotiated payment plan after a defaulted borrower has made nine consecutive recurring payments , the loan is eligible for rehabilitation restructure and consolidate a number of outstanding loans into a single loan , typically with one monthly payment and an extended maturity if we are unable to obtain voluntary repayment , payments may be obtained through wage garnishment after certain administrative requirements are met we are paid a percentage of the full payment that is made we are paid a percentage of each payment we are paid based on a percentage of the overall value of the rehabilitated loan or for story_separator_special_tag accordingly , the currently expected start date of april 2017 for the new rac contracts means that these new contracts will not have a significant impact on 2017 revenues , although we will incur related start-up expenses in 2017. in connection with our first rac contract , cms announced a settlement offer to pay hospitals 68 % of what they have billed medicare to settle a backlog of pending appeals challenging medicare 's denials of reimbursement for certain types of short-term care . the implication of this settlement offer related to claims for which fees have already been paid to recovery auditors under existing rac contracts is unclear at this time , but we may be obligated to repay certain amounts that we previously received from cms depending on the final terms of any such settlement . we accrue an estimated liability for appeals based on the amount of commissions received which are subject to appeal and which we estimate are probable of being returned to providers following successful appeal . the $ 19.0 million balance as of december 31 , 2016 , represents our best estimate of the probable amount of we may be required to refund related to appeals of claims for which commissions were previously collected . we estimate that it is reasonably possible that we could be required to pay an additional amount up to approximately $ 5.4 million as a result of potentially successful appeals in excess of the amount we accrued as of december 31 , 2016. in connection with the award of our first rac contract , we outsourced certain aspects of our healthcare recovery process to three different subcontractors . two of these subcontractors provided a specific service to us in connection with our claims recovery process , with the third subcontractor , whose services were terminated in december 2016 , formerly providing all of the audit and recovery services for claims within a portion of our region . we recognize all of the revenues generated by the claims recovered through our subcontractor relationships , and we recognize the fees that we pay to these subcontractors in our expenses . for our commercial healthcare business , our business strategy is focused on utilizing our technology-enabled services platform to provide audit , recovery and analytical services for private healthcare payors . we have entered into contracts with several private payors , although these contracts are in the early stage of implementation . revenues from our commercial healthcare clients were $ 5.7 million for 2016 , compared to revenues of $ 7.4 million that we earned from our commercial healthcare clients in 2015 . 30 other we also derive revenues from the recovery of delinquent state taxes , and federal treasury and other receivables , default aversion services for certain clients including financial institutions and the licensing of hosted technology solutions to certain clients . for our hosted technology services , we license our system and integrate our technology into our clients ' operations , for which we are paid a licensing fee . our revenues for these services include contingency fees , fees based on dedicated headcount to our clients and hosted technology licensing fees . costs and expenses we generally report two categories of operating expenses : salaries and benefits and other operating expense . salaries and benefits expenses consist primarily of salaries and performance incentives paid and benefits provided to our employees . other operating expense includes expenses related to our use of subcontractors , other production related expenses , including costs associated with data processing , retrieval of medical records , printing and mailing services , amortization and other outside services , as well as general corporate and administrative expenses . we expect a significant portion of our expenses to increase as we grow our business . however , we expect certain expenses , including our corporate and general administrative expenses , to grow at a slower rate than our revenues . as a result , and over the long term , we expect our overall expenses to modestly decline as a percentage of revenues . factors affecting our operating results our results of operations are influenced by a number of factors , including allocation of placement volume , claim recovery volume , contingency fees , regulatory matters , client retention and macroeconomic factors . allocation of placement volume our clients have the right to unilaterally set and increase or reduce the volume of defaulted student loans or other receivables that we service at any given time . in addition , many of our recovery contracts for student loans and other receivables are not exclusive , with our clients retaining multiple service providers to service portions of their portfolios . accordingly , the number of delinquent student loans or other receivables that are placed with us may vary from time to time , which may have a significant effect on the amount and timing of our revenues . we believe the major factors that influence the number of placements we receive from our clients in the student loan market include our performance under our existing contracts and our ability to perform well against competitors for a particular client . to the extent that we perform well under our existing contracts and differentiate our services from those of our competitors , we may receive a relatively greater number of placements under these existing contracts and may improve our ability to obtain future contracts from these clients and other potential clients . further , delays in placement volume , as well as acceleration of placement volume , from any of our large clients may cause our revenues and operating results to vary from quarter to quarter . typically we are able to anticipate with reasonable accuracy the timing and volume of placements of defaulted student loans and other receivables based on historical patterns and regular communication with our clients . occasionally , however , placements are delayed due to factors outside of our control . contingency fees our revenues consist primarily of contract-based contingency fees .
| results of operations year ended december 31 , 2016 compared to the year ended december 31 , 2015 the following table represents our historical operating results for the periods presented : replace_table_token_6_th revenues total revenues were $ 141.4 million for the year ended december 31 , 2016 , a decrease of $ 18.0 million or 11 % , compared to total revenues of $ 159.4 million for the year ended december 31 , 2015 . the decrease is due to a decline in revenues in both our student lending and healthcare markets . student lending revenues were $ 109.6 million for the year ended december 31 , 2016 , representing a decrease of $ 9.8 million , or 8 % , compared to the year ended december 31 , 2015 . this decrease was primarily a result of the reduction of revenues from the department of education due to the lack of placements of new student loans following the expiration of our contract in april 2015. this decrease was partially offset by an increase in revenue as a result of an increase in the number of borrowers that are participating in the rehabilitation programs with our guaranty agency clients . healthcare revenues were $ 11.4 million for the year ended december 31 , 2016 , representing a decrease of $ 8.5 million , or 43 % , compared to the year ended december 31 , 2015 . this decrease was due primarily to reduced levels of 34 permitted healthcare audit and recovery activities under our first cms rac contract during 2016 and an approximately $ 1.8 million reduction in revenues from commercial healthcare customers .
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overview ideal power is located in austin , texas . ideal power was formed to develop and commercialize its patented power packet switching architecture ( ppsa ) technology , which is designed to improve the performance , size , weight , reliability , flexibility and cost of electronic power conversion systems . the electronic power conversion industry 's vertical markets are large and include power conversion systems for residential , commercial , and utility-scale renewable energy systems , battery energy storage systems ( bess ) , microgrids , electric vehicle chargers , variable frequency drives ( vfds ) for motors , and on-board power converters for electric vehicles . the company believes it can , due to the design advantages inherent in its ppsa technology , provide solutions that are both efficient and economically advantageous to many of these markets . ideal power 's initial product focus provides solutions for high-growth markets such as battery energy storage systems , integrated renewable energy and storage , and microgrid applications . the company has designed its products to target commercial and industrial applications , which it believes have the highest economic value and fastest growth potential in these vertical markets . within its product family , the company offers value-enhancing solutions for integrating renewable energy with storage systems as well as microgrid capabilities for grid resiliency and off-grid power . currently , the company 's products are designed by ideal power , manufactured by contract manufacturers , and sold by ideal power both directly to its customers and through a distribution channel partner . the company may consider additional go-to-market strategies in the future including but not limited to product licensing arrangements with leading global electronics companies . such agreements could allow for regional manufacturers to build the company 's products under license for specific markets or specific applications . the company was founded on may 17 , 2007. to date , operations have been funded primarily through the sale of common stock and convertible debt , as well as through u.s. department of energy grants . total revenue generated from inception to date as of december 31 , 2014 is $ 6,077,196 , with the majority of that revenue coming from government grants and product sales . the company has applied these revenues to research and product development , thereby reducing its capital requirements . the company will continue to pursue research and development grants , if and when available , for the purpose of developing new products and improving current products . the company can make no assurances that additional grants will be available in the future . plan of operation ideal power has completed development , ul certification , and commercialization for its first two products and has launched four additional products that are actively being developed with plans to obtain ul certification for three of these products in 2015. all four of these new products have firm customer orders behind them . the company 's 30kw battery converter is being ordered and deployed by market-leading customers at increasing volumes for commercial and industrial applications . the company expects to continue to build order backlog for its products and begin realizing increasing revenues in the first quarter of 2015 as we begin to fulfill volume orders . 28 with the introduction of our new grid-resilient 30kw 2-port and multi-port conversion systems as well as our grid-resilient 125kw 2-port and multi-port power conversion systems , the company now offers a family of fully compatible products for broad and rapidly growing power conversion markets . ideal power products are well suited for commercial and industrial scale energy storage systems , systems combining pv and storage , and for on-grid and off-grid microgrid applications integrating the company 's power conversion systems with batteries , photovoltaics , diesel , wind and other types of distributed generation in a flexible , modular approach . by using multiple 125kw products in parallel , customers can cost effectively deploy systems to up to many megawatts in scale . ideal power is further developing its technology to allow it to launch additional products , enhance its competitive advantages and enter other large vertical markets . the company 's goal is to establish ppsa as the leading technology for electronic power conversion for several large markets through both product sales and potentially licensing in selected geographies and markets . the company 's objectives are to continue to commercialize its technology through the development of a variety of power conversion products , expand its channels to target markets , and may eventually license the manufacture of its products to original equipment manufacturers ( oems ) and , in certain markets , directly to large customers . we expect to continue to use the net proceeds received from the initial public offering of our common stock for new product research , new product and existing product development , the commercialization of our products , protection of our intellectual property , purchases of property and equipment and for working capital and other general corporate purposes . the net cash proceeds from the initial public offering of our common stock totaled approximately $ 15 million . our actual and anticipated costs include employee salaries and benefits , compensation paid to consultants , capital costs for research and development lab and other equipment , costs associated with development activities including travel and administration , legal expenses , sales and marketing costs , general and administrative expenses , and other costs associated with an early stage , publicly-traded technology company . we added ten employees from our initial public offering through december 31 , 2014 and anticipate increasing the number of employees of the company by approximately 5 10 employees by the end of december 2015. however , this increase is highly dependent on the nature of our development efforts . we have added and anticipate adding employees in the areas of research and development and product engineering and , to a lesser extent , sales and marketing and general and administrative functions as required to support our efforts . story_separator_special_tag for each go/no go milestone and deliverable , the arpa-e program director must review the company 's work under the previously agreed work plan , confirm in writing that the company has achieved the go/no go milestone and deliverable , and authorize the company to commence work on the next milestone and deliverable under a corresponding next work plan . if the project were to stop due to an arpa-e determination that a milestone or deliverable had not been met , then the company would not submit to arpa-e for payment any further invoices ( except for costs incurred under the previously agreed work plan ) . as of december 31 , 2014 , the company had fully utilized arpa-e 's share of the research and development project . the payment conditions of the $ 150,000 phase i sbir grant that we received were substantially similar to those of the arpa-e grant , except that in the case of the sbir grant , the company receives payment from sbir of one hundred percent of the costs incurred by the company under the agreed work plans . nevertheless , the company is the primary obligor of all the costs incurred under the agreed work plans for the sbir grant . the work related to the sbir grant was completed in 2013 . 30 revenues from government grants are recognized in accordance with the provisions of sab no . 104 in the period during which the related costs are incurred , provided that the company has incurred the costs in accordance with the specifications and work plans for the applicable grant . expenses included in cost of revenues are directly related to research and development activities performed by our subcontractors in order to fulfill the specifications and work plans for the applicable grant . there are no contingencies or ongoing obligations of the company related to these grant arrangements , other than the obligation of the company to submit to the applicable government entity invoices for costs incurred by the company under the agreed work plans for the applicable grant . under no circumstances is the company required to repay monies that it receives under any of its government grants , provided that the company receives no more than the government 's agreed share of the total cost of the project and , with respect to the arpa-e grant , provided that the company meets its obligation to cover its share of costs as described above . costs incurred related to the grants are recorded as grant research and development costs within cost of revenues . costs incurred in excess of grant award amounts are recorded as research and development costs in operating expenses . the company believes that recognizing the government grants as revenues is a better reflection of the economics of the arrangements as ( i ) there are no contingencies or ongoing obligations of the company associated with its receipt of or right to retain the funds that it receives under its grants , ( ii ) the company is the primary obligor of all the costs incurred under the work plans for the grants , and ( iii ) the company has full discretion on the use of the monies that it receives under the grants . in addition , the company earns the grant funding through the performance of research and development activities , which is one of the company 's primary business activities . the company also believes that this presentation provides transparency to users of the company 's financial statements of the business activities associated with these grants , specifically , grant revenues and grant costs . royalty income is recognized as earned based on the terms of the contractual agreements , and has no direct costs . research and development . grant research and development are costs incurred solely related to grant revenues , and are classified as a line item under cost of revenues . other research and development costs are presented as a line item under operating expenses and are expensed as incurred . patents . the company capitalizes legal costs and filing fees associated with obtaining patents on its new inventions . once the patents have been issued , the company amortizes these costs over the shorter of the legal life of the patent ( generally a maximum of 20 years ) or its estimated economic life using the straight-line method . income taxes . we account for income taxes using an asset and liability approach that allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years . under the asset and liability approach , deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . a valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before we are able to realize their benefits , or that future deductibility is uncertain . tax benefits from an uncertain tax position are recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities , based on the technical merits of the position . stock-based compensation . the company applies financial accounting standards board ( fasb ) accounting standards codification ( asc ) 718 , stock compensation , when recording stock based compensation . the fair value of each stock option award is estimated on the date of grant using the commonly used black-scholes option valuation model . the assumptions used in the black-scholes model are as follows : grant price the grant price of the issuances are determined based on the estimated fair value of the shares at the date of grant prior to the company 's ipo and the closing share price on the date of grant subsequent to the company 's ipo .
| results of operations comparison of the year ended december 31 , 2014 to the year ended december 31 , 2013 revenues . revenues for the year ended december 31 , 2014 of $ 1,794,094 were $ 98,330 , or 5 % , lower than the $ 1,892,424 we earned in revenues for the year ended december 31 , 2013. the decrease in revenue was due to a $ 795,877 decrease in grant revenues and a $ 100,000 decrease in royalty revenues partially offset by a $ 797,547 increase in product revenues . total grant revenues for the year ended december 31 , 2014 were $ 579,079 , all from the arpa-e grant , compared to grant revenues for the year ended december 31 , 2013 of $ 1,374,956 , including $ 1,229,036 from the arpa-e grant and $ 145,920 from a department of energy sbir grant . revenues related to the arpa-e grant decreased due to the timing of spending and as the arpa-e grant was fully funded by the end of 2014. royalty revenue decreased from $ 100,000 to $ 0 as the royalty agreement with lockheed martin corporation ended december 31 , 2013. in the year ended december 31 , 2014 , revenue from the sale of our products was $ 1,215,015 , a 191 % increase compared to the year ended december 31 , 2013 , and related to our 30kw battery converter and , to a much lesser extent , our new grid-resilient 30kw multi-port power conversion system . in the year ended december 31 , 2013 , revenue from the sale of products was $ 417,468 with approximately half of our product revenue from each of our 30kw battery converter and 30kw pv inverter . we elected not to sell our 30kw pv inverter in 2014 as the 30kw battery converter , based on the same hardware platform , provided a higher selling price and thus enhanced margins . cost of revenues .
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replace_table_token_14_th ( 1 ) represents the grant date fair value of option awards granted in 2011 in accordance with asc topic 718 , or asc 718 , formerly statement of financial accounting standards no . 123 ( r ) . our directors will only realize compensation to the extent the fair value of our common stock is greater than the exercise price of such stock options . for information regarding assumptions underlying the valuation of equity awards , see note 11 to our financial statements included in our annual report on form 10-k. ( 2 ) dr. gordon resigned from our board of directors effective 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 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 an emerging specialty pharmaceutical company focused on the development , commercialization and manufacture of proprietary pharmaceutical products , based on our proprietary depofoam drug delivery technology , for use in hospitals and ambulatory surgery centers . on october 28 , 2011 , the united states food and drug administration , or fda , approved our new drug application , or nda , for our lead product candidate , exparel , a liposome injection of bupivacaine , an amide-type local anesthetic , indicated for administration into the surgical site to produce postsurgical analgesia . we have developed a sales force entirely dedicated to commercializing exparel comprised of approximately 60 representatives , seven regional managers and a national sales manager . we have developed this sales force pursuant to a contract with quintiles commercial us , inc. , a division of quintiles , inc. , or quintiles , and under the terms of this contract we have the flexibility to hire all or a portion of the sales force dedicated to commercializing exparel as full-time employees of pacira , upon 60 days notice to quintiles . we expect to have successfully resolved the commercial manufacturing challenges for exparel to allow product to be commercially available in april 2012 , and we believe that our pre-launch activities including significant personal interactions with our hospital customers , position us for a successful launch of exparel . our two marketed products , depocyt ( e ) and depodur , and our proprietary depofoam extended release drug delivery technology were acquired as part of the acquisition of ppi-california on march 24 , 2007 , or the acquisition . 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. depodur is an extended release injectable formulation of morphine indicated for epidural administration for the treatment of pain following major surgery . depodur was approved by the fda in 2004. since inception , we have incurred significant operating losses . our net loss was $ 43.3 million for the year ended december 31 , 2011 , including research and development expenses of $ 14.9 million . we do not expect our currently marketed products , other than exparel , to generate revenue that is sufficient for us to achieve profitability because we expect to continue to incur significant expenses as we commercially launch exparel and advance the development of our product candidates , seek fda approval for our product candidates that successfully complete clinical trials and develop our sales force and marketing capabilities to prepare for their commercial launch . we also expect to incur additional expenses to add operational , financial and management information systems and personnel , including personnel to support our product development efforts and our obligations as a public reporting company . for us to become and remain profitable , we believe that we must succeed in commercializing exparel or other product candidates with significant market potential . recent developments on january 3 , 2012 , ekr delivered a notice to terminate the licensing , distribution and marketing agreement with us . pursuant to the terms of the agreement , the termination of the agreement will be effective 180 days from the date of the notice or july 1 , 2012. pursuant to the terms of the agreement the associated supply agreement will also terminate concurrently with the termination of the agreement . as a result , we expect the supply and royalty revenues from depodur to decrease in the future and we do not intend to re-license out the rights to depodur . license and development agreements in january 2011 , we entered into an agreement with novo nordisk a/s , or novo , pursuant to which it granted non-exclusive rights to novo under certain of its patents and know-how to develop , manufacture and commercialize formulations of a novo proprietary drug using the company 's depofoam drug delivery technology . under this agreement , we agreed to undertake specified development and technology transfer activities and to manufacture pre-clinical and certain clinical supplies of such depofoam formulated novo product until the completion of such technology transfer activities . novo is obligated to pay for all costs incurred by us in conducting such development , manufacturing and technology transfer activities . we are also entitled to 52 receive single-digit royalties on sales of such novo product for up to twelve years following the first commercial sale of such novo product . in addition , we are entitled to receive up to $ 24.0 million in milestone payments based on achievement of specified development events , and up to an additional $ 20.0 million in milestone payments based on sales of such novo product exceeding specified amounts . story_separator_special_tag we also include the cost our prospective outcome studies , which are designed for commercial purposes and do not have any regulatory endpoints , in selling , general and administrative expenses . we expect that our selling , general and administrative expenses will increase with the continued development and potential commercialization of our product candidates and increased expenses associated with us operating as a public company . additionally , in 2011 we built a commercial infrastructure for the launch of exparel and we expect our selling costs to increase in the future due to the launch efforts of our commercial organization and our quintiles sales force , which will increase our selling , general and administrative expenses . interest income ( expense ) interest income ( expense ) consists of interest income , interest expense , and royalty interest obligation . interest income consists of interest earned on our cash and cash equivalents , short-term investments and amortization of discount on a note receivable from one of our commercial partners . interest expense consists primarily of cash and non-cash interest costs related to our credit facility , our secured and unsecured notes issued to certain of our investors that converted into common stock upon completion of our initial public offering , and negotiated rent deferral payments . royalty interest obligation we record our royalty interest obligation as a liability in our consolidated balance sheets in accordance with asc 470-10-25 , sales of future revenues . we impute interest expense associated with this liability using the effective interest rate method . the effective interest rate may vary during the term of the agreement depending on a number of factors including the actual sales of depocyt ( e ) and depodur and a significant estimation , performed quarterly , of certain of our future cash flows related to these products during the remaining term of the amended and restated royalty interests assignment agreement which terminates on december 31 , 2014. the effect of the change in the estimates is reflected in our consolidated statements of operations as royalty interest obligation . in addition , such cash flows are subject to foreign exchange movements related to sales of depocyt ( e ) and depodur denominated in currencies other than u.s. dollars . 54 critical accounting policies and use of estimates we have based our management 's discussion and analysis of our financial condition and results of operations on our financial statements that have been prepared in accordance with generally accepted accounting principles , or gaap , in the united states . the preparation of these financial statements requires us to make estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate our estimates and judgments , including those related to clinical trial expenses and stock-based compensation . we base our estimates on historical experience and on various other factors we believe to be appropriate under the circumstances . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are more fully discussed in note 2 to our audited consolidated financial statements included in this filing , we believe that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our consolidated financial statements . revenue recognition we recognize revenue in accordance with sec staff accounting bulletin , or sab , no . 104 , revenue recognition , and asc 605 , revenue recognition . we recognize supply revenue from products manufactured and supplied to our commercial partners , when the following four basic revenue recognition criteria under the related accounting guidance 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 . prior to the shipment of our manufactured products , we conduct initial product release and stability testing in accordance with cgmp . our commercial partners can return the products within contracted specified timeframes if the products do not meet the applicable inspection tests . we estimate our return reserves based on our experience with historical return rates . historically , our product returns have not been material . we recognize revenue from royalties based on our commercial partners ' net sales of products . royalties are recognized as earned in accordance with contract terms when they can be reasonably estimated and collectability is reasonably assured . our commercial partners are obligated to report their net product sales and the resulting royalty due to us within 60 days from the end of each quarter . based on historical product sales , royalty receipts and other relevant information , we accrue royalty revenue each quarter and subsequently true-up our royalty revenue when we receive royalty reports from our commercial partners . we recognize revenue from reimbursement received in connection with feasibility studies and development work for third parties who desire to utilize our depofoam extended release drug delivery technology for their products , when our contractual services are performed , provided collectability is reasonably assured . our principal costs under these agreements include costs for our personnel conducting research and development , and our allocated overhead , as well as research and development performed by outside contractors or consultants . we recognize revenues from non-refundable up-front license fees received under collaboration agreements ratably over the performance period as determined under the collaboration agreement ( estimated development period in the case of development agreements , and contract period or longest patent life in the case of supply and distribution agreements ) . if the estimated performance period is subsequently modified , we will modify the period over which the up-front license fee is recognized accordingly on a prospective basis .
| results of operations comparison of years ended december 31 , 2011 , 2010 and 2009 revenues the following table sets forth a summary of our supply and royalty revenue and collaborative licensing and development revenue for the years ended december 31 , 2011 , 2010 and 2009 , including changes as a percentage ( dollar amounts in thousands ) : replace_table_token_3_th revenues increased $ 1.1 million , or 8 % , in the year ended december 31 , 2011 as compared to 2010. this increase was attributable to a $ 1.9 million increase in collaborative licensing and development revenue primarily due to activities performed under the novo agreement , which was signed in january 2011. during 2011 , we received an up-front one-time payment of $ 1.5 million and a milestone payment of $ 2.0 million from novo , which are both deferred and recognized on a straight line basis over the expected contract period . this was partially offset by a $ 0.7 million decrease in supply and royalty revenue primarily due to the lower number of depodur lots sold to our commercial partners . in december 2011 , the company was notified of ekr 's intent to exit the depodur market . revenues decreased by $ 0.4 million , or 3 % , in the year ended december 31 , 2010 as compared to 2009. the decrease was primarily due to a decrease in collaborative licensing by $ 1.4 million due to a reduction in contract development activities for amylin as well as a one-time reimbursement of equipment by amylin in 2009. this was partially offset by supply and royalty revenue increase of $ 1.0 million primarily due to higher sales of depocyt ( e ) to our european partner , driven by fulfillment of an order backlog during 2010 offset by the foreign exchange rate impact on sales in europe .
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2015-03 effective january 1 , 2016 and present all debt issuance costs , other than issuance costs related to our senior unsecured credit facility , as a direct deduction from the carrying value of the debt liability . adoption of this standard was applied retrospectively for all periods presented , affecting only the presentation of our story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this report . this discussion contains forward-looking statements about our business . these statements are based on current expectations and assumptions that are subject to risks and uncertainties . actual results could differ materially because of factors discussed in `` special note about forward-looking statements '' and `` risk factors '' contained in this annual report on form 10-k and in our other reports that we file from time to time with the sec . - 34 - overview diamondrock hospitality company is a lodging-focused real estate company operating as a reit for federal income tax purposes that owns a portfolio of premium hotels and resorts . as of december 31 , 2016 , we owned a portfolio of 26 premium hotels and resorts that contain 9,472 guest rooms located in 17 different markets in north america and the u.s. virgin islands . as an owner , rather than an operator , of lodging properties , we receive all of the operating profits or losses generated by our hotels after the payment of fees due to hotel managers , which are calculated based on the revenues and profitability of each hotel . key indicators of financial condition and operating performance we use a variety of operating and other information to evaluate the financial condition and operating performance of our business . these key indicators include financial information that is prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) , as well as other financial information that is not prepared in accordance with u.s. gaap . in addition , we use other information that may not be financial in nature , including statistical information and comparative data . we use this information to measure the performance of individual hotels , groups of hotels and or our business as a whole . we periodically compare historical information to our internal budgets as well as industry-wide information . these key indicators include : occupancy percentage ; average daily rate ( or adr ) ; revenue per available room ( or revpar ) ; earnings before interest , income taxes , depreciation and amortization ( or ebitda ) and adjusted ebitda ; and funds from operations ( or ffo ) and adjusted ffo . occupancy , adr and revpar are commonly used measures within the hotel industry to evaluate operating performance . revpar , which is calculated as the product of adr and occupancy percentage , is an important statistic for monitoring operating performance at the individual hotel level and across our business as a whole . we evaluate individual hotel revpar performance on an absolute basis with comparisons to budget and prior periods , as well as on a company-wide and regional basis . adr and revpar include only room revenue . room revenue comprised approximately 73 % of our total revenues for the year ended december 31 , 2016 and is dictated by demand , as measured by occupancy percentage , pricing , as measured by adr , and our available supply of hotel rooms . our adr , occupancy percentage and revpar performance may be impacted by macroeconomic factors such as u.s. economic conditions generally , regional and local employment growth , personal income and corporate earnings , office vacancy rates and business relocation decisions , airport and other business and leisure travel , new hotel construction and the pricing strategies of competitors . in addition , our adr , occupancy percentage and revpar performance is dependent on the continued success of our hotels ' global brands . we also use ebitda , adjusted ebitda , ffo and adjusted ffo as measures of the financial performance of our business . see “ non-gaap financial measures. ” overview of 2016 during 2016 , we executed on our asset management initiatives to improve our portfolio 's operating results . we improved our portfolio quality and lowered our financial leverage through the disposition of three non-core hotels and improved our financial flexibility through increasing and extending our corporate credit facility and entering into a new unsecured term loan . key highlights for 2016 include the following : mortgage loan repayments . on january 11 , 2016 , we repaid the $ 201.7 million mortgage loan secured by the chicago marriott downtown . on may 11 , 2016 , we repaid the $ 48.1 million mortgage loan secured by the courtyard manhattan fifth avenue . amended credit facility and new term loan . during 2016 , we amended and restated our senior unsecured credit facility to increase the capacity to $ 300 million , decrease the pricing and extend the maturity date to may 2020. we also closed on a new five-year $ 100 million senior unsecured term loan in 2016 . - 35 - hotel dispositions . in june 2016 , we sold the 485-room orlando airport marriott for a contractual sales price of $ 63 million and the 821-room hilton minneapolis for a contractual sales price of $ 140 million . in july 2016 , we sold the 169-room hilton garden inn chelsea/new york city for a contractual sales price of $ 65 million . share repurchases . we repurchased 728,237 shares of our common stock at an average price of $ 8.92 per share for a total purchase price of $ 6.5 million during the second half of 2016. outlook for 2017 we believe the economic growth outlook for 2017 has recently improved modestly based on the potential for national tax reform , deregulation , and other economic stimulus . we believe that this improved economic growth outlook will support lodging fundamentals . story_separator_special_tag the following pro forma key hotel operating statistics for the years ended december 31 , 2015 and 2014 assume we owned each of our 29 hotels since january 1 , 2014 and excludes the hilton garden inn times square central for the period from january 1 , 2014 to august 31 , 2014 since the hotel opened on september 1 , 2014 . - 40 - replace_table_token_12_th room revenue increased across each of our three major customer segments . revenue from the leisure transient segment experienced the highest growth at 9.8 % . business transient revenue increased 3.9 % , and group revenue increased 2.5 % . the growth in the group and business transient segments was driven by increases in adr , offset by slight declines in occupancy . the leisure transient segment growth was the result of a 7 % increase in demand and a 2.6 % increase in adr . food and beverage revenues increased $ 13.1 million from the year ended december 31 , 2014 , which includes amounts that are not comparable year-over-year as follows : $ 1.2 million decrease from the oak brook hills resort , which was sold on april 14 , 2014 . $ 14.3 million decrease from the los angeles airport marriott , which was sold on december 18 , 2014 . $ 0.5 million increase from the inn at key west , which was purchased on august 15 , 2014 . $ 14.1 million increase from the westin fort lauderdale beach resort , which was purchased on december 3 , 2014 . $ 2.9 million increase from the shorebreak hotel , which was purchased on february 6 , 2015 . $ 0.8 million increase from the sheraton suites key west , which was purchased on june 30 , 2015. excluding these non-comparable amounts , food and beverage revenues increased $ 10.3 million , or 5.7 % , driven primarily by increased banquet and catering revenues , which included an over 10 % increase in banquet and group contribution per room . other revenues , which primarily represent spa , parking , resort fees and attrition and cancellation fees , increased by $ 0.3 million from the year ended december 31 , 2014 , primarily due to the implementation of resort fees at certain hotels , partially offset by a decrease due to hotels sold in 2014. hotel operating expenses . the operating expenses consisted of the following ( in millions ) : replace_table_token_13_th our hotel operating expenses increased $ 25.0 million from the year ended december 31 , 2014 . the increase in hotel operating expenses includes amounts that are not comparable year-over-year as follows : $ 3.8 million decrease from the oak brook hills resort , which was sold on april 14 , 2014 . - 41 - $ 39.6 million decrease from the los angeles airport marriott , which was sold on december 18 , 2014 . $ 2.7 million increase from the inn at key west , which was purchased on august 15 , 2014 . $ 9.8 million increase from the hilton garden inn times square central , which opened on september 1 , 2014 . $ 27.3 million increase from the westin fort lauderdale beach resort , which was purchased on december 3 , 2014 . $ 8.6 million increase from the shorebreak hotel , which was purchased on february 6 , 2015 . $ 4.8 million increase from the sheraton suites key west , which was purchased on june 30 , 2015. excluding the non-comparable amounts , hotel operating expenses increased $ 15.2 million , or 2.6 % , from the year ended december 31 , 2014 . franchise fees increased $ 6.7 million , or 43.8 % , primarily due to the opening of the hilton garden inn times square central , higher franchise fees at the lexington hotel new york and the acquisitions of the westin fort lauderdale beach resort and sheraton suites key west . property taxes increased $ 7.1 million , or 17.8 % , primarily due to property tax reassessments at our properties , particularly our chicago hotels , as well as newly acquired hotels . incentive management fees decreased $ 1.1 million , or 12.9 % , primarily due to an amendment to the management agreement at the chicago marriott downtown , which reduced management fees beginning in april 2015. hotel pre-opening and transition costs increased $ 0.7 million , or 70 % , primarily due to the rebranding of the hotel formerly known as the conrad chicago to the gwen , a luxury collection hotel , in 2015. depreciation and amortization . depreciation and amortization is recorded on our hotel buildings over 40 years for the periods subsequent to acquisition . depreciable lives of hotel furniture , fixtures and equipment are estimated as the time period between the acquisition date and the date that the hotel furniture , fixtures and equipment will be replaced . our depreciation and amortization expense increased $ 1.5 million from the year ended december 31 , 2014 . the increase is primarily due to depreciation on capital expenditures from our recent hotel renovations , partially offset by an increase in fully depreciated furniture , fixtures and equipment . impairment losses . during the year ended december 31 , 2015 , we recorded impairment losses of $ 0.8 million on the favorable lease asset related to a tenant lease at the lexington hotel new york and $ 9.6 million on the option to acquire a leasehold interest in a parcel of land adjacent to the westin boston waterfront hotel for the development of a new hotel . hotel acquisition costs . we incurred $ 0.9 million of hotel acquisition costs during the year ended december 31 , 2015 due to our acquisitions of the shorebreak hotel and sheraton suites key west , as well as additional transfer taxes on an acquired hotel .
| results of operations the following table sets forth certain operating information for the year ended december 31 , 2016 for each of the hotels we owned during 2016 . - 36 - replace_table_token_6_th ( 1 ) the percentage change from 2015 revpar reflects the comparable period in 2015 to our 2016 ownership period for all hotels . ( 2 ) the hotel was sold on june 30 , 2016. the operating statistics reflect the period from january 1 , 2016 to june 29 , 2016 . ( 3 ) the hotel was sold on june 8 , 2016. the operating statistics reflect the period from january 1 , 2016 to june 7 , 2016 . ( 4 ) the hotel was sold on july 7 , 2016. the operating statistics reflect the period from january 1 , 2016 to july 6 , 2016. comparison of the year ended december 31 , 2016 to the year ended december 31 , 2015 revenue . revenue consists primarily of the room , food and beverage and other operating revenues from our hotels , as follows ( in millions ) : replace_table_token_7_th our total revenues decreased $ 34.4 million from $ 931.0 million for the year ended december 31 , 2015 to $ 896.6 million for the year ended december 31 , 2016 . our total revenues include amounts that are not comparable year-over-year as follows : $ 1.3 million increase from the shorebreak hotel , which was purchased on february 6 , 2015 . - 37 - $ 10.6 million increase from the sheraton suites key west , which was purchased on june 30 , 2015 . $ 13.5 million decrease from the orlando airport marriott , which was sold on june 8 , 2016 . $ 29.8 million decrease from the minneapolis hilton , which was sold on june 30 , 2016 . $ 7.6 million decrease from the hilton garden inn chelsea/new york city , which was sold on july 7 , 2016. excluding these non-comparable amounts our total revenues increased $ 4.6 million , or 0.5
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each preferred unit will be entitled to share in our distributions of available cash pro rata with the units . in the event of liquidation , the holders of the preferred units will be entitled to a minimum preferential liquidation payment of $ 100 per unit . each preferred unit will have 100 votes , voting together with the units . finally , in the event of any merger , consolidation or other transaction in which units are exchanged , each preferred unit will be entitled to receive 100 times the amount received per unit . 54 nustar gp holdings , llc notes to consolidated financial statements – ( continued ) 14. employee benefit plans the nustar thrift plan the nustar thrift plan ( the thrift plan ) is a qualified employee profit-sharing plan that became effective june 26 , 2006. participation in the thrift plan is voluntary and is open to substantially all nustar gp , llc employees upon their date of hire , except for part-time employees ( as defined in the thrift plan ) , who become eligible upon completing one year of service ( as defined in the thrift plan ) . thrift plan participants can contribute from 1 % up to 30 % of their total annual compensation to the thrift plan in the form of pre-tax and or after tax employee contributions . nustar gp , llc makes matching contributions in an amount equal to 100 % of each participant 's employee contributions up to a maximum of 6 % of the participant 's total annual compensation . effective may 1 , 2010 , thrift plan participants may designate all or any portion of their contributions as roth 401 ( k ) contributions as defined in the code . our matching contributions to the thrift plan for the years ended december 31 , 2011 , 2010 and 2009 totaled $ 6.5 million , $ 5.9 million and $ 5.3 million , respectively . nustar gp , llc also maintains an excess thrift plan ( the excess thrift plan ) that became effective july 1 , 2006. the excess thrift plan is a nonqualified deferred compensation plan that provides benefits to those employees of nustar gp , llc whose compensation and or annual contributions under the thrift plan are subject to the limitations applicable to qualified retirement plans under the code . pension and other postretirement benefits the nustar pension plan ( the pension plan ) is a qualified non-contributory defined benefit pension plan that became effective july 1 , 2006. the pension plan covers substantially all of nustar gp , llc 's employees and generally provides eligible employees with retirement income calculated under a defined benefit final average pay formula ( fap ) based on years of service and compensation during their period of service . employees become fully vested in their pension plan benefits upon attaining five years of vesting service . effective january 1 , 2011 , the fap was frozen to participants entering the pension plan . participants entering the pension plan beginning in 2011 will be eligible for a defined benefit cash balance formula based on age and service , and become fully vested in their pension plan benefits upon attaining three years of vesting service . nustar gp , llc also maintains an excess pension plan ( the excess pension plan ) and a supplemental executive retirement plan ( the serp ) . the excess pension plan and the serp are nonqualified deferred compensation plans that provide benefits to a select group of management or other highly compensated employees of nustar gp , llc . none story_separator_special_tag the following review of our results of operations and financial condition should be read in conjunction with items 1. , 1a . and 2 . “ business , risk factors and properties , ” and item 8 . “ financial statements and supplementary data , ” included in this report . cautionary statement regarding forward-looking information this form 10-k contains certain estimates , predictions , projections , assumptions and other forward-looking statements that involve various risks and uncertainties . while these forward-looking statements , and any assumptions upon which they are based , are made in good faith and reflect our current judgment regarding the direction of our business , actual results will almost always vary , sometimes materially , from any estimates , predictions , projections , assumptions or other future performance suggested in this report . these forward-looking statements can generally be identified by the words “ anticipates , ” “ believes , ” “ expects , ” “ plans , ” “ intends , ” “ estimates , ” “ forecasts , ” “ budgets , ” “ projects , ” “ will , ” “ could , ” “ should , ” “ may ” and similar expressions . these statements reflect our current views with regard to future events and are subject to various risks , uncertainties and assumptions . please read item 1a . “ risk factors ” for a discussion of certain of those risks . if one or more of these risks or uncertainties materialize , or if the underlying assumptions prove incorrect , our actual results may vary materially from those described in any forward-looking statement . other unknown or unpredictable factors could also have material adverse effects on our future results . readers are cautioned not to place undue reliance on this forward-looking information , which is as of the date of the form 10-k. we do not intend to update these statements unless it is required by the securities laws to do so , and we undertake no obligation to publicly release the result of any revisions to any such forward-looking statements that may be made to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events . story_separator_special_tag 32 cash distributions received from nustar energy were $ 76.6 million for the year ended december 31 , 2009 , which we used primarily to fund distributions to our unitholders totaling $ 73.3 million . we borrowed $ 14.3 million for the year ended december 31 , 2009 to fund our contribution to nustar energy in order to maintain our 2 % general partner interest following its issuance of common units in november 2009 , and for other capital resource requirements . credit facility borrowings under our revolving credit facility are used to fund capital contributions to nustar energy to maintain our 2 % general partner interest as nustar energy issues additional units and meet other liquidity and capital resource requirements . on july 15 , 2010 , we entered into a 364-day revolving credit facility that we amended on july 14 , 2011 to extend the maturity date to july 12 , 2012 ( 2010 credit facility ) . the 2010 credit facility has a borrowing capacity of up to $ 30.0 million , of which up to $ 10.0 million may be available for letters of credit . interest on the 2010 credit facility , as amended , is based upon , at our option , either an alternative base rate plus 0.75 % or a libor-based rate plus 1.75 % , which was 2.1 % as of december 31 , 2011 . these interest rates are 1.00 % lower than the rates that were in effect prior to the amendment on july 14 , 2011. our obligations under the 2010 credit facility are unsecured . the 2010 credit facility contains customary covenants and provisions including limitations on indebtedness , liens , dispositions of material property , mergers and asset transfers . the terms of the 2010 credit facility require nustar energy to maintain , as of the end of any four consecutive quarters , a consolidated debt coverage ratio not to exceed 5.0-to-1.0 . on march 7 , 2011 , we amended the 2010 credit facility to exclude nustar energy 's unused proceeds from the gulf opportunity zone act of 2005 bond issuances from its total indebtedness in the calculation of the consolidated debt coverage ratio . as of december 31 , 2011 , nustar energy 's consolidated debt coverage ratio was 4.1x . we are also required to receive cash distributions of at least $ 35.0 million in respect of our ownership interests in nustar energy for the preceding four fiscal quarters ending on the last day of each fiscal quarter . our management believes that we are in compliance with the covenants of the 2010 credit facility as of december 31 , 2011 . during the year ended december 31 , 2011 , we borrowed $ 6.0 million under the 2010 credit facility , mainly to fund our $ 6.7 million in contributions to nustar energy to maintain our 2 % general partner interest following its issuances of common units in 2011. during the year ended december 31 , 2011 , we repaid $ 5.5 million under the 2010 credit facility . as of december 31 , 2011 , we had availability of $ 13.5 million and $ 10.0 million for borrowings and letters of credit , respectively , under the 2010 credit facility . the weighted-average interest rate related to borrowings under the 2010 credit facility for the year ended december 31 , 2011 was 2.6 % . we are in discussions with the lenders to renew or replace our 2010 credit facility . investment in nustar energy in december 2011 , nustar energy issued 6,037,500 common units representing limited partner interests at a price of $ 53.45 per unit for proceeds of $ 311.4 million , net of issuance cost . in september and october 2011 , nustar energy issued 108,029 common units for proceeds of $ 5.9 million , net of issuance cost . in conjunction with these issuances of common units , we contributed $ 6.7 million to nustar energy in order to maintain our 2 % general partner interest . cash distributions to unitholders our limited liability company agreement requires that , within 50 days after the end of each quarter , we distribute all of our available cash to the holders of record of our units on the applicable record date . available cash is defined as all cash on hand at the end of any calendar quarter less the amount of cash reserves necessary or appropriate , as determined in good faith by our board of directors , to fund debt we may incur , if any , general and administrative expenses , future distributions and other miscellaneous uses of cash . the table set forth below shows our cash distributions applicable to the period in which the distributions were earned : replace_table_token_12_th 33 pension and other postretirement benefit funded status during 2011 , we contributed $ 7.2 million to our pension and postretirement benefit plans . we expect to contribute approximately $ 7.3 million to our pension and postretirement benefit plans in 2012 , which principally represents contributions either required by regulations or laws or , with respect to unfunded plans , necessary to fund current benefits . we have not disclosed pension and postretirement funding beyond 2012 as the funding can vary from year to year based upon changes in the fair value of the plan assets and actuarial assumptions . since costs incurred by us related to our pension and other retirement benefit plans are reimbursed by nustar energy , funding for these plans will primarily be provided by nustar energy . related party agreements agreements with nustar energy effective january 1 , 2008 , nustar gp , llc and nustar energy entered into a services agreement stating that nustar energy will reimburse nustar gp , llc for furnishing administrative and certain operating services necessary to conduct the business of nustar energy .
| results of operations as discussed above , we account for our investment in nustar energy using the equity method . as a result , our equity in earnings of nustar energy , our only source of income , directly fluctuates with the amount of nustar energy 's distributions and results of operations . nustar energy 's distributions determine the amount of our incentive distribution earnings , while nustar energy 's results of operations determine the amounts of earnings attributable to our general partner and limited partner interests . year ended december 31 , 2011 compared to year ended december 31 , 2010 financial highlights ( thousands of dollars , except unit and per unit data ) replace_table_token_5_th the following table summarizes nustar energy 's statement of income data : replace_table_token_6_th nustar energy 's segment operating income increased $ 5.5 million for the year ended december 31 , 2011 , compared to the year ended december 31 , 2010 , due to increased operating income from the storage segment , partially offset by decreased operating income from the transportation and asphalt and fuels marketing segments . nustar energy 's consolidated operating income benefited from the increased segment operating income and lower general and administrative expenses . however , nustar energy 's net income decreased $ 17.4 million for the year ended december 31 , 2011 , compared to the year ended december 31 , 2010 , primarily due to a decrease in other income . 28 equity in earnings of nustar energy the following table summarizes our equity in earnings of nustar energy : replace_table_token_7_th ( a ) our equity in earnings of nustar energy allocated to the general partner incentive distribution is less than the actual distribution made with respect to 2011 , due to nustar energy 's issuance of common units after the end of the third quarter , but before the record date .
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under this guidance an entity is not required to calculate the fair value of a reporting unit unless , based on the qualitative assessment , it is more likely than not that a reporting unit 's fair value is less than its carrying amount . however , an entity always has the option to perform a full quantitative assessment . the guidance includes examples of events and circumstances for an entity to consider in performing the qualitative assessment and is effective for fiscal years beginning after december 15 , 2011 with early adoption permitted . this standard is not expected to have a material impact on us as we expect to continue to perform a full quantitative assessment with respect to the fair value of our reporting units , as we did during fiscal year 2012 . 65 3. fair values of assets and liabilities we measure fair value at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . in determining fair value , the assumptions that market participants would use in pricing an asset or liability ( the inputs ) are based on a tiered fair value hierarchy consisting of three levels , as story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the selected consolidated financial data and the financial statements and notes thereto appearing elsewhere in this annual report on form 10-k. this annual report on form 10-k contains forward-looking statements that involve risks and uncertainties . the statements contained in this annual report that are not purely historical are 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 * the exchange act ) . without limiting the foregoing , the words may , will , should , could , expects , plans , intends , anticipates , believes , estimates , predicts , potential and similar expressions are intended to identify forward-looking statements . all forward-looking statements included in this annual report on form 10-k are based on information available to us up to and including the date of this document , and we assume no obligation to update any such forward-looking statements . our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those set forth in management 's discussion and analysis of financial condition and results of operations and risk factors and elsewhere in this form 10-k. you should carefully review those factors and also carefully review the risks outlined in other documents that we file from time to time with the securities and exchange commission . in the management discussion that follows we have highlighted those changes and operating factors that were the primary factors affecting period to period fluctuations . the remainder of the change in period to period fluctuations from that which is specifically discussed is arising from various individually insignificant items . 26 overview we provide cloud-based payment , invoice and banking solutions to corporations , insurance companies , financial institutions and banks around the world . our solutions are used to streamline , automate and manage processes and transactions involving global payments , invoice receipt and approval , collections , cash management , risk mitigation , document management , reporting and document archive . we offer hosted or software as a service ( saas ) solutions , as well as software designed to run on-site at the customer 's location . a growing portion of our offerings are being sold as saas-based solutions and paid for on a subscription and transaction basis . historically , however , our software has been sold predominantly on a perpetual license basis . our corporate customers rely on our solutions to automate their payment and accounts payable processes and to streamline and manage the production and retention of electronic documents . we offer legal spend management solutions that automate receipt and review of legal invoices for insurance companies and other large corporate consumers of outside legal services . we operate a cloud-based network that facilitates the exchange of electronic payments and invoices between buyers and their suppliers . we also offer solutions that banks use to provide cash management and treasury capabilities to their business customers . our document automation solutions are used by organizations to automate paper-intensive processes for the generation of transactional and supply chain documents . our solutions complement , leverage and extend our customers ' existing information systems , accounting applications and banking relationships and can be deployed quickly and efficiently . to help our customers receive the maximum value from our products and meet their specific business requirements , we also provide professional services for installation , training , consulting and product enhancement . during the year ended june 30 , 2012 , we acquired idt , ltd. ( idt ) and we acquired substantially all of the assets and assumed certain liabilities of both logical progression group , inc. ( logical progression ) and intuit , inc. 's ( intuit ) commercial banking business ( commercial banking ) . idt was a longtime partner and reseller of our document automation solutions in the united kingdom and europe . the idt acquisition extended our market reach and added more than 140 customers to our customer base . logical progression was an early stage company focused on the development of mobile solutions for the healthcare industry . logical progression 's innovative technology , logical ink , is offered as part of our healthcare solutions portfolio . the commercial banking acquisition broadens our overall banking product set to include solutions tailored to the unique customer demands of the medium-sized and small bank markets . story_separator_special_tag revenues relating to professional services not associated with highly customized software solutions are normally recognized at the time services are rendered . professional services revenues associated with software license arrangements that include significant customization and modification are generally recognized on a percentage of completion basis over the life of the project . software maintenance fees are recognized as revenue ratably over the respective maintenance period , which is typically one year . equipment and supplies revenues . we derive equipment and supplies revenues from the sale of printers , check paper and magnetic ink character recognition toners . these revenues are normally recognized at the time of delivery . equipment and supplies revenue also includes postage and shipping related charges billed to customers . critical accounting policies and significant judgments and estimates we believe that several accounting policies are important to understanding our historical and future performance . we refer to these policies as critical because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate , and different estimateswhich also would have been reasonablecould have been used . these critical accounting policies and estimates relate to stock-based compensation , revenue recognition , the valuation of goodwill and intangible assets , and the valuation of acquired deferred revenue . these critical policies and our procedures related to these policies are discussed below . in addition , refer to note 2 to the accompanying consolidated financial statements for a discussion of all of our significant accounting policies . stock based compensation we recognize expense for the estimated fair value of all share-based payments issued to employees . for the fiscal years ended june 30 , 2012 , 2011 and 2010 , we recorded approximately $ 13.8 million , $ 11.5 million , and $ 9.0 million of expense associated with share-based payments , respectively . for fiscal year 2012 , the substantial majority of this expense is related to awards of restricted stock . restricted stock awards are valued based on the closing price of our common stock on the date of grant ; however , the valuation of employee stock options is a more subjective process , since market values are generally not available for long-term , non-transferable employee stock options . accordingly , we use a black-scholes option pricing model to derive an estimated fair value . the black-scholes pricing model requires the consideration of the following variables for purposes of estimating fair value : the stock option exercise price , the expected term of the option , the grant date price of our common stock , the expected volatility of our common stock , expected dividends on our common stock ( we do not anticipate paying dividends for the foreseeable future ) , and the risk free interest rate for the expected option term . 29 of the variables above , the selection of an expected term and expected stock price volatility are the most subjective . for purposes of estimating the expected option term , we review and consider our historic option activity , particularly the underlying option holding period ( including the holding period inherent in currently vested but unexercised options ) . we believe that each of these estimates , both expected term and volatility , are reasonable in light of the historical data we analyzed . however , as with any estimate , the ultimate accuracy of these estimates is only verifiable over time . while there were no stock options granted in fiscal years 2012 or 2011 , the operating results for these periods include the expense impact of stock option awards issued in prior years as those awards continued to vest . revenue recognition software arrangements we recognize revenue on our software license arrangements when four basic criteria are met : persuasive evidence of an arrangement exists , delivery of the product has occurred , the fee is fixed and determinable and collectability is probable . we consider a fully executed agreement or a customer purchase order to be persuasive evidence of an arrangement . delivery is deemed to have occurred upon transfer of the product title to the customer or the completion of services rendered . we consider the arrangement fee to be fixed and determinable if it is not subject to adjustment and if the customer has not been granted extended payment terms . excluding our long term contract arrangements for which revenue is recorded on a percentage of completion basis , extended payment terms are deemed to be present when any portion of the software license fee is due in excess of 90 days after the date of product delivery . in arrangements that contain extended payment terms , software revenue is recorded as customer payments become contractually due , assuming all other revenue recognition criteria have been met . we consider the arrangement fee to be probable of collection if our internal credit analysis indicates that the customer will be able to pay contractual amounts as they become due . our software arrangements may contain multiple revenue elements , such as software licenses , professional services , hardware and post-contract customer support . for multiple element software arrangements which qualify for separate element treatment , revenue is recognized for each element when each of the four basic criteria is met which , excluding post-contract customer support , is typically upon delivery . revenue for post-contract customer support agreements is recognized ratably over the term of the agreement , which is generally one year . revenue is allocated to each element , excluding the software license , based on vendor specific objective evidence ( vsoe ) . vsoe is limited to the price charged when the element is sold separately or , for an element not yet being sold separately , the price established by management having the relevant authority . we do not have vsoe for our software licenses since they are seldom sold separately . accordingly , revenue is allocated to the software license according to the residual value method .
| results of operations fiscal year ended june 30 , 2012 compared to fiscal year ended june 30 , 2011 segment information operating segments are components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker , or decision making group , in deciding how to allocate resources and in assessing performance . as of july 1 , 2011 , we revised the methodology used for allocating general and administrative costs to our reportable segments . during 2012 , we also changed the segment classification of certain customers ' revenue . to ensure a consistent presentation of the measurement of segment revenues and profit or loss , these changes are reflected for all periods presented . 33 our operating segments are organized principally by the type of product or service offered and by geography . similar operating segments have been aggregated into three reportable segments : payments and transactional documents , banking solutions and outsourced solutions . the following tables represent our segment revenues and our segment measure of profit : replace_table_token_10_th a reconciliation of the measure of segment profit to our gaap before the provision for income taxes is as follows : replace_table_token_11_th payments and transactional documents . the revenue increase for the fiscal year ended june 30 , 2012 compared to the prior fiscal year was primarily attributable to increases in subscriptions and transactions revenue of $ 1.8 million , increases in software licenses revenue of $ 1.7 million , increases in professional services revenue of $ 1.0 million and an increase in maintenance revenue of $ 0.6 million partially offset by a decrease of $ 0.9 million in equipment and supplies revenue . the increases were primarily attributable to increased european revenue in our payment and document automation products .
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the company was originally incorporated in delaware on june 3 , 2019 as a special purpose acquisition company under the name b. riley principal merger corp . ii. , in order to acquire , through a merger , capital stock exchange , asset acquisition , stock purchase , reorganization or similar business combination one or more businesses . on november 16 , 2020 , the company consummated the transactions contemplated by an agreement and plan of merger ( the “ merger agreement ” ) , dated as of september 7 , 2020 , by and among bmrg merger sub , llc , our wholly-owned subsidiary and a delaware limited liability company ( “ merger sub i ” ) , bmrg merger sub ii , llc , our wholly-owned subsidiary and a delaware limited liability company ( “ merger sub ii ” ) , eos energy storage 37 llc , a delaware limited liability company ( “ ees ” ) , new eos energy llc , a wholly-owned subsidiary of ees and a delaware limited liability company ( “ newco ” ) and altenergy storage vi , llc , a delaware limited liability company ( “ altenergy ” ) . pursuant to the merger agreement , ( 1 ) merger sub i merged with and into newco ( the “ first merger ” ) , whereupon the separate existence of merger sub i ceased , and newco continued as the surviving company ( such company , in its capacity as the surviving company of the first merger , is sometimes referred to as the “ first surviving company ” ) and became our wholly owned subsidiary ; and ( 2 ) immediately following the first merger and as part of the same overall transaction as the first merger , the first surviving company merged with and into merger sub ii , whereupon the separate existence of the first surviving company ceased , and merger sub ii continued as the surviving company and our wholly owned subsidiary . upon the closing of the business combination ( the “ closing ” ) , the company changed its name to “ eos energy enterprises , inc. ” the business combination is accounted for as a reverse recapitalization . ees is deemed the accounting predecessor and the combined entity is the successor sec registrant , meaning that ees ' financial statements for previous periods are disclosed in the registrant 's future periodic reports filed with the sec . under this method of accounting , bmrg is treated as the acquired company for financial statement reporting purposes . as a sec-registered and nasdaq-listed company , we are required to implement procedures and processes to address public company regulatory requirements and customary practices and have and continue to hire additional personnel in this context . we expect to incur additional annual expenses as a public company for , among other things , directors ' and officers ' liability insurance , director fees , and additional internal and external accounting , legal , and administrative resources , including increased personnel costs , audit and other professional service fees . key factors affecting operating results commercialization we began full commercial production of our eos gen 2.3 125|500 dc battery system and delivering first shipments to customers in january 2021. our testing of gen 2.3 batteries produced in limited quantities during 2020 has indicated performance at expected levels pending movement into commercial production . while we expect the performance to be the same as we further scale commercial production , the manufacturing line for this battery system has not been fully tested . if performance of the battery system does not meet our specifications , we may need to reduce the speed of production to ensure we have quality batteries that meet our performance specifications . any delay in production could affect the delivery of batteries to our customers . we are also in the process of getting a third-party product safety certification from underwriter laboratories ( ul ) for the eos gen 2.3 125|500 dc battery system . while we anticipate receiving ul certification , the certification has been delayed due to covid-19 and is expected in the second quarter of 2021. our growth strategy contemplates increasing sales of a commercial battery system through our direct sales team and sales channel partners . we anticipate our customers to include utilities , project developers , independent power producers and commercial and industrial companies . as we intend to expand our sales both in volume and geography , we have started discussions with several companies in north america , europe , the middle east and asia about partnering on selling our product in these regions . for some of these potential partners we have begun discussions ranging from being a reseller of our product to being a joint venture partner in the manufacturing of our battery systems . we expect to continue expanding the direct sales force in north america , adding direct sales people outside north america , and entering into strategic alliances to advance our sales growth globally . integration of alliance partners we may in the future seek to construct one or more manufacturing facilities , thereby expanding our manufacturing footprint to meet customer demand . provided the arrangement with our joint venture partner hi-power continues to meet the quality , cost and delivery timelines set by the hi-power board of directors , hi-power would maintain its exclusivity to manufacture the batteries for products sold and delivered in north 38 america . if hi-power fails to meet required performance metrics , we can establish our own manufacturing for north america either directly or through other partnerships . for sales outside of north america , we may establish our own manufacturing facilities or may partner with other companies to manufacture our products . the construction of any such facility would require significant capital expenditures and result in significantly increased fixed costs . if we establish our own manufacturing facility , we have the right to transfer the manufacturing processes , technology and know-how from the hi-power jv to any new facility . story_separator_special_tag cost of sales in august 2019 , we established a joint venture , hi-power , that manufactures the gen 2.3 battery system on our behalf . our cost of sales for the gen 2.3 battery system includes the purchase of the manufactured system from hi-power , the joint venture which produces the gen 2.3 battery system . cost of sales also includes the provision for excess , obsolete and slow-moving inventories , the reserve for losses on firm purchase commitments , cost of products sold directly by the company to our customers , depreciation of manufacturing plant and equipment , warranty accruals , as well as shipping , logistics and facility related costs . we expect our cost of sales to exceed revenues in the near term as we continue to scale our business . before launching commercial production of our gen 2.3 battery system , we manufactured our battery systems ourselves and our cost of sales included material , labor , and other direct costs related to the manufacture of energy storage product for sale to customers . other items contributing to cost of sales were manufacturing overhead such as engineering expense , equipment maintenance , environmental health and safety , quality and production control and procurement . research and development research and development expenses consist primarily of salaries and personnel-related costs as well as products , materials , third party services , and depreciation on equipment and facilities used in our research and development process . we expect our research and development costs to increase for the foreseeable future as we continue to invest in research and development activities that are necessary to achieve our technology and product roadmap goals . general and administrative expense 40 general and administrative expenses consist mainly of personnel-related expenses including corporate , executive , finance , and other administrative functions , expenses for outside professional services , including legal , audit and accounting services , as well as expenses for facilities , depreciation , amortization , travel , and marketing costs . we expect general , and administrative expenses to increase for the foreseeable future as we scale our headcount with the growth of our business , and as a result of operating as a public company , including compliance with the rules and regulations of the sec , legal , audit , additional insurance expenses , investor relations activities , and other administrative and professional services . grant expense ( income ) , net grant expense ( income ) , net includes our expenses net of reimbursement related to grants provided by the california energy commission ( “ cec ” ) . sale of tax attributes the sale of tax attributes represents the benefit recorded from the sale of our state of new jersey net operating loss carryforwards and r & d tax credits to third parties . income ( loss ) on equity in unconsolidated joint venture the income ( loss ) on equity in unconsolidated joint venture represents our proportionate share of the income ( loss ) from our investment in hi-power llc , a joint venture established with holtec power , inc. interest expense interest expense consists primarily of interest incurred on our convertible notes before the merger , including the accretion of interest on convertible notes that contained embedded features that permit holders to demand immediate repayment of principal and interest . all convertible notes were converted to common stock in connection with merger and no balance outstanding as of december 31 , 2020 change in fair value , embedded derivative the convertible notes issued during 2019 and 2020 contained an embedded derivative feature that could accelerate the repayment of the convertible notes upon a qualified financing event not within our control . this embedded derivative resulted in the recording of a premium or discount on convertible notes that were recognized in earnings upon their issuance . in connection with the merger , all convertible notes were converted to common stock and the embedded derivative fair value was zero as of december 31 , 2020. story_separator_special_tag and interest resulting in the immediate accretion of interest expense . during the year ended december 31 , 2019 , proceeds allocated to the issuance of convertible notes was $ 19.3 million and eos recorded $ 49.7 million of interest expense related to these convertible notes that include a demand feature that could require repayment of principal and interest during 2019. during the twelve months ended december 31 , 2020 , proceeds allocated to the issuance of convertible notes was $ 9.0 million , and eos recorded $ 23.7 million of interest expense related to these convertible notes . 43 loss on extinguishment of convertible notes — related party the loss on extinguishment of convertible notes of $ 6.1 million in 2019 was the result of the modification in april 2019 of convertible notes issued during 2018 and january 2019. change in fair value , embedded derivative the change in fair value of $ 2.1 million and $ ( 0.7 ) for the years ended december 31 , 2020 and december 31 , 2019 reflect the change in fair value of the embedded derivative feature on our convertible notes that was recorded through earnings . change in fair value , sponsor earnout shares the change in fair value of $ ( 8.1 ) million for the years ended december 31 , 2020 reflects the change in fair value of the sponsor earnout shares classified as liability as of the merger date through the date they were released from restriction and reclassified into equity on december 16 , 2020. liquidity and capital resources as of december 31 , 2020 , we had cash and cash equivalents of $ 121.9 million . since our inception , we have financed our operations primarily through funding received from the private placement of convertible notes and the issuance of common and preferred units . in november 2020 , we received $ 142.3 million in connection with the consummation of the merger and the private placement upon the closing .
| results of operations comparison of year ended december 31 , 2020 to year ended december 31 , 2019 the following table sets forth our operating results for the periods indicated : 41 replace_table_token_0_th revenue revenue was $ 0.2 million and $ 0.5 million for the year ended december 31 , 2020 and 2019 , respectively , related to sales of our initial energy storage solution for specific customer application . revenue decreased between 2019 and 2020 as eos transitioned its business to launch its next generation of energy storage solution , gen 2.3 , in the second half of 2020. cost of sales cost of sales decreased by $ 2.8 million or 34 % from $ 8.3 million for the year ended december 31 , 2019 to $ 5.5 million for the year ended december 31 , 2020. the decrease results primarily from a decrease of $ 3.0 million for manufacturing costs incurred during the year ended december 31 , 2019. in august 2019 ( and as amended in august 2020 ) , the company entered into an agreement with holtec power , inc ( “ holtec ” ) to form the unconsolidated joint venture , hi-power llc ( “ hi-power ” or “ jv ” ) . the jv manufactures the products for all of the company 's projects in north america . for the year ended december 31 , 2019 , $ 0.9 million impairment loss from manufacturing property and equipment were charged to cost of sales . for 2020 , the company incurred $ 1.1 million increases in losses resulting from inventory reserves related to excess and obsolescence , lower of cost or market adjustments and reserves for losses on firm inventory purchase commitment , compared to 2019 . 42 research and development research and development costs increased by $ 2.2 million or 19 % from $ 11.8 million for the year ended december 31 , 2019 to $ 14.0 million for the year ended december 31 , 2020. the increase results primarily from $ 3.9
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” this discussion also should be read in conjunction with the “ cautionary statement regarding forward looking statements ” set forth on page 2 of this annual report on form 10-k. actual results could differ materially from those implied or expressed in any forward-looking statements . overview owl rock capital corporation ( the “ company ” , “ we ” , “ us ” or “ our ” ) is a maryland corporation formed on october 15 , 2015. we were formed primarily to originate and make loans to , and make debt and equity investments in , u.s. middle market companies . we invest in senior secured or unsecured loans , subordinated loans or mezzanine loans and , to a lesser extent , equity-related securities including warrants , preferred stock and similar forms of senior equity , which may or may not be convertible into a portfolio company 's common equity . our investment objective is to generate current income , and to a lesser extent , capital appreciation by targeting investment opportunities with favorable risk-adjusted returns . we are managed by owl rock capital advisors llc ( “ the adviser ” or “ our adviser ” ) . the adviser is registered with the sec as an investment adviser under the investment advisers act of 1940. subject to the overall supervision of our board of directors ( the “ board ” ) , the adviser manages our day-to-day operations , and provides investment advisory and management services to us . the adviser or its affiliates may engage in certain origination activities and receive attendant arrangement , structuring or similar fees . the adviser is responsible for managing our business and activities , including sourcing investment opportunities , conducting research , performing diligence on potential investments , structuring our investments , and monitoring our portfolio companies on an ongoing basis through a team of investment professionals . the board consists of seven directors , four of whom are independent . we conduct private offerings ( each , a “ private offering ” ) of our common shares to accredited investors in reliance on exemptions from the registration requirements of the securities act of 1933 , as amended . at the closing of each private offering , each investor makes a capital commitment ( a “ capital commitment ” ) to purchase shares of our common stock pursuant to a subscription agreement entered into with the company . investors are required to fund drawdowns to purchase shares of our common stock up to the amount of their respective capital commitment on an as-needed basis each time we deliver a drawdown notice to our investors . the initial closing of the private offering occurred on march 3 , 2016 ( the `` initial closing '' ) . as of march 2 , 2018 , we had $ 5.5 billion in total capital commitments from investors . if we have not consummated a listing of our common stock on a national securities exchange ( an `` exchange listing '' ) by the five-year anniversary of the initial closing , subject to extension for two additional one-year periods , in the sole discretion of the board , the board ( subject to any necessary shareholder approvals and applicable requirements of the investment company act of 1940 ( the “ 1940 act ” ) ) will use its commercially reasonable efforts to wind down and or liquidate and dissolve the company in an orderly manner . placement activities will be conducted by our officers and the adviser . in addition , we have entered into agreements with placement agents or broker-dealers to solicit investor capital commitments . fees paid pursuant to these agreements will be paid by our adviser . the adviser also serves as investment adviser to owl rock capital corporation ii . owl rock capital corporation ii is a corporation formed under the laws of the state of maryland that , like us , has elected to be treated as a business development company ( “ bdc ” ) under the 1940 act . owl rock capital corporation ii 's investment objective is similar to ours , which is to generate current income , and to a lesser extent , capital appreciation by targeting investment opportunities with favorable risk-adjusted returns . on april 4 , 2017 , owl rock capital corporation ii received subscription agreements totaling $ 10.0 million for the purchase of shares of its common stock from a private placement from certain individuals and entities affiliated with the adviser , met its minimum offering requirement of $ 2.5 million , and issued 277,778 shares of common stock . the purchase price of these shares was $ 9.00 per share , which represented owl rock capital corporation ii 's initial public offering price of $ 9.47 per share , net of selling commissions and dealer manager fees . in april 2017 , owl rock capital corporation ii made its first portfolio company investment . as of december 31 , 2017 , owl rock capital corporation ii had raised gross proceeds of approximately $ 90.9 million , including seed capital contributed by our adviser in september 2016 and approximately $ 10.0 million in gross proceeds raised from certain individuals and entities affiliated with the adviser . we may be prohibited under the 1940 act from conducting certain transactions with our affiliates without the prior approval of our directors who are not interested persons and , in some cases , the prior approval of the sec . we , our adviser and certain affiliates have been granted exemptive relief by the sec to permit us to co-invest with other funds managed by our adviser or its affiliates , including owl rock capital corporation ii , in a manner consistent with our investment objective , positions , policies , strategies and restrictions as well as regulatory requirements and other pertinent factors . story_separator_special_tag revenues we generate revenues primarily in the form of interest income from the investments we hold . in addition , we may generate income from dividends on either direct equity investments or equity interests obtained in connection with originating loans , such as options , warrants or conversion rights . our debt investments typically have a term of three to ten years . as of december 31 , 2017 , 98.4 % of our debt investments based on fair value bear interest at a floating rate , subject to interest rate floors , in certain cases . interest on our debt investments is generally payable either monthly or quarterly . our investment portfolio consists primarily of floating rate loans , and our credit facilities bear interest at floating rates . macro trends in base interest rates like london interbank offered rate ( “ libor ” ) may affect our net investment income over the long term . however , because we generally originate loans to a small number of portfolio companies each quarter , and those investments vary in size , our results in any given period , including the interest rate on investments that were sold or repaid in a period compared to the interest rate of new investments made during that period , often are idiosyncratic , and reflect the characteristics of the particular portfolio companies that we invested in or exited during the period and not necessarily any trends in our business or macro trends . loan origination fees , original issue discount and market discount or premium are capitalized , and we accrete or amortize such amounts as interest income using the effective yield method for term instruments and the straight-line method for revolving or delayed draw instruments . repayments of our debt investments can reduce interest income from period to period . the frequency or volume of these repayments may fluctuate significantly . we record prepayment premiums on loans as interest income . we may also generate revenue in the form of commitment , loan origination , structuring , or due diligence fees , fees for providing managerial assistance to our portfolio companies and possibly consulting fees . dividend income on equity investments is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded companies . our portfolio activity also reflects the proceeds from sales of investments . we recognize realized gains or losses on investments based on the difference between the net proceeds from the disposition and the amortized cost basis of the investment without regard to unrealized gains or losses previously recognized . we record current period changes in fair value of investments that are measured at fair value as a component of the net change in unrealized gains ( losses ) on investments in the consolidated statement of operations . expenses our primary operating expenses include the payment of the management fee and , in the event of the future quotation or listing of our securities on a national securities exchange , the incentive fee , and expenses reimbursable under the administration agreement and investment advisory agreement . the management fee and incentive fee compensate our adviser for work in identifying , evaluating , negotiating , closing , monitoring and realizing our investments . except as specifically provided below , all investment professionals and staff of the adviser , when and to the extent engaged in providing investment advisory and management services to us , the base compensation , bonus and benefits , and the routine overhead expenses of such personnel allocable to such services , are provided and paid for by the adviser . we bear our allocable portion of the compensation paid by the adviser ( or its affiliates ) to our chief compliance officer and chief financial officer and their respective staffs ( based on a percentage of time such individuals devote , on an estimated basis , to our business affairs ) . we bear all other costs and expenses of our operations , administration and transactions , including , but not limited to ( i ) investment advisory fees , including management fees and incentive fees , to the adviser , pursuant to the investment advisory agreement ; ( ii ) our allocable portion of overhead and other expenses incurred by the adviser in performing its administrative obligations under the administration agreement ; and ( iii ) all other expenses of its operations and transactions including , without limitation , those relating to : the cost of our organization and offerings ; the cost of calculating our net asset value , including the cost of any third-party valuation services ; the cost of effecting any sales and repurchases of our common stock and other securities ; fees and expenses payable under any dealer manager agreements , if any ; debt service and other costs of borrowings or other financing arrangements ; costs of hedging ; expenses , including travel expense , incurred by the adviser , or members of the investment team , or payable to third parties , performing due diligence on prospective portfolio companies and , if necessary , enforcing our rights ; transfer agent and custodial fees ; fees and expenses associated with marketing efforts ; 55 federal and state registration fees , any stock exchange listing fees and fees payable to rating agencies ; federal , state and local taxes ; independent directors ' fees and expenses including certain travel expenses ; costs of preparing financial statements and maintaining books and records and filing reports or other documents with the sec ( or other regulatory bodies ) and other reporting and compliance costs , including registration and listing fees , and the compensation of professionals responsible for the preparation of the foregoing ; the costs of any reports , proxy statements or other notices to our shareholders ( including printing and mailing costs ) , the costs of any shareholder or director meetings and the compensation of investor relations personnel responsible for the preparation of the foregoing and related matters ; commissions and other compensation payable to brokers or dealers ; research and
| results of operations the following table represents the operating results for the years ended december 31 , 2017 and 2016. we were initially capitalized on march 1 , 2016 and commenced operations on march 3 , 2016. replace_table_token_24_th net increase ( decrease ) in net assets resulting from operations can vary from period to period as a result of various factors , including the level of new investment commitments , expenses , the recognition of realized gains and losses and changes in unrealized appreciation and depreciation on the investment portfolio . additionally , we were initially capitalized on march 1 , 2016 and commenced investing activities in april 2016. as a result , comparisons may not be meaningful . investment income investment income for the years ended december 31 , 2017 and 2016 were as follows : replace_table_token_25_th 65 investment income increased to $ 159.9 million for the year ended december 31 , 2017 from $ 28.8 million for the same period in prior year due to increase in interest income as a result of an increase in our investment portfolio , dividend income and other income earned during the year ended december 31 , 2017. expenses expenses for the years ended december 31 , 2017 and 2016 were as follows : replace_table_token_26_th under the terms of the administration agreement , we reimburse the adviser for services performed for us . in addition , pursuant to the terms of the administration agreement , the adviser may delegate its obligations under the administration agreement to an affiliate or to a third party and we reimburse the adviser for any services performed for us by such affiliate or third party .
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